[Federal Register Volume 74, Number 186 (Monday, September 28, 2009)]
[Proposed Rules]
[Pages 49454-49789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22516]



[[Page 49453]]

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Part II





Environmental Protection Agency





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40 CFR Parts 86 and 600



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Department of Transportation





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National Highway Traffic Safety Administration



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49 CFR Parts 531, 533, 537, et al.



Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse Gas 
Emission Standards and Corporate Average Fuel Economy Standards; 
Proposed Rule

  Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / 
Proposed Rules  

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 86 and 600

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 531, 533, 537, and 538

[EPA-HQ-OAR-2009-0472; FRL-8959-4; NHTSA-2009-0059]
RIN 2060-AP58; RIN 2127-AK90


Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse 
Gas Emission Standards and Corporate Average Fuel Economy Standards

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

ACTION: Proposed rule.

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

FOR FURTHER INFORMATION CONTACT: Comments: Comments must be received on 
or before November 27, 2009. Under the Paperwork Reduction Act, 
comments on the information collection provisions must be received by 
the Office of Management and Budget (OMB) on or before October 28, 
2009. See the SUPPLEMENTARY INFORMATION section on ``Public 
Participation'' for more information about written comments.
    Hearings: NHTSA and EPA will jointly hold three public hearings on 
the following dates: October 21, 2009 in Detroit, Michigan; October 23, 
2009 in New York, New York; and October 27, 2009 in Los Angeles, 
California. EPA and NHTSA will announce the addresses for each hearing 
location in a supplemental Federal Register Notice. The hearings will 
start at 9 a.m. local time and continue until everyone has had a chance 
to speak. See the SUPPLEMENTARY INFORMATION section on ``Public 
Participation'' for more information about the public hearings.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2009-0472 and/or NHTSA-2009-0059, by one of the following methods:
     www.regulations.gov: Follow the on-line instructions for 
submitting comments.
     E-mail: [email protected].
     Fax: EPA: (202) 566-1741; NHTSA: (202) 493-2251.
     Mail:
    [cir] EPA: Environmental Protection Agency, EPA Docket Center (EPA/
DC), Air and Radiation Docket, Mail Code 2822T, 1200 Pennsylvania 
Avenue, NW., Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR-
2009-0472. In addition, please mail a copy of your comments on the 
information collection provisions to the Office of Information and 
Regulatory Affairs, Office of Management and Budget (OMB), Attn: Desk 
Officer for EPA, 725 17th St., NW., Washington, DC 20503.
    [cir] NHTSA: Docket Management Facility, M-30, U.S. Department of 
Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue, SE., Washington, DC 20590.
     Hand Delivery:
    [cir] EPA: Docket Center, (EPA/DC) EPA West, Room B102, 1301 
Constitution Ave., NW., Washington, DC, Attention Docket ID No. EPA-HQ-
OAR-2009-0472. Such deliveries are only accepted during the Docket's 
normal hours of operation, and special arrangements should be made for 
deliveries of boxed information.
    [cir] NHTSA: West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m. 
Eastern Time, Monday through Friday, except Federal Holidays.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2009-0472 and/or NHTSA-2009-0059. See the SUPPLEMENTARY INFORMATION 
section on ``Public Participation'' for more information about 
submitting written comments.
    Public Hearing: NHTSA and EPA will jointly hold three public 
hearings on the following dates: October 21, 2009 in Detroit, Michigan; 
October 23, 2009 in New York, New York; and October 27, 2009 in Los 
Angeles, California. EPA and NHTSA will announce the addresses for each 
hearing location in a supplemental Federal Register Notice. See the 
SUPPLEMENTARY INFORMATION section on ``Public Participation'' for more 
information about the public hearings.
    Docket: All documents in the dockets are listed in the 
www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., confidential business 
information (CBI) or other information whose disclosure is restricted 
by statute. Certain other material, such as copyrighted material, will 
be publicly available only in hard copy. Publicly available docket 
materials are available either electronically in www.regulations.gov or 
in hard copy at the following locations: EPA: EPA Docket Center, EPA/
DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. 
The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday 
through Friday, excluding legal holidays. The telephone number for the 
Public Reading Room is (202) 566-1744. NHTSA: Docket Management 
Facility, M-30, U.S. Department of Transportation, West Building, 
Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE, Washington, DC 
20590. The Docket Management Facility is open between 9 a.m. and 5 p.m. 
Eastern Time, Monday through Friday, except Federal holidays.

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

SUPPLEMENTARY INFORMATION:

A. Does This Action Apply to Me?

    This action affects companies that manufacture or sell new light-
duty vehicles, light-duty trucks, and medium-duty passenger vehicles, 
as defined under EPA's CAA regulations,\1\

[[Page 49455]]

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

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                                        NAICS    Examples of potentially
              Category                codes \A\     regulated entities
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Industry............................     336111  Motor vehicle
                                                  manufacturers.
                                         336112
Industry............................     811112  Commercial Importers of
                                                  Vehicles and Vehicle
                                                  Components.
                                         811198
                                         541514
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\A\ North American Industry Classification System (NAICS).

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

B. Public Participation

    NHTSA and EPA request comment on all aspects of this joint proposed 
rule. This section describes how you can participate in this process.

How Do I Prepare and Submit Comments?

    In this joint proposal, there are many issues common to both EPA's 
and NHTSA's proposals. For the convenience of all parties, comments 
submitted to the EPA docket will be considered comments submitted to 
the NHTSA docket, and vice versa. An exception is that comments 
submitted to the NHTSA docket on the Draft Environmental Impact 
Statement will not be considered submitted to the EPA docket. 
Therefore, the public only needs to submit comments to either one of 
the two agency dockets. Comments that are submitted for consideration 
by one agency should be identified as such, and comments that are 
submitted for consideration by both agencies should be identified as 
such. Absent such identification, each agency will exercise its best 
judgment to determine whether a comment is submitted on its proposal.
    Further instructions for submitting comments to either the EPA or 
NHTSA docket are described below.
    EPA: Direct your comments to Docket ID No EPA-HQ-OAR-2009-0472. 
EPA's policy is that all comments received will be included in the 
public docket without change and may be made available online at 
www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. Do not submit information that you consider to 
be CBI or otherwise protected through www.regulations.gov or e-mail. 
The www.regulations.gov Web site is an ``anonymous access'' system, 
which means EPA will not know your identity or contact information 
unless you provide it in the body of your comment. If you send an e-
mail comment directly to EPA without going through www.regulations.gov 
your e-mail address will be automatically captured and included as part 
of the comment that is placed in the public docket and made available 
on the Internet. If you submit an electronic comment, EPA recommends 
that you include your name and other contact information in the body of 
your comment and with any disk or CD-ROM you submit. If EPA cannot read 
your comment due to technical difficulties and cannot contact you for 
clarification, EPA may not be able to consider your comment. Electronic 
files should avoid the use of special characters, any form of 
encryption, and be free of any defects or viruses. For additional 
information about EPA's public docket visit the EPA Docket Center 
homepage at http://www.epa.gov/epahome/dockets.htm.
    NHTSA: Your comments must be written and in English. To ensure that 
your comments are correctly filed in the Docket, please include the 
Docket number NHTSA-2009-0059 in your comments. Your comments must not 
be more than 15 pages long.\3\ NHTSA established this limit to 
encourage you to write your primary comments in a concise fashion. 
However, you may attach necessary additional documents to your 
comments. There is no limit on the length of the attachments. If you 
are submitting comments electronically as a PDF (Adobe) file, we ask 
that the documents submitted be scanned using the Optical Character 
Recognition (OCR) process, thus allowing the agencies to search and 
copy certain portions of your submissions.\4\ Please note that pursuant 
to the Data Quality Act, in order for the substantive data to be relied 
upon and used by the agencies, it must meet the information quality 
standards set forth in the OMB and Department of Transportation (DOT) 
Data Quality Act guidelines. Accordingly, we encourage you to consult 
the guidelines in preparing your comments. OMB's guidelines may be 
accessed at http://www.whitehouse.gov/omb/fedreg/reproducible.html. 
DOT's guidelines may be accessed at http://www.dot.gov/dataquality.htm.
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    \3\ See 49 CFR 553.21.
    \4\ Optical character recognition (OCR) is the process of 
converting an image of text, such as a scanned paper document or 
electronic fax file, into computer-editable text.
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Tips for Preparing Your Comments
    When submitting comments, remember to:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Follow directions--The agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree, suggest alternatives, 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
     Provide specific examples to illustrate your concerns, and 
suggest alternatives.

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     Explain your views as clearly as possible, avoiding the 
use of profanity or personal threats.
    Make sure to submit your comments by the comment period deadline 
identified in the DATES section above.

How Can I Be Sure That My Comments Were Received?

    NHTSA: If you submit your comments by mail and wish Docket 
Management to notify you upon its receipt of your comments, enclose a 
self-addressed, stamped postcard in the envelope containing your 
comments. Upon receiving your comments, Docket Management will return 
the postcard by mail.

How Do I Submit Confidential Business Information?

    Any confidential business information (CBI) submitted to one of the 
agencies will also be available to the other agency. However, as with 
all public comments, any CBI information only needs to be submitted to 
either one of the agencies' dockets and it will be available to the 
other. Following are specific instructions for submitting CBI to either 
agency.
    EPA: Do not submit CBI to EPA through http://www.regulations.gov or 
e-mail. Clearly mark the part or all of the information that you claim 
to be CBI. For CBI information in a disk or CD-ROM that you mail to 
EPA, mark the outside of the disk or CD-ROM as CBI and then identify 
electronically within the disk or CD-ROM the specific information that 
is claimed as CBI. In addition to one complete version of the comment 
that includes information claimed as CBI, a copy of the comment that 
does not contain the information claimed as CBI must be submitted for 
inclusion in the public docket. Information so marked will not be 
disclosed except in accordance with procedures set forth in 40 CFR part 
2.
    NHTSA: If you wish to submit any information under a claim of 
confidentiality, you should submit three copies of your complete 
submission, including the information you claim to be confidential 
business information, to the Chief Counsel, NHTSA, at the address given 
above under FOR FURTHER INFORMATION CONTACT. When you send a comment 
containing confidential business information, you should include a 
cover letter setting forth the information specified in our 
confidential business information regulation.\5\
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    \5\ See 49 CFR part 512.
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    In addition, you should submit a copy from which you have deleted 
the claimed confidential business information to the Docket by one of 
the methods set forth above.

Will the Agencies Consider Late Comments?

    NHTSA and EPA will consider all comments received before the close 
of business on the comment closing date indicated above under DATES. To 
the extent practicable, we will also consider comments received after 
that date. If interested persons believe that any new information the 
agency places in the docket affects their comments, they may submit 
comments after the closing date concerning how the agency should 
consider that information for the final rule. However, the agencies' 
ability to consider any such late comments in this rulemaking will be 
limited due to the time frame for issuing a final rule.
    If a comment is received too late for us to practicably consider in 
developing a final rule, we will consider that comment as an informal 
suggestion for future rulemaking action.

How Can I Read the Comments Submitted by Other People?

    You may read the materials placed in the docket for this document 
(e.g., the comments submitted in response to this document by other 
interested persons) at any time by going to http://www.regulations.gov. 
Follow the online instructions for accessing the dockets. You may also 
read the materials at the EPA Docket Center or NHTSA Docket Management 
Facility by going to the street addresses given above under ADDRESSES.

How Do I Participate in the Public Hearings?

    NHTSA and EPA will jointly host three public hearings on the dates 
and locations described in the DATES and ADDRESSES sections above.
    If you would like to present testimony at the public hearings, we 
ask that you notify the EPA and NHTSA contact persons listed under FOR 
FURTHER INFORMATION CONTACT at least ten days before the hearing. Once 
EPA and NHTSA learn how many people have registered to speak at the 
public hearing, we will allocate an appropriate amount of time to each 
participant, allowing time for lunch and necessary breaks throughout 
the day. For planning purposes, each speaker should anticipate speaking 
for approximately ten minutes, although we may need to adjust the time 
for each speaker if there is a large turnout. We suggest that you bring 
copies of your statement or other material for the EPA and NHTSA panels 
and the audience. It would also be helpful if you send us a copy of 
your statement or other materials before the hearing. To accommodate as 
many speakers as possible, we prefer that speakers not use 
technological aids (e.g., audio-visuals, computer slideshows). However, 
if you plan to do so, you must notify the contact persons in the FOR 
FURTHER INFORMATION CONTACT section above. You also must make 
arrangements to provide your presentation or any other aids to NHTSA 
and EPA in advance of the hearing in order to facilitate set-up. In 
addition, we will reserve a block of time for anyone else in the 
audience who wants to give testimony.
    The hearing will be held at a site accessible to individuals with 
disabilities. Individuals who require accommodations such as sign 
language interpreters should contact the persons listed under FOR 
FURTHER INFORMATION CONTACT section above no later than ten days before 
the date of the hearing.
    NHTSA and EPA will conduct the hearing informally, and technical 
rules of evidence will not apply. We will arrange for a written 
transcript of the hearing and keep the official record of the hearing 
open for 30 days to allow you to submit supplementary information. You 
may make arrangements for copies of the transcript directly with the 
court reporter.

Table of Contents

I. Overview of Joint EPA/NHTSA National Program

A. Introduction
    1. Building Blocks of the National Program
    2. Joint Proposal for a National Program
B. Summary of the Joint Proposal
C. Background and Comparison of NHTSA and EPA Statutory Authority
    1. NHTSA Statutory Authority
    2. EPA Statutory Authority
    3. Comparing the Agencies' Authority
D. Summary of the Proposed Standards for the National Program
    1. Joint Analytical Approach
    2. Level of the Standards
    3. Form of the Standards
E. Summary of Costs and Benefits for the Joint Proposal
    1. Summary of Costs and Benefits of Proposed NHTSA CAFE 
Standards
    2. Summary of Costs and Benefits of Proposed EPA GHG Standards
F. Program Flexibilities for Achieving Compliance
    1. CO2/CAFE Credits Generated Based on Fleet Average 
Performance
    2. Air Conditioning Credits
    3. Flex-Fuel and Alternative Fuel Vehicle Credits
    4. Temporary Lead-time Allowance Alternative Standards
    5. Additional Credit Opportunities Under the CAA
G. Coordinated Compliance
H. Conclusion

[[Page 49457]]

II. Joint Technical Work Completed for This Proposal

A. Introduction
B. How Did NHTSA and EPA Develop the Baseline Market Forecast?
    1. Why Do the Agencies Establish a Baseline Vehicle Fleet?
    2. How Do the Agencies Develop the Baseline Vehicle Fleet?
    3. How Is the Development of the Baseline Fleet for this 
Proposal Different From NHTSA's Historical Approach, and Why is This 
Approach Preferable?
    4. How Does Manufacturer Product Plan Data Factor Into the 
Baseline Used in This Proposal?
C. Development of Attribute-Based Curve Shapes
D. Relative Car-Truck Stringency
E. Joint Vehicle Technology Assumptions
    1. What Technologies Do the Agencies Consider?
    2. How Did the Agencies Determine the Costs and Effectiveness of 
Each of These Technologies?
F. Joint Economic Assumptions

III. EPA Proposal for Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Proposal
    1. Introduction
    2. Why Is EPA Proposing This Rule?
    3. What Is EPA Proposing?
    4. Basis for the Proposed GHG Standards Under Section 202(a)
B. Proposed GHG Standards for Light-Duty Vehicles, Light-Duty 
Trucks, and Medium-Duty Passenger Vehicles
    1. What Fleet-Wide Emissions Levels Correspond to the 
CO2 Standards?
    2. What Are the CO2 Attribute-Based Standards?
    3. Overview of How EPA's Proposed CO2 Standards Would 
Be Implemented for Individual Manufacturers
    4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    5. CO2 Temporary Lead-Time Allowance Alternative 
Standards
    6. Proposed Nitrous Oxide and Methane Standards
    7. Small Entity Deferment
C. Additional Credit Opportunities for CO2 Fleet Average 
Program
    1. Air Conditioning Related Credits
    2. Flex Fuel and Alternative Fuel Vehicle Credits
    3. Advanced Technology Vehicle Credits for Electric Vehicles, 
Plug-in Hybrids, and Fuel Cells
    4. Off-cycle Technology Credits
    5. Early Credit Options
D. Feasibility of the Proposed CO2 Standards
    1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating 
Further CO2 Reductions?
    2. What Are the Effectiveness and Costs of CO2-
Reducing Technologies?
    3. How Can Technologies Be Combined into ``Packages'' and What 
Is the Cost and Effectiveness of Packages?
    4. Manufacturer's Application of Technology
    5. How Is EPA Projecting That a Manufacturer Would Decide 
Between Options To Improve CO2 Performance To Meet a 
Fleet Average Standard?
    6. Why Are the Proposed CO2 Standards Feasible?
    7. What Other Fleet-Wide CO2 Levels Were Considered?
E. Certification, Compliance, and Enforcement
    1. Compliance Program Overview
    2. Compliance With Fleet-Average CO2 Standards
    3. Vehicle Certification
    4. Useful Life Compliance
    5. Credit Program Implementation
    6. Enforcement
    7. Prohibited Acts in the CAA
    8. Other Certification Issues
    9. Miscellaneous Revisions to Existing Regulations
    10. Warranty, Defect Reporting, and Other Emission-related 
Components Provisions
    11. Light Vehicles and Fuel Economy Labeling
F. How Would This Proposal Reduce GHG Emissions and Their Associated 
Effects?
    1. Impact on GHG Emissions
    2. Overview of Climate Change Impacts From GHG Emissions
    3. Changes in Global Mean Temperature and Sea-Level Rise 
Associated With the Proposal's GHG Emissions Reductions
    4. Weight Reduction and Potential Safety Impacts
G. How Would the Proposal Impact Non-GHG Emissions and Their 
Associated Effects?
    1. Upstream Impacts of Program
    2. Downstream Impacts of Program
    3. Health Effects of Non-GHG Pollutants
    4. Environmental Effects of Non-GHG Pollutants
    5. Air Quality Impacts of Non-GHG Pollutants
H. What Are the Estimated Cost, Economic, and Other Impacts of the 
Proposal?
    1. Conceptual Framework for Evaluating Consumer Impacts
    2. Costs Associated With the Vehicle Program
    3. Cost per Ton of Emissions Reduced
    4. Reduction in Fuel Consumption and Its Impacts
    5. Impacts on U.S. Vehicle Sales and Payback Period
    6. Benefits of Reducing GHG Emissions
    7. Non-Greenhouse Gas Health and Environmental Impacts
    8. Energy Security Impacts
    9. Other Impacts
    10. Summary of Costs and Benefits
I. Statutory and Executive Order Reviews
    1. Executive Order 12866: Regulatory Planning and Review
    2. Paperwork Reduction Act
    3. Regulatory Flexibility Act
    4. Unfunded Mandates Reform Act
    5. Executive Order 13132 (Federalism)
    6. Executive Order 13175 (Consultation and Coordination With 
Indian Tribal Governments)
    7. Executive Order 13045: ``Protection of Children From 
Environmental Health Risks and Safety Risks''
    8. Executive Order 13211 (Energy Effects)
    9. National Technology Transfer Advancement Act
    10. Executive Order 12898: Federal Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
J. Statutory Provisions and Legal Authority

IV. NHTSA Proposal for Passenger Car and Light Truck CAFE Standards for 
MYs 2012-2016

A. Executive Overview of NHTSA Proposal
    1. Introduction
    2. Role of Fuel Economy Improvements in Promoting Energy 
Independence, Energy Security, and a Low Carbon Economy
    3. The National Program
    4. Review of CAFE Standard Setting Methodology Per the 
President's January 26, 2009 Memorandum on CAFE Standards for MYs 
2011 and Beyond
    5. Summary of the Proposed MY 2012-2016 CAFE Standards
B. Background
    1. Chronology of Events Since the National Academy of Sciences 
Called for Reforming and Increasing CAFE Standards
    2. NHTSA Issues Final Rule Establishing Attribute-Based CAFE 
Standards for MY 2008-2011 Light Trucks (March 2006)
    3. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011 
Light Trucks (November 2007)
    4. Congress Enacts Energy Security and Independence Act of 2007 
(December 2007)
    5. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008)
    6. Ninth Circuit Revises Its Decision re Final Rule for MY 2008-
2011 Light Trucks (August 2008)
    7. NHTSA Releases Final Environmental Impact Statement (October 
2008)
    8. Department of Transportation Decides not to Issue MY 2011-
2015 final Rule (January 2009)
    9. The President Requests NHTSA to Issue Final Rule for MY 2011 
Only (January 2009)
    10. NHTSA Issues Final Rule for MY 2011 (March 2009)
    11. Energy Policy and Conservation Act, as Amended by the Energy 
Independence and Security Act
C. Development and Feasibility of the Proposed Standards
    1. How Was the Baseline Vehicle Fleet Developed?
    2. How were the Technology Inputs Developed?
    3. How Did NHTSA Develop the Economic Assumption Inputs?
    4. How Does NHTSA Use the Assumptions in Its Modeling Analysis?
    5. How Did NHTSA Develop the Shape of the Target Curves for the 
Proposed Standards?
D. Statutory Requirements
    1. EPCA, as Amended by EISA
    2. Administrative Procedure Act
    3. National Environmental Policy Act
E. What Are the Proposed CAFE Standards?
    1. Form of the Standards
    2. Passenger Car Standards for MYs 2012-2016
    3. Minimum Domestic Passenger Car Standards
    4. Light Truck Standards
F. How Do the Proposed Standards Fulfill NHTSA's Statutory 
Obligations?

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G. Impacts of the Proposed CAFE Standards
    1. How Would These Proposed Standards Improve Fuel Economy and 
Reduce GHG Emissions for MY 2012-2016 Vehicles?
    2. How Would These Proposed Standards Improve Fleet-Wide Fuel 
Economy and Reduce GHG Emissions Beyond MY 2016?
    3. How Would These Proposed Standards Impact Non-GHG Emissions 
and Their Associated Effects?
    4. What Are the Estimated Costs and Benefits of These Proposed 
Standards?
    5. How Would These Proposed Standards Impact Vehicle Sales?
    6. What Are the Consumer Welfare Impacts of These Proposed 
Standards?
    7. What Are the Estimated Safety Impacts of These Proposed 
Standards?
    8. What Other Impacts (Quantitative and Unquantifiable) Will 
These Proposed Standards Have?
H. Vehicle Classification
I. Compliance and Enforcement
    1. Overview
    2. How Does NHTSA Determine Compliance?
    3. What Compliance Flexibilities Are Available under the CAFE 
Program and How Do Manufacturers Use Them?
    4. Other CAFE Enforcement Issues--Variations in Footprint
J. Other Near-Term Rulemakings Mandated by EISA
    1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and 
Work Trucks
    2. Consumer Information
K. Regulatory Notices and Analyses
    1. Executive Order 12866 and DOT Regulatory Policies and 
Procedures
    2. National Environmental Policy Act
    3. Regulatory Flexibility Act
    4. Executive Order 13132 (Federalism)
    5. Executive Order 12988 (Civil Justice Reform)
    6. Unfunded Mandates Reform Act
    7. Paperwork Reduction Act
    8. Regulation Identifier Number
    9. Executive Order 13045
    10. National Technology Transfer and Advancement Act
    11. Executive Order 13211
    12. Department of Energy Review
    13. Plain Language
    14. Privacy Act

I. Overview of Joint EPA/NHTSA National Program

A. Introduction

    The National Highway Traffic Safety Administration (NHTSA) and the 
Environmental Protection Agency (EPA) are each announcing proposed 
rules whose benefits would address the urgent and closely intertwined 
challenges of energy independence and security and global warming. 
These proposed rules call for a strong and coordinated Federal 
greenhouse gas and fuel economy program for passenger cars, light-duty-
trucks, and medium-duty passenger vehicles (hereafter light-duty 
vehicles), referred to as the National Program. The proposed rules can 
achieve substantial reductions of greenhouse gas (GHG) emissions and 
improvements in fuel economy from the light-duty vehicle part of the 
transportation sector, based on technology that is already being 
commercially applied in most cases and that can be incorporated at a 
reasonable cost.
    This joint notice is consistent with the President's announcement 
on May 19, 2009 of a National Fuel Efficiency Policy of establishing 
consistent, harmonized, and streamlined requirements that would reduce 
greenhouse gas emissions and improve fuel economy for all new cars and 
light-duty trucks sold in the United States.\6\ The National Program 
holds out the promise of delivering additional environmental and energy 
benefits, cost savings, and administrative efficiencies on a nationwide 
basis that might not be available under a less coordinated approach. 
The proposed National Program also offers the prospect of regulatory 
convergence by making it possible for the standards of two different 
Federal agencies and the standards of California and other States to 
act in a unified fashion in providing these benefits. This would allow 
automakers to produce and sell a single fleet nationally. Thus, it may 
also help to mitigate the additional costs that manufacturers would 
otherwise face in having to comply with multiple sets of Federal and 
State standards. This joint notice is also consistent with the Notice 
of Upcoming Joint Rulemaking issued by DOT and EPA on May 19 \7\ and 
responds to the President's January 26, 2009 memorandum on CAFE 
standards for model years 2011 and beyond,\8\ the details of which can 
be found in Section IV of this joint notice.
---------------------------------------------------------------------------

    \6\ President Obama Announces National Fuel Efficiency Policy, 
The White House, May 19, 2009. Available at: http://www.whitehouse.gov/the_press_office/President-Obama-Announces-National-Fuel-Efficiency-Policy/ (last accessed August 18, 2009). 
Remarks by the President on National Fuel Efficiency Standards, The 
White House, May 19, 2009. Available at: http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-on-national-fuel-efficiency-standards/ (Last accessed August 18, 2009).
    \7\ 74 FR 24007 (May 22, 2009).
    \8\ Available at: http://www.whitehouse.gov/the_press_office/Presidential_Memorandum_Fuel_Economy/ (last accessed on August 
18, 2009).
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1. Building Blocks of the National Program
    The National Program is both needed and possible because the 
relationship between improving fuel economy and reducing CO2 
tailpipe emissions is a very direct and close one. The amount of those 
CO2 emissions is essentially constant per gallon combusted 
of a given type of fuel. Thus, the more fuel efficient a vehicle is, 
the less fuel it burns to travel a given distance. The less fuel it 
burns, the less CO2 it emits in traveling that distance.\9\ 
While there are emission control technologies that reduce the 
pollutants (e.g., carbon monoxide) produced by imperfect combustion of 
fuel by capturing or destroying them, there is no such technology for 
CO2. Further, while some of those pollutants can also be 
reduced by achieving a more complete combustion of fuel, doing so only 
increases the tailpipe emissions of CO2. Thus, there is a 
single pool of technologies for addressing these twin problems, i.e., 
those that reduce fuel consumption and thereby reduce CO2 
emissions as well.
---------------------------------------------------------------------------

    \9\ Panel on Policy Implications of Greenhouse Warming, National 
Academy of Sciences, National Academy of Engineering, Institute of 
Medicine, ``Policy Implications of Greenhouse Warming: Mitigation, 
Adaptation, and the Science Base,'' National Academies Press, 1992. 
p. 287.
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a. DOT's CAFE Program
    In 1975, Congress enacted the Energy Policy and Conservation Act 
(EPCA), mandating that NHTSA establish and implement a regulatory 
program for motor vehicle fuel economy to meet the various facets of 
the need to conserve energy, including ones having energy independence 
and security, environmental and foreign policy implications. Fuel 
economy gains since 1975, due both to the standards and market factors, 
have resulted in saving billions of barrels of oil and avoiding 
billions of metric tons of CO2 emissions. In December 2007, 
Congress enacted the Energy Independence and Securities Act (EISA), 
amending EPCA to require substantial, continuing increases in fuel 
economy standards.
    The CAFE standards address most, but not all, of the real world 
CO2 emissions because EPCA requires the use of 1975 
passenger car test procedures under which vehicle air conditioners are 
not turned on during fuel economy testing.\10\ Fuel economy is 
determined by measuring the amount of CO2 and other carbon 
compounds emitted from the tailpipe, not by attempting to measure 
directly the amount of fuel consumed during a vehicle test, a difficult 
task to accomplish with precision. The carbon content of the test fuel 
\11\ is then used to calculate the amount of fuel that had to be 
consumed per mile in order to

[[Page 49459]]

produce that amount of CO2. Finally, that fuel consumption 
figure is converted into a miles-per-gallon figure. CAFE standards also 
do not address the 5-8 percent of GHG emissions that are not 
CO2, i.e., nitrous oxide (N2O), and methane 
(CH4) as well as emissions of CO2 and 
hydrofluorocarbons (HFCs) related to operation of the air conditioning 
system.
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    \10\ EPCA does not require the use of 1975 test procedures for 
light trucks.
    \11\ This is the method that EPA uses to determine compliance 
with NHTSA's CAFE standards.
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b. EPA's Greenhouse Gas Standards for Light-Duty Vehicles
    Under the Clean Air Act EPA is responsible for addressing air 
pollutants from motor vehicles. On April 2, 2007, the U.S. Supreme 
Court issued its opinion in Massachusetts v. EPA,\12\ a case involving 
a 2003 order of the Environmental Protection Agency (EPA) denying a 
petition for rulemaking to regulate greenhouse gas emissions from motor 
vehicles under section 202(a) of the Clean Air Act (CAA).\13\ The Court 
held that greenhouse gases were air pollutants for purposes of the 
Clean Air Act and further held that the Administrator must determine 
whether or not emissions from new motor vehicles cause or contribute to 
air pollution which may reasonably be anticipated to endanger public 
health or welfare, or whether the science is too uncertain to make a 
reasoned decision. The Court further ruled that, in making these 
decisions, the EPA Administrator is required to follow the language of 
section 202(a) of the CAA. The Court rejected the argument that EPA 
cannot regulate CO2 from motor vehicles because to do so 
would de facto tighten fuel economy standards, authority over which has 
been assigned by Congress to DOT. The Court stated that ``[b]ut that 
DOT sets mileage standards in no way licenses EPA to shirk its 
environmental responsibilities. EPA has been charged with protecting 
the public`s `health' and `welfare', a statutory obligation wholly 
independent of DOT's mandate to promote energy efficiency.'' The Court 
concluded that ``[t]he two obligations may overlap, but there is no 
reason to think the two agencies cannot both administer their 
obligations and yet avoid inconsistency.'' \14\ The Court remanded the 
case back to the Agency for reconsideration in light of its 
findings.\15\
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    \12\ 549 U.S. 497 (2007).
    \13\ 68 FR 52922 (Sept. 8, 2003).
    \14\ 549 U.S. at 531-32.
    \15\ For further information on Massachusetts v. EPA see the 
July 30, 2008 Advance Notice of Proposed Rulemaking, ``Regulating 
Greenhouse Gas Emissions under the Clean Air Act'', 73 FR 44354 at 
44397. There is a comprehensive discussion of the litigation's 
history, the Supreme Court's findings, and subsequent actions 
undertaken by the Bush Administration and the EPA from 2007-2008 in 
response to the Supreme Court remand.
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    EPA has since proposed to find that emissions of GHGs from new 
motor vehicles and motor vehicle engines cause or contribute to air 
pollution that may reasonably be anticipated to endanger public health 
and welfare.\16\ This proposal represents the second phase of EPA's 
response to the Supreme Court's decision.
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    \16\ 74 FR 18886 (Apr. 24, 2009).
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c. California Air Resources Board Greenhouse Gas Program
    In 2004, the California Air Resources Board approved standards for 
new light-duty vehicles, which regulate the emission of not only 
CO2, but also other GHGs. Since then, thirteen States and 
the District of Columbia, comprising approximately 40 percent of the 
light-duty vehicle market, have adopted California's standards. These 
standards apply to model years 2009 through 2016 and require 
CO2 emissions for passenger cars and the smallest light 
trucks of 323 g/mi in 2009 and 205 g/mi in 2016, and for the remaining 
light trucks of 439 g/mi in 2009 and 332 g/mi in 2016. On June 30, 
2009, EPA granted California's request for a waiver of preemption under 
the CAA.\17\ The granting of the waiver permits California and the 
other States to proceed with implementing the California emission 
standards.
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    \17\ 74 FR 32744 (July 8, 2009).
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2. Joint Proposal for a National Program
    On May 19, 2009, the Department of Transportation and the 
Environmental Protection Agency issued a Notice of Upcoming Joint 
Rulemaking to propose a strong and coordinated fuel economy and 
greenhouse gas National Program for Model Year (MY) 2012-2016 light 
duty vehicles.

B. Summary of the Joint Proposal

    In this joint rulemaking, EPA is proposing GHG emissions standards 
under the Clean Air Act (CAA), and NHTSA is proposing Corporate Average 
Fuel Economy (CAFE) standards under the Energy Policy and Conservation 
Action of 1975 (EPCA), as amended by the Energy Independence and 
Security Act of 2007 (EISA). The intention of this joint rulemaking 
proposal is to set forth a carefully coordinated and harmonized 
approach to implementing these two statutes, in accordance with all 
substantive and procedural requirements imposed by law.
    Climate change is widely viewed as the most significant long-term 
threat to the global environment. According to the Intergovernmental 
Panel on Climate Change, anthropogenic emissions of greenhouse gases 
are very likely (90 to 99 percent probability) the cause of most of the 
observed global warming over the last 50 years. The primary GHGs of 
concern are carbon dioxide (CO2), methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Mobile 
sources emitted 31.5 percent of all U.S. GHG in 2006, and have been the 
fastest-growing source of U.S. GHG since 1990. Light-duty vehicles emit 
four GHGs--CO2, methane, nitrous oxide, and 
hydrofluorocarbons--and are responsible for nearly 60 percent of all 
mobile source GHGs. For Light-duty vehicles, CO2 emissions 
represent about 95 percent of all greenhouse emissions, and the 
CO2 emissions measured over the EPA tests used for fuel 
economy compliance represent over 90 percent of total light-duty 
vehicle greenhouse gas emissions.
    Improving energy security by reducing our dependence on foreign oil 
has been a national objective since the first oil price shocks in the 
1970s. Net petroleum imports now account for approximately 60 percent 
of U.S. petroleum consumption. World crude oil production is highly 
concentrated, exacerbating the risks of supply disruptions and price 
shocks. Tight global oil markets led to prices over $100 per barrel in 
2008, with gasoline reaching as high as $4 per gallon in many parts of 
the U.S., causing financial hardship for many families. The export of 
U.S. assets for oil imports continues to be an important component of 
the U.S.' historically unprecedented trade deficits. Transportation 
accounts for about two-thirds of U.S. petroleum consumption. Light-duty 
vehicles account for about 60 percent of transportation oil use, which 
means that they alone account for about 40 percent of all U.S. oil 
consumption.
    NHTSA and EPA have coordinated closely and worked jointly in 
developing their respective proposals. This is reflected in many 
aspects of this joint proposal. For example, the agencies have 
developed a comprehensive joint Technical Support Document (TSD) that 
provides a solid technical underpinning for each agency's modeling and 
analysis used to support their proposed standards. Also, to the extent 
allowed by law, the agencies have harmonized many elements of program 
design, such as the form of the standard (the footprint-based attribute 
curves), and the definitions used for cars and trucks. They have 
developed the same or similar compliance flexibilities, to the extent 
allowed and appropriate under their

[[Page 49460]]

respective statutes, such as averaging, banking, and trading of 
credits, and have harmonized the compliance testing and test protocols 
used for purposes of the fleet average standards each agency is 
proposing. Finally, as discussed in Section I.C., under their 
respective statutes each agency is called upon to exercise its judgment 
and determine standards that are an appropriate balance of various 
relevant statutory factors. Given the common technical issues before 
each agency, the similarity of the factors each agency is to consider 
and balance, and the authority of each agency to take into 
consideration the standards of the other agency, both EPA and NHTSA are 
proposing standards that result in a harmonized National Program.
    This joint proposal covers passenger cars, light-duty-trucks, and 
medium-duty passenger vehicles built in model years 2012 through 2016. 
These vehicle categories are responsible for almost 60 percent of all 
U.S. transportation-related GHG emissions. EPA and NHTSA expect that 
automobile manufacturers will meet these proposed standards by 
utilizing technologies that will reduce vehicle GHG emissions and 
improve fuel economy. Although many of these technologies are available 
today, the emissions reductions and fuel economy improvements proposed 
would involve more widespread use of these technologies across the 
light-duty vehicle fleet. These include improvements to engines, 
transmissions, and tires, increased use of start-stop technology, 
improvements in air conditioning systems (to the extent currently 
allowed by law), increased use of hybrid and other advanced 
technologies, and the initial commercialization of electric vehicles 
and plug-in hybrids.
    The proposed National Program would result in approximately 950 
million metric tons of total carbon dioxide equivalent emissions 
reductions and approximately 1.8 billion barrels of oil savings over 
the lifetime of vehicles sold in model years 2012 through 2016. In 
total, the combined EPA and NHTSA 2012-2016 standards would reduce GHG 
emissions from the U.S. light-duty fleet by approximately 21 percent by 
2030 over the level that would occur in the absence of the National 
Program. These proposals also provide important energy security 
benefits, as light-duty vehicles are about 95 percent dependent on oil-
based fuels. The benefits of the proposed National Program would total 
about $250 billion at a 3% discount rate, or $195 billion at a 7% 
discount rate. In the discussion that follows in Sections III and IV, 
each agency explains the related benefits for their individual 
standards.
    Together, EPA and NHTSA estimate that the average cost increase for 
a model year 2016 vehicle due to the proposed National Program is less 
than $1,100. U.S. consumers who purchase their vehicle outright would 
save enough in lower fuel costs over the first three years to offset 
these higher vehicle costs. However, most U.S. consumers purchase a new 
vehicle using credit rather than paying cash and the typical car loan 
today is a five year, 60 month loan. These consumers would see 
immediate savings due to their vehicle's lower fuel consumption in the 
form of reduced monthly costs of $12-$14 per month throughout the 
duration of the loan (that is, the fuel savings outweigh the increase 
in loan payments by $12-$14 per month). Whether a consumer takes out a 
loan or purchases a new vehicle outright, over the lifetime of a model 
year 2016 vehicle, consumers would save more than $3,000 due to fuel 
savings. The average 2016 MY vehicle will emit 16 fewer metric tons of 
CO2 emissions during its lifetime.
    This joint proposal also offers the prospect of important 
regulatory convergence and certainty to automobile companies. Absent 
this proposal, there would be three separate Federal and State regimes 
independently regulating light-duty vehicles to reduce fuel consumption 
and GHG emissions: NHTSA's CAFE standards, EPA's GHG standards, and the 
GHG standards applicable in California and other States adopting the 
California standards. This joint proposal would allow automakers to 
meet both the NHTSA and EPA requirements with a single national fleet, 
greatly simplifying the industry's technology, investment and 
compliance strategies. In addition, in a letter dated May 18, 2009, 
California stated that it ``recognizes the benefit for the country and 
California of a National Program to address greenhouse gases and fuel 
economy and the historic announcement of United States Environmental 
Protection Agency (EPA) and National Highway Transportation Safety 
Administration's (NHTSA) intent to jointly propose a rule to set 
standards for both. California fully supports proposal and adoption of 
such a National Program.'' To promote the National Program, California 
announced its commitment to take several actions, including revising 
its program for MYs 2012-2016 such that compliance with the Federal GHG 
standards would be deemed to be compliance with California's GHG 
standards. This would allow the single national fleet used by 
automakers to meet the two Federal requirements and to meet California 
requirements as well. This commitment was conditioned on several 
points, including EPA GHG standards that are substantially similar to 
those described in the May 19, 2009 Notice of Upcoming Joint 
Rulemaking. Many automakers and trade associations also announced their 
support for the National Program announced that day.\18\ The 
manufacturers conditioned their support on EPA and NHTSA standards 
substantially similar to those described in that Notice. NHTSA and EPA 
met with many vehicle manufacturers to discuss the feasibility of the 
National Program. EPA and NHTSA are confident that these proposed GHG 
and CAFE standards, if finalized, would successfully harmonize both the 
Federal and State programs for MYs 2012-2016 and would allow our 
country to achieve the increased benefits of a single, nationwide 
program to reduce light-duty vehicle GHG emissions and reduce the 
country's dependence on fossil fuels by improving these vehicles' fuel 
economy.
---------------------------------------------------------------------------

    \18\ These letters are available at http://www.epa.gov/otaq/climate/regulations.htm.
---------------------------------------------------------------------------

    A successful and sustainable automotive industry depends upon, 
among other things, continuous technology innovation in general, and 
low greenhouse gas emissions and high fuel economy vehicles in 
particular. In this respect, this proposal would help spark the 
investment in technology innovation necessary for automakers to 
successfully compete in both domestic and export markets, and thereby 
continue to support a strong economy.
    While this proposal covers MYs 2012-2016, EPA and NHTSA anticipate 
the importance of seeking a strong, coordinated national program for 
light-duty vehicles in model years beyond 2016 in a future rulemaking.
    Key elements of the proposal for a harmonized and coordinated 
program are the level and form of the GHG and CAFE standards, the 
available compliance mechanisms, and general implementation elements. 
These elements are outlined in the following sections.

C. Background and Comparison of NHTSA and EPA Statutory Authority

    This section provides the agencies' respective statutory 
authorities under which CAFE and GHG standards are established.
1. NHTSA Statutory Authority
    NHTSA establishes CAFE standards for passenger cars and light 
trucks for each model year under EPCA, as

[[Page 49461]]

amended by EISA. EPCA mandates a motor vehicle fuel economy regulatory 
program to meet the various facets of the need to conserve energy, 
including ones having environmental and foreign policy implications. 
EPCA allocates the responsibility for implementing the program between 
NHTSA and EPA as follows: NHTSA sets CAFE standards for passenger cars 
and light trucks; EPA establishes the procedures for testing, tests 
vehicles, collects and analyzes manufacturers' data, and calculates the 
average fuel economy of each manufacturer's passenger cars and light 
trucks; and NHTSA enforces the standards based on EPA's calculations.
a. Standard Setting
    We have summarized below the most important aspects of standard 
setting under EPCA, as amended by EISA.
    For each future model year, EPCA requires that NHTSA establish 
standards at ``the maximum feasible average fuel economy level that it 
decides the manufacturers can achieve in that model year,'' based on 
the agency's consideration of four statutory factors: technological 
feasibility, economic practicability, the effect of other standards of 
the Government on fuel economy, and the need of the nation to conserve 
energy. EPCA does not define these terms or specify what weight to give 
each concern in balancing them; thus, NHTSA defines them and determines 
the appropriate weighting based on the circumstances in each CAFE 
standard rulemaking.\19\
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    \19\ See Center for Biological Diversity v. NHTSA, 538 F.3d. 
1172, 1195 (9th Cir. 2008) (``The EPCA clearly requires the agency 
to consider these four factors, but it gives NHTSA discretion to 
decide how to balance the statutory factors--as long as NHTSA's 
balancing does not undermine the fundamental purpose of the EPCA: 
Energy conservation.'')
---------------------------------------------------------------------------

    For MYs 2011-2020, EPCA further requires that separate standards 
for passenger cars and for light trucks be set at levels high enough to 
ensure that the CAFE of the industry-wide combined fleet of new 
passenger cars and light trucks reaches at least 35 mpg not later than 
MY 2020.
i. Factors That Must Be Considered in Deciding the Appropriate 
Stringency of CAFE Standards
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular method 
of improving fuel economy can be available for commercial application 
in the model year for which a standard is being established. Thus, the 
agency is not limited in determining the level of new standards to 
technology that is already being commercially applied at the time of 
the rulemaking. NHTSA has historically considered all types of 
technologies that improve real-world fuel economy, except those whose 
effects are not reflected in fuel economy testing. Principal among them 
are technologies that improve air conditioner efficiency because the 
air conditioners are not turned on during testing under existing test 
procedures.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' \20\ 
This factor is especially important in the context of current events, 
where the automobile industry is facing significantly adverse economic 
conditions, as well as significant loss of jobs. In an attempt to 
ensure the economic practicability of attribute-based standards, NHTSA 
considers a variety of factors, including the annual rate at which 
manufacturers can increase the percentage of its fleet that employs a 
particular type of fuel-saving technology, and cost to consumers. 
Consumer acceptability is also an element of economic practicability, 
one which is particularly difficult to gauge during times of 
frequently-changing fuel prices. NHTSA believes this approach is 
reasonable for the MY 2012-2016 standards in view of the facts before 
it at this time. NHTSA is aware, however, that facts relating to a 
variety of key issues in CAFE rulemaking are steadily evolving and 
seeks comments on the balancing of these factors in light of the facts 
available during the comment period.
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    \20\ 67 FR 77015, 77021 (Dec. 16, 2002).
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    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report for EPCA, as enacted in 1975, makes clear, and the 
case law affirms, ``a determination of maximum feasible average fuel 
economy should not be keyed to the single manufacturer which might have 
the most difficulty achieving a given level of average fuel economy.'' 
\21\ Instead, NHTSA is compelled ``to weigh the benefits to the nation 
of a higher fuel economy standard against the difficulties of 
individual automobile manufacturers.'' Id. The law permits CAFE 
standards exceeding the projected capability of any particular 
manufacturer as long as the standard is economically practicable for 
the industry as a whole. Thus, while a particular CAFE standard may 
pose difficulties for one manufacturer, it may also present 
opportunities for another. The CAFE program is not necessarily intended 
to maintain the competitive positioning of each particular company. 
Rather, it is intended to enhance fuel economy of the vehicle fleet on 
American roads, while protecting motor vehicle safety and being mindful 
of the risk of harm to the overall United States economy.
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    \21\ CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).
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(3) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy,'' involves an analysis of the effects of compliance with 
emission,\22\ safety, noise, or damageability standards on fuel economy 
capability and thus on average fuel economy. In previous CAFE 
rulemakings, the agency has said that pursuant to this provision, it 
considers the adverse effects of other motor vehicle standards on fuel 
economy. It said so because, from the CAFE program's earliest years 
\23\ until present, the effects of such compliance on fuel economy 
capability over the history of the CAFE program have been negative 
ones. For example, safety standards that have the effect of increasing 
vehicle weight lower vehicle fuel economy capability and thus decrease 
the level of average fuel economy that the agency can determine to be 
feasible.
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    \22\ In the case of emission standards, this includes standards 
adopted by the Federal government and can include standards adopted 
by the States as well, since in certain circumstances the Clean Air 
Act allows States to adopt and enforce State standards different 
from the Federal ones.
    \23\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
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    In the wake of Massachusetts v. EPA and of EPA's proposed 
endangerment finding, granting of a waiver to California for its motor 
vehicle GHG standards, and its own proposal of GHG standards, NHTSA is 
confronted with the issue of how to treat those standards under the 
``other motor vehicle standards'' provision. To the extent the GHG 
standards result in increases in fuel economy, they would do so almost 
exclusively as a result of inducing manufacturers to install the same 
types of technologies used by manufacturers in complying with the CAFE 
standards. The primary exception would involve increases in the 
efficiency of air conditioners.
    Comment is requested on whether and in what way the effects of the 
California and EPA standards should be

[[Page 49462]]

considered under the ``other motor vehicle standards'' provision or 
other provisions of EPCA in 49 U.S.C. 32902, consistent with NHTSA's 
independent obligation under EPCA/EISA to issue CAFE standards. The 
agency has already considered EPA's proposal and the harmonization 
benefits of the National Program in developing its own proposal.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \24\ Environmental implications 
principally include reductions in emissions of criteria pollutants and 
carbon dioxide. Prime examples of foreign policy implications are 
energy independence and security concerns.
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    \24\ 42 FR 63184, 63188 (1977).
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(a) Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the 
preliminary economic analysis of alternative CAFE standards, because 
they determine the value of fuel savings both to new vehicle buyers and 
to society. In this rule, NHTSA relies on fuel price projections from 
the U.S. Energy Information Administration's (EIA) Annual Energy 
Outlook (AEO) for this analysis. Federal government agencies generally 
use EIA's projections in their assessments of future energy-related 
policies.
(b) Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum, or in the prices paid by consumers of petroleum 
products such as gasoline. These costs include (1) higher prices for 
petroleum products resulting from the effect of U.S. oil import demand 
on the world oil price; (2) the risk of disruptions to the U.S. economy 
caused by sudden reductions in the supply of imported oil to the U.S.; 
and (3) expenses for maintaining a U.S. military presence to secure 
imported oil supplies from unstable regions, and for maintaining the 
strategic petroleum reserve (SPR) to provide a response option should a 
disruption in commercial oil supplies threaten the U.S. economy, to 
allow the United States to meet part of its International Energy Agency 
obligation to maintain emergency oil stocks, and to provide a national 
defense fuel reserve. Higher U.S. imports of crude oil or refined 
petroleum products increase the magnitude of these external economic 
costs, thus increasing the true economic cost of supplying 
transportation fuels above the resource costs of producing them. 
Conversely, reducing U.S. imports of crude petroleum or refined fuels 
or reducing fuel consumption can reduce these external costs.
(c) Air Pollutant Emissions
    While reductions in domestic fuel refining and distribution that 
result from lower fuel consumption will reduce U.S. emissions of 
various pollutants, additional vehicle use associated with the rebound 
effect \25\ from higher fuel economy will increase emissions of these 
pollutants. Thus, the net effect of stricter CAFE standards on 
emissions of each pollutant depends on the relative magnitudes of its 
reduced emissions in fuel refining and distribution, and increases in 
its emissions from vehicle use.
---------------------------------------------------------------------------

    \25\ The ``rebound effect'' refers to the tendency of drivers to 
drive their vehicles more as the cost of doing so goes down, as when 
fuel economy improves.
---------------------------------------------------------------------------

    Fuel savings from stricter CAFE standards also result in lower 
emissions of CO2, the main greenhouse gas emitted as a 
result of refining, distribution, and use of transportation fuels. 
Lower fuel consumption reduces carbon dioxide emissions directly, 
because the primary source of transportation-related CO2 
emissions is fuel combustion in internal combustion engines.
    NHTSA has considered environmental issues, both within the context 
of EPCA and the National Environmental Policy Act, in making decisions 
about the setting of standards from the earliest days of the CAFE 
program. As courts of appeal have noted in three decisions stretching 
over the last 20 years,\26\ NHTSA defined the ``need of the Nation to 
conserve energy'' in the late 1970s as including ``the consumer cost, 
national balance of payments, environmental, and foreign policy 
implications of our need for large quantities of petroleum, especially 
imported petroleum.'' \27\ Pursuant to that view, NHTSA declined in the 
past to include diesel engines in determining the appropriate level of 
standards for passenger cars and for light trucks because particulate 
emissions from diesels were then both a source of concern and 
unregulated.\28\ In 1988, NHTSA included climate change concepts in its 
CAFE notices and prepared its first environmental assessment addressing 
that subject.\29\ It cited concerns about climate change as one of its 
reasons for limiting the extent of its reduction of the CAFE standard 
for MY 1989 passenger cars.\30\ Since then, NHTSA has considered the 
benefits of reducing tailpipe carbon dioxide emissions in its fuel 
economy rulemakings pursuant to the statutory requirement to consider 
the nation's need to conserve energy by reducing fuel consumption.
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    \26\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12 
(D.C. Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27 
(D.C. Cir. 1988) (noting that ``NHTSA itself has interpreted the 
factors it must consider in setting CAFE standards as including 
environmental effects''); and Center for Biological Diversity v. 
NHTSA, 538 F.3d 1172 (9th Cir. 2007).
    \27\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).
    \28\ For example, the final rules establishing CAFE standards 
for MY 1981-84 passenger cars, 42 FR 33533, 33540-1 and 33551 (Jun. 
30, 1977), and for MY 1983-85 light trucks, 45 FR 81593, 81597 (Dec. 
11, 1980).
    \29\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \30\ 53 FR 39275, 39302 (Oct. 6, 1988).
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ii. Other Factors Considered by NHTSA
    NHTSA considers the potential for adverse safety consequences when 
in establishing CAFE standards. This practice is recognized approvingly 
in case law.\31\ Under the universal or ``flat'' CAFE standards that 
NHTSA was previously authorized to establish, the primary risk to 
safety came from the possibility that manufacturers would respond to 
higher standards by building smaller, less safe vehicles in order to 
``balance out'' the larger, safer vehicles that the public generally 
preferred to buy. Under the attribute-based standards being proposed in 
this action, that risk is reduced because building smaller vehicles 
tends to raise a manufacturer's overall CAFE obligation, rather than 
only raising its fleet average CAFE. However, even under attribute-
based standards, there is still risk that manufacturers will rely on 
downweighting to improve their fuel economy (for a given vehicle at a 
given

[[Page 49463]]

footprint target) in ways that may reduce safety.
---------------------------------------------------------------------------

    \31\ 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).
---------------------------------------------------------------------------

    In addition, the agency considers consumer demand in establishing 
new standards and in assessing whether already established standards 
remained feasible. In the 1980's, the agency relied in part on the 
unexpected drop in fuel prices and the resulting unexpected failure of 
consumer demand for small cars to develop in explaining the need to 
reduce CAFE standards for a several year period in order to give 
manufacturers time to develop alternative technology-based strategies 
for improving fuel economy.
iii. Factors That NHTSA Is Statutorily Prohibited From Considering in 
Setting Standards
    EPCA provides that in determining the level at which it should set 
CAFE standards for a particular model year, NHTSA may not consider the 
ability of manufacturers to take advantage of several EPCA provisions 
that facilitate compliance with the CAFE standards and thereby reduce 
the costs of compliance.\32\ As noted below in Section IV, 
manufacturers can earn compliance credits by exceeding the CAFE 
standards and then use those credits to achieve compliance in years in 
which their measured average fuel economy falls below the standards. 
Manufacturers can also increase their CAFE levels through MY 2019 by 
producing alternative fuel vehicles. EPCA provides an incentive for 
producing these vehicles by specifying that their fuel economy is to be 
determined using a special calculation procedure that results in those 
vehicles being assigned a high fuel economy level.
---------------------------------------------------------------------------

    \32\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

iv. Weighing and Balancing of Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the average fuel economy level that the manufacturers can 
achieve. Congress ``specifically delegated the process of setting * * * 
fuel economy standards with broad guidelines concerning the factors 
that the agency must consider.'' The breadth of those guidelines, the 
absence of any statutorily prescribed formula for balancing the 
factors, the fact that the relative weight to be given to the various 
factors may change from rulemaking to rulemaking as the underlying 
facts change, and the fact that the factors may often be conflicting 
with respect to whether they militate toward higher or lower standards 
give NHTSA discretion to decide what weight to give each of the 
competing policies and concerns and then determine how to balance 
them--as long as NHTSA's balancing does not undermine the fundamental 
purpose of the EPCA: Energy conservation, and as long as that balancing 
reasonably accommodates ``conflicting policies that were committed to 
the agency's care by the statute.''
    Thus, EPCA does not mandate that any particular number be adopted 
when NHTSA determines the level of CAFE standards. Rather, any number 
within a zone of reasonableness may be, in NHTSA's assessment, the 
level of stringency that manufacturers can achieve. See, e.g., Hercules 
Inc. v. EPA, 598 F.2d 91, 106 (D.C. Cir. 1978) (``In reviewing a 
numerical standard we must ask whether the agency's numbers are within 
a zone of reasonableness, not whether its numbers are precisely 
right'').
v. Other Requirements Related to Standard Setting
    The standards for passenger cars and those for light trucks must 
increase ratably each year. This statutory requirement is interpreted, 
in combination with the requirement to set the standards for each model 
year at the level determined to be the maximum feasible level that 
manufacturers can achieve for that model year, to mean that the annual 
increases should not be disproportionately large or small in relation 
to each other.
    The standards for passenger cars and light trucks must be based on 
one or more vehicle attributes, like size or weight, that correlate 
with fuel economy and must be expressed in terms of a mathematical 
function. Fuel economy targets are set for individual vehicles and 
increase as the attribute decreases and vice versa. For example, size-
based (i.e., size-indexed) standards assign higher fuel economy targets 
to smaller (and generally, but not necessarily, lighter) vehicles and 
lower ones to larger (and generally, but not necessarily, heavier) 
vehicles. The fleet-wide average fuel economy that a particular 
manufacturer is required to achieve depends on the size mix of its 
fleet, i.e., the proportion of the fleet that is small-, medium- or 
large-sized.
    This approach can be used to require virtually all manufacturers to 
increase significantly the fuel economy of a broad range of both 
passenger cars and light trucks, i.e., the manufacturer must improve 
the fuel economy of all the vehicles in its fleet. Further, this 
approach can do so without creating an incentive for manufacturers to 
make small vehicles smaller or large vehicles larger, with attendant 
implications for safety.
b. Test Procedures for Measuring Fuel Economy
    EPCA provides EPA with the responsibility for establishing CAFE 
test procedures. Current test procedures measure the effects of nearly 
all fuel saving technologies. The principal exception is improvements 
in air conditioning efficiency. By statutory law in the case of 
passenger cars and by administrative regulation in the case of light 
trucks, air conditioners are not turned on during fuel economy testing. 
See Section I.C.2 for details.
    The fuel economy test procedures for light trucks could be amended 
through rulemaking to provide for air conditioner operation during 
testing and to take other steps for improving the accuracy and 
representativeness of fuel economy measurements. Comment is sought by 
the agencies regarding implementing such amendments beginning in MY 
2017 and also on the more immediate interim alternative step of 
providing CAFE program credits under the authority of 49 U.S.C. 
32904(c) for light trucks equipped with relatively efficient air 
conditioners for MYs 2012-2016. These CAFE credits would be earned by 
manufacturers on the same terms and under the same conditions as EPA is 
proposing to provide them under the CAA, and additional detail is on 
this request for comment for early CAFE credits is contained in Section 
IV of this preamble. Modernizing the passenger car test procedures, or 
even providing similar credits, would not be possible under EPCA as 
currently written.
c. Enforcement and Compliance Flexibility
    EPA is responsible for measuring automobile manufacturers' CAFE so 
that NHTSA can determine compliance with the CAFE standards. When NHTSA 
finds that a manufacturer is not in compliance, it notifies the 
manufacturer. Surplus credits generated from the five previous years 
can be used to make up the deficit. The amount of credit earned is 
determined by multiplying the number of tenths of a mpg by which a 
manufacturer exceeds a standard for a particular category of 
automobiles by the total volume of automobiles of that category 
manufactured by the manufacturer for a given model year. If there are 
no (or not enough) credits available, then the manufacturer can either 
pay the fine, or submit a carry back plan to NHTSA. A carry back plan 
describes what the manufacturer plans to do in the

[[Page 49464]]

following three model years to earn enough credits to make up for the 
deficit. NHTSA must examine and determine whether to approve the plan.
    In the event that a manufacturer does not comply with a CAFE 
standard, even after the consideration of credits, EPCA provides for 
the assessing of civil penalties, unless, as provided below, the 
manufacturer has earned credits for exceeding a standard in an earlier 
year or expects to earn credits in a later year.\33\ The Act specifies 
a precise formula for determining the amount of civil penalties for 
such a noncompliance. The penalty, as adjusted for inflation by law, is 
$5.50 for each tenth of a mpg that a manufacturer's average fuel 
economy falls short of the standard for a given model year multiplied 
by the total volume of those vehicles in the affected fleet (i.e., 
import or domestic passenger car, or light truck), manufactured for 
that model year. The amount of the penalty may not be reduced except 
under the unusual or extreme circumstances specified in the statute.
---------------------------------------------------------------------------

    \33\ EPCA does not provide authority for seeking to enjoin 
violations of the CAFE standards.
---------------------------------------------------------------------------

    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions\34\ in the Safety Act and 
their absence in EPCA is believed to arise from the difference in the 
application of the safety standards and CAFE standards. A safety 
standard applies to individual vehicles; that is, each vehicle must 
possess the requisite equipment or feature that must provide the 
requisite type and level of performance. If a vehicle does not, it is 
noncompliant. Typically, a vehicle does not entirely lack an item or 
equipment or feature. Instead, the equipment or features fails to 
perform adequately. Recalling the vehicle to repair or replace the 
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

    \34\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
vehicles are not required to comply with those targets. However, as a 
practical matter, if a manufacturer chooses to design some vehicles 
that fall below their target levels of fuel economy, it will need to 
design other vehicles that exceed their targets if the manufacturer's 
overall fleet average is to meet the applicable standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.
2. EPA Statutory Authority
    Title II of the Clean Air Act (CAA) provides for comprehensive 
regulation of mobile sources, authorizing EPA to regulate emissions of 
air pollutants from all mobile source categories. Pursuant to these 
sweeping grants of authority, EPA considers such issues as technology 
effectiveness, its cost (both per vehicle, per manufacturer, and per 
consumer), the lead time necessary to implement the technology, and 
based on this the feasibility and practicability of potential 
standards; the impacts of potential standards on emissions reductions 
of both GHGs and non-GHGs; the impacts of standards on oil conservation 
and energy security; the impacts of standards on fuel savings by 
consumers; the impacts of standards on the auto industry; other energy 
impacts; as well as other relevant factors such as impacts on safety.
    This proposal implements a specific provision from Title II, 
section 202(a).\35\ Section 202(a)(1) of the Clean Air Act (CAA) states 
that ``the Administrator shall by regulation prescribe (and from time 
to time revise) * * * standards applicable to the emission of any air 
pollutant from any class or classes of new motor vehicles * * *, which 
in his judgment cause, or contribute to, air pollution which may 
reasonably be anticipated to endanger public health or welfare.'' If 
EPA makes the appropriate endangerment and cause or contribute 
findings, then section 202(a) authorizes EPA to issue standards 
applicable to emissions of those pollutants.
---------------------------------------------------------------------------

    \35\ 42 U.S.C. 7521(a).
---------------------------------------------------------------------------

    Any standards under CAA section 202(a)(1) ``shall be applicable to 
such vehicles * * * for their useful life.'' Emission standards set by 
the EPA under CAA section 202(a)(1) are technology-based, as the levels 
chosen must be premised on a finding of technological feasibility. 
Thus, standards promulgated under CAA section 202(a) are to take effect 
only ``after providing such period as the Administrator finds necessary 
to permit the development and application of the requisite technology, 
giving appropriate consideration to the cost of compliance within such 
period'' (section 202(a)(2); see also NRDC v. EPA, 655 F.2d 318, 322 
(D.C. Cir. 1981)). EPA is afforded considerable discretion under 
section 202(a) when assessing issues of technical feasibility and 
availability of lead time to implement new technology. Such 
determinations are ``subject to the restraints of reasonableness'', 
which ``does not open the door to `crystal ball' inquiry.'' NRDC, 655 
F.2d at 328, quoting International Harvester Co. v. Ruckelshaus, 478 
F.2d 615, 629 (D.C. Cir. 1973). However, ``EPA is not obliged to 
provide detailed solutions to every engineering problem posed in the 
perfection of the trap-oxidizer. In the absence of theoretical 
objections to the technology, the agency need only identify the major 
steps necessary for development of the device, and give plausible 
reasons for its belief that the industry will be able to solve those 
problems in the time remaining. The EPA is not required to rebut all 
speculation that unspecified factors may hinder `real world' emission 
control.'' NRDC, 655 F.2d at 333-34. In developing such technology-
based standards, EPA has the discretion to consider different standards 
for appropriate groupings of vehicles (``class or classes of new motor 
vehicles''), or a single standard for a larger grouping of motor 
vehicles (NRDC, 655 F.2d at 338).
    Although standards under CAA section 202(a)(1) are technology-
based, they are not based exclusively on technological capability. EPA 
has the discretion to consider and weigh various factors along with 
technological feasibility, such as the cost of compliance (see section 
202(a)(2)), lead time necessary for compliance (section 202(a)(2)), 
safety (see NRDC, 655 F.2d at 336 n. 31) and other impacts on 
consumers, and energy impacts associated with use of the technology. 
See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 (D.C. Cir. 
1998) (ordinarily permissible for EPA to consider factors not 
specifically enumerated in the Act). See also Entergy Corp. v. 
Riverkeeper, Inc., 129 S.Ct. 1498, 1508-09 (2009) (congressional 
silence did not bar EPA from employing cost-benefit analysis under 
Clean Water Act absent some other clear indication that such analysis 
was prohibited; rather, silence indicated discretion to use or not use 
such an approach as the agency deems appropriate).
    In addition, EPA has clear authority to set standards under CAA 
section 202(a) that are technology forcing when EPA considers that to 
be appropriate, but is

[[Page 49465]]

not required to do so (as compared to standards set under provisions 
such as section 202(a)(3) and section 213(a)(3)). EPA has interpreted a 
similar statutory provision, CAA section 231, as follows:

    While the statutory language of section 231 is not identical to 
other provisions in title II of the CAA that direct EPA to establish 
technology-based standards for various types of engines, EPA 
interprets its authority under section 231 to be somewhat similar to 
those provisions that require us to identify a reasonable balance of 
specified emissions reduction, cost, safety, noise, and other 
factors. See, e.g., Husqvarna AB v. EPA, 254 F.3d 195 (DC Cir. 2001) 
(upholding EPA's promulgation of technology-based standards for 
small non-road engines under section 213(a)(3) of the CAA). However, 
EPA is not compelled under section 231 to obtain the ``greatest 
degree of emission reduction achievable'' as per sections 213 and 
202 of the CAA, and so EPA does not interpret the Act as requiring 
the agency to give subordinate status to factors such as cost, 
safety, and noise in determining what standards are reasonable for 
aircraft engines. Rather, EPA has greater flexibility under section 
231 in determining what standard is most reasonable for aircraft 
engines, and is not required to achieve a ``technology forcing'' 
result.\36\
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    \36\ 70 FR 69664, 69676, November 17, 2005.

    This interpretation was upheld as reasonable in NACAA v. EPA, (489 
F.3d 1221, 1230 (D.C. Cir. 2007)). CAA section 202(a) does not specify 
the degree of weight to apply to each factor, and EPA accordingly has 
discretion in choosing an appropriate balance among factors. See Sierra 
Club v. EPA, 325 F.3d 374, 378 (D.C. Cir. 2003) (even where a provision 
is technology-forcing, the provision ``does not resolve how the 
Administrator should weigh all [the statutory] factors in the process 
of finding the 'greatest emission reduction achievable' ''). Also see 
Husqvarna AB v. EPA, 254 F. 3d 195, 200 (D.C. Cir. 2001) (great 
discretion to balance statutory factors in considering level of 
technology-based standard, and statutory requirement ``to [give 
appropriate] consideration to the cost of applying * * * technology'' 
does not mandate a specific method of cost analysis); see also Hercules 
Inc. v. EPA, 598 F. 2d 91, 106 (D.C. Cir. 1978) (``In reviewing a 
numerical standard we must ask whether the agency's numbers are within 
a zone of reasonableness, not whether its numbers are precisely 
right''); Permian Basin Area Rate Cases, 390 U.S. 747, 797 (1968) 
(same); Federal Power Commission v. Conway Corp., 426 U.S. 271, 278 
(1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 F. 3d 1071, 
1084 (D.C. Cir. 2002) (same).
a. EPA's Testing Authority
    Under section 203 of the CAA, sales of vehicles are prohibited 
unless the vehicle is covered by a certificate of conformity. EPA 
issues certificates of conformity pursuant to section 206 of the Act, 
based on (necessarily) pre-sale testing conducted either by EPA or by 
the manufacturer. The Federal Test Procedure (FTP or ``city'' test) and 
the Highway Fuel Economy Test (HFET or ``highway'' test) are used for 
this purpose. Compliance with standards is required not only at 
certification but throughout a vehicle's useful life, so that testing 
requirements may continue post-certification. Useful life standards may 
apply an adjustment factor to account for vehicle emission control 
deterioration or variability in use (section 206(a)).
    Pursuant to EPCA, EPA is required to measure fuel economy for each 
model and to calculate each manufacturer's average fuel economy.\37\ 
EPA uses the same tests--the FTP and HFET--for fuel economy testing. 
EPA established the FTP for emissions measurement in the early 1970s. 
In 1976, in response to the Energy Policy and Conservation Act (EPCA) 
statute, EPA extended the use of the FTP to fuel economy measurement 
and added the HFET.\38\ The provisions in the 1976 regulation, 
effective with the 1977 model year, established procedures to calculate 
fuel economy values both for labeling and for CAFE purposes. Under 
EPCA, EPA is required to use these procedures (or procedures which 
yield comparable results) for measuring fuel economy for cars for CAFE 
purposes, but not for labeling purposes.\39\ EPCA does not pose this 
restriction on CAFE test procedures for light trucks, but EPA does use 
the FTP and HFET for this purpose. EPA determines fuel economy by 
measuring the amount of CO2 and all other carbon compounds 
(e.g. total hydrocarbons (THC) and carbon monoxide (CO)), and then, by 
mass balance, calculating the amount of fuel consumed.
---------------------------------------------------------------------------

    \37\ See 49 U.S.C. 32904(c).
    \38\ See 41 FR 38674 (Sept. 10, 1976), which is codified at 40 
CFR part 600.
    \39\ See 49 U.S.C. 32904(c).
---------------------------------------------------------------------------

b. EPA Enforcement Authority
    Section 207 of the CAA grants EPA broad authority to require 
manufacturers to remedy vehicles if EPA determines there are a 
substantial number of noncomplying vehicles. In addition, section 205 
of the CAA authorizes EPA to assess penalties of up to $37,500 per 
vehicle for violations of various prohibited acts specified in the CAA. 
In determining the appropriate penalty, EPA must consider a variety of 
factors such as the gravity of the violation, the economic impact of 
the violation, the violator's history of compliance, and ``such other 
matters as justice may require.'' Unlike EPCA, the CAA does not 
authorize vehicle manufacturers to pay fines in lieu of meeting 
emission standards.
3. Comparing the Agencies' Authority
    As the above discussion makes clear, there are both important 
differences between the statutes under which each agency is acting as 
well as several important areas of similarity. One important difference 
is that EPA's authority addresses various GHGs, while NHTSA's authority 
addresses fuel economy as measured under specified test procedures. 
This difference is reflected in this rulemaking in the scope of the two 
standards: EPA's proposal takes into account air conditioning related 
reductions, as well as proposed standards for methane and 
N2O, but NHTSA's does not. A second important difference is 
that EPA is proposing certain compliance flexibilities, and takes those 
flexibilities into account in its technical analysis and modeling 
supporting its proposal. EPCA places certain limits on compliance 
flexibilities for CAFE, and expressly prohibits NHTSA from considering 
the impacts of the compliance flexibilities in setting the CAFE 
standard so that the manufacturers' election to avail themselves of the 
permitted flexibilities remains strictly voluntary.\40\ The Clean Air 
Act, on the other hand, contains no such prohibition. These 
considerations result in some differences in the technical analysis and 
modeling used to support EPA's and NHTSA's proposed standards.
---------------------------------------------------------------------------

    \40\ 74 FR 24009 (May 22, 2009).
---------------------------------------------------------------------------

    These differences, however, do not change the fact that in many 
critical ways the two agencies are charged with addressing the same 
basic issue of reducing GHG emissions and improving fuel economy. Given 
the direct relationship between emissions of CO2 and fuel 
economy levels, both agencies are looking at the same set of control 
technologies (with the exception of the air conditioning related 
technologies). The standards set by each agency will drive the kind and 
degree of penetration of this set of technologies across the vehicle 
fleet. As a result, each agency is trying to answer the same basic 
question--what kind and degree of technology penetration is necessary 
to achieve the agencies' objectives in the rulemaking time frame, given 
the

[[Page 49466]]

agencies' respective statutory authorities?
    In making the determination of what standards are appropriate under 
the CAA and EPCA, each agency is to exercise its judgment and balance 
many similar factors, such as the availability of technologies, the 
appropriate lead time for introduction of technology, and based on this 
the feasibility and practicability of their standards; the impacts of 
their standards on emissions reductions (of both GHGs and non-GHGs); 
the impacts of their standards on oil conservation; the impacts of 
their standards on fuel savings by consumers; the impacts of their 
standards on the auto industry; as well as other relevant factors such 
as impacts on safety. Conceptually, therefore, each agency is 
considering and balancing many of the same factors, and each agency is 
making a decision that at its core is answering the same basic question 
of what kind and degree of technology penetration is it appropriate to 
call for in light of all of the relevant factors. Finally, each agency 
has the authority to take into consideration impacts of the standards 
of the other agency. EPCA calls for NHTSA to take into consideration 
the effects of EPA's emissions standards on fuel economy capability 
(see 49 U.S.C. 32902 (f)), and EPA has the discretion to take into 
consideration NHTSA's CAFE standards in determining appropriate action 
under section 202(a). This is consistent with the Supreme Court's 
statement that EPA's mandate to protect public health and welfare is 
wholly independent from NHTSA's mandate to promote energy efficiency, 
but there is no reason to think the two agencies cannot both administer 
their obligations and yet avoid inconsistency. Massachusetts v. EPA, 
549 U.S. 497, 532 (2007).
    In this context, it is in the Nation's interest for the two 
agencies to work together in developing their respective proposed 
standards, and they have done so. For example, the agencies have 
committed considerable effort to develop a joint Technical Support 
Document that provides a technical basis underlying each agency's 
analyses. The agencies also have worked closely together in developing 
and reviewing their respective modeling, to develop the best analysis 
and to promote technical consistency. The agencies have developed a 
common set of attribute-based curves that each agency supports as 
appropriate both technically and from a policy perspective. The 
agencies have also worked closely to ensure that their respective 
programs will work in a coordinated fashion, and will provide 
regulatory compatibility that allows auto manufacturers to build a 
single national light-duty fleet that would comply with both the GHG 
and the CAFE standards. The resulting overall close coordination of the 
proposed GHG and CAFE standards should not be surprising, however, as 
each agency is using a jointly developed technical basis to address the 
closely intertwined challenges of energy security and climate change. 
As discussed above, in determining the standards to propose the 
agencies are called upon to weigh and balance various factors that are 
relevant under their respective statutory provisions. Each agency is to 
exercise its judgment and balance many similar factors, such as the 
availability of technologies, the appropriate lead time for 
introduction of technology, and based on this, the feasibility and 
practicability of their standards; and the impacts of their standards 
on the following: Emissions reductions (of both GHGs and non-GHGs); oil 
conservation; fuel savings by consumers; the auto industry; as well as 
other relevant factors such as safety. Conceptually, each agency is 
considering and balancing many of the same factors, and each agency is 
making a decision that at its core is answering the same basic question 
of what kind and degree of technology penetration is appropriate and 
required in light of all of the relevant factors. Each Administrator is 
called upon to exercise judgment and propose standards that the 
Administrator determines are a reasonable balance of these relevant 
factors.
    As set out in detail in Sections III and IV of this notice, both 
EPA and NHTSA believe the agencies' proposals are fully justified under 
their respective statutory criteria. The proposed standards can be 
achieved within the lead time provided, based on a projected increased 
use of various technologies which in most cases are already in 
commercial application in the fleet to varying degrees. Detailed 
modeling of the technologies that could be employed by each 
manufacturer supports this initial conclusion. The agencies also 
carefully assessed the costs of the proposed rules, both for the 
industry as a whole and per manufacturer, as well as the costs per 
vehicle, and consider these costs to be reasonable and recoverable 
(from fuel savings). The agencies recognize the significant increase in 
the application of technology that the proposed standards would require 
across a high percentage of vehicles, which will require the 
manufacturers to devote considerable engineering and development 
resources before 2012 laying the critical foundation for the widespread 
deployment of upgraded technology across a high percentage of the 2012-
2016 fleet. This clearly will be challenging for automotive 
manufacturers and their suppliers, especially in the current economic 
climate. However, based on all of the analyses performed by the 
agencies, our judgment is that it is a challenge that can reasonably be 
met.
    The agencies also evaluated the impacts of these standards with 
respect to the expected reductions in GHGs and oil consumption and, 
found them to be very significant in magnitude. The agencies considered 
other factors such as the impacts on noise, energy, and vehicular 
congestion. The impact on safety was also given careful consideration. 
Moreover, the agencies quantified the various costs and benefits of the 
proposed standards, to the extent practicable. The agencies' analyses 
to date indicate that the overall quantified benefits of the proposed 
standards far outweigh the projected costs. All of these factors 
support the reasonableness of the proposed standards.
    The agencies also evaluated alternatives which were less and more 
stringent than those proposed. Less stringent standards, however, would 
forego important GHG emission reductions and fuel savings that are 
technically achievable at reasonable cost in the lead time provided. In 
addition, less stringent GHG standards would not result in a harmonized 
National Program for the country. Based on California's letter of May 
18, 2009, the GHG emission standards would not result in the State of 
California revising its regulations such that compliance with EPA's GHG 
standards would be deemed to be compliance with California's GHG 
standards for these model years. The substantial cost advantages 
associated with a single national program discussed at the outset of 
this section would then be foregone.
    The agencies are not proposing any of the more stringent 
alternatives analyzed largely due to concerns over lead time and 
economic practicability. The proposed standards already require 
aggressive application of technologies, and more stringent standards 
which would require more widespread use (including more substantial 
implementation of advanced technologies such as strong hybrids) raise 
serious issues of adequacy of lead time, not only to meet the standards 
but to coordinate such significant changes with manufacturers' redesign 
cycles. At a time when the entire industry remains in an economically 
critical state, the agencies believe that it would be

[[Page 49467]]

unreasonable to propose more stringent standards. Even in a case where 
economic factors were not a consideration, there are real-world time 
constraints which must be considered due to the short lead time 
available for the early years of this program, in particular for model 
years 2012 and 2013. The physical processes which the automotive 
industry must follow in order to introduce reliable, high quality 
products require certain minimums of time during the product 
development process. These include time needed for durability testing 
which requires significant mileage accumulation under a range of 
conditions (e.g., high and low temperatures, high altitude, etc.) in 
both real-world and laboratory conditions. In addition, the product 
development cycle includes a number of pre-production gateways on the 
manufacturing side at both the supplier level and at the automotive 
manufacturer level that are constrained by time. Thus adequate lead-
time is an important factor that the agencies have taken into 
consideration in evaluating the proposed standards as well as the 
alternative standards.
    As noted, both agencies also considered the overall costs of their 
respective proposed standards in relation to the projected benefits. 
The fact that the benefits are estimated to considerably exceed their 
costs supports the view that the proposed standards represent a 
reasonable balance of the relevant statutory factors. In drawing this 
conclusion, the agencies acknowledge the uncertainties and limitations 
of the analyses. For example, the analysis of the benefits is highly 
dependent on the estimated price of fuel projected out many years into 
the future. There is also significant uncertainty in the potential 
range of values that could be assigned to the social cost of carbon. 
There are a variety of impacts that the agencies are unable to 
quantify, such as non-market damages, extreme weather, socially 
contingent effects, or the potential for longer-term catastrophic 
events, or the impact on consumer choice. The agencies also note the 
need to consider factors such as the availability of technology within 
the lead time provided and many of the other factors discussed above. 
The cost-benefit analyses are one of the important things the agencies 
consider in making a judgment as to the appropriate standards to 
propose under their respective statutes. Consideration of the results 
of the cost-benefit analyses by the agencies, however, includes careful 
consideration of the limitations discussed above.
    One important area where the two agencies' authorities are similar 
but not identical involves the transfer of credits between a single 
firm's car and truck fleets. EISA revised EPCA to allow for such credit 
transfers, but with a cap on the amount of CAFE credits which can be 
transferred between the car and truck fleets. 49 U.S.C. 32903(g)(3). 
Under CAA section 202(a), EPA is proposing to allow CO2 credit 
transfers between a single manufacturer's car and truck fleets, with no 
corresponding limits on such transfers. In general, the EPCA limit on 
CAFE credit transfers is not expected to have the practical effect of 
limiting the amount of CO2 emission credits manufacturers may be able 
to transfer under the CAA program, recognizing that manufacturers must 
comply with both the proposed CAFE standards and the proposed EPA 
standards. However, it is possible that in some specific circumstances 
the EPCA limit on CAFE credit transfers could constrain the ability of 
a manufacturer to achieve cost savings through unlimited use of GHG 
emissions credit transfers under the CAA program.
    The agencies request comment on the impact of the EISA credit 
transfer caps on the implementation of the proposed CAFE and GHG 
standards, including whether it would impose such a constraint and the 
impacts of a constraint on costs, emissions, and fuel economy. In 
addition, the agencies invite comment on approaches that could assist 
in addressing this issue, recognizing the importance the agencies place 
on harmonization, and that would be consistent with their respective 
statutes. For example, any approach must be consistent with both the 
EISA transfer caps and the EPCA requirement to set annual CAFE 
standards at the maximum feasible average fuel economy level that NHTSA 
decides the manufacturers can achieve in that model year, based on the 
agency's consideration of the four statutory factors. Manufacturers 
should submit publicly available evidence supporting their position on 
this issue so that a well informed decision can be made and explained 
to the public.

D. Summary of the Proposed Standards for the National Program

1. Joint Analytical Approach
    NHTSA and EPA have worked closely together on nearly every aspect 
of this joint proposal. The extent and results of this collaboration is 
reflected in the elements of the respective NHTSA and EPA proposals, as 
well as the analytical work contained in the Joint Technical Support 
Document (Joint TSD). The Joint TSD, in particular, describes important 
details of the analytical work that are shared, as well as any 
differences in approach. These includes the build up of the baseline 
and reference fleets, the derivation of the shape of the curve that 
defines the standards, a detailed description of the costs and 
effectiveness of the technology choices that are available to vehicle 
manufacturers, a summary of the computer models used to estimate how 
technologies might be added to vehicles, and finally the economic 
inputs used to calculate the impacts and benefits of the rules, where 
practicable. Some of these are highlighted below.
    EPA and NHTSA have jointly developed attribute curve shapes that 
each agency is using for its proposed standards. Both agencies reviewed 
the shape of the attribute-based curve used for the model year 2011 
CAFE standards. After a new and thorough analysis of current vehicle 
data and the comments received from previous two CAFE rules, the two 
agencies improved upon the constrained logistic curve and developed a 
similarly shaped piece-wise linear function. Further details of these 
functions can be found in Sections III and IV of this preamble as well 
as Chapter 2 of the Joint TSD.
    A critical technical underpinning of each agency's proposal is the 
cost and effectiveness of the various control technologies. These are 
used to analyze the feasibility and cost of potential GHG and CAFE 
standards. The technical work reflected in the joint TSD is the 
culmination of over 3 years of literature research, consultation with 
experts, detailed computer simulations, vehicle tear-downs and 
engineering review, all of which will continue into the future as more 
data becomes available. To promote transparency, the vast majority of 
this information is collected from publically available sources, and 
can be found in the docket of this rule. Non-public (i.e., confidential 
manufacturer) information was used only to the limited extent it was 
needed to fill a data void. A detailed description of all of the 
technology information considered can be found in Chapter 3 of the 
Joint TSD (and for A/C, Chapter 2 of the EPA RIA).
    This detailed technology data forms the inputs to computer models 
that each agency uses to project how vehicle manufacturers may add 
those technologies in order to comply with new standards. These are the 
OMEGA and Volpe models for EPA and NHTSA respectively. The Volpe model 
is

[[Page 49468]]

tailored for NHTSA's EPCA and EISA needs, while the OMEGA model is 
tailored for EPA's CAA needs. In developing the National Program, EPA 
and NHTSA have worked closely to ensure that consistent and reasonable 
results are achieved from both models. This fruitful collaboration has 
resulted in the improvement of both approaches and now, far from being 
redundant, these models serve the purposes of the respective agencies 
while also maintaining an important validating role. The models and 
their inputs can also be found in the docket. Further description of 
the model and outputs can be found in Sections II and IV of this 
preamble, and Chapter 3 of the Joint TSD.
    This comprehensive joint analytical approach has provided a sound 
and consistent technical basis for each agency in developing its 
proposed standards, which are summarized in the sections below.
2. Level of the Standards
    In this notice, EPA and NHTSA are proposing two separate sets of 
standards, each under its respective statutory authorities. EPA is 
proposing national CO2 emissions standards for light-duty 
vehicles under section 202 (a) of the Clean Air Act. These standards 
would require these vehicles to meet an estimated combined average 
emissions level of 250 grams/mile of CO2 in model year 2016. 
NHTSA is proposing CAFE standards for passenger cars and light trucks 
under 49 U.S.C. 32902. These standards would require them to meet an 
estimated combined average fuel economy level of 34.1 mpg in model year 
2016. The proposed standards for both agencies begin with the 2012 
model year, with standards increasing in stringency through model year 
2016. They represent a harmonized approach that will allow industry to 
build a single national fleet that will satisfy both the GHG 
requirements under the CAA and CAFE requirements under EPCA/EISA.
    Given differences in their respective statutory authorities, 
however, the agencies' proposed standards include some important 
differences. Under the CO2 fleet average standard proposed 
under CAA section 202(a), EPA expects manufacturers to take advantage 
of the option to generate CO2-equivalent credits by reducing 
emissions of hydrofluorocarbons (HFCs) and CO2 through 
improvements in their air conditioner systems. EPA accounted for these 
reductions in developing its proposed CO2 standard. EPCA 
does not allow vehicle manufacturers to use air conditioning credits in 
complying with CAFE standards for passenger cars.\41\ CO2 
emissions due to air conditioning operation are not measured by the 
test procedure mandated by statute for use in establishing and 
enforcing CAFE standards for passenger cars. As a result, improvements 
in the efficiency of passenger car air conditioners would not be 
considered as a possible control technology for purposes of CAFE.
---------------------------------------------------------------------------

    \41\ There is no such statutory limitation with respect to light 
trucks.
---------------------------------------------------------------------------

    These differences regarding the treatment of air conditioning 
improvements (related to CO2 and HFC reductions) affect the 
relative stringency of the EPA standard and NHTSA standard. The 250 
grams per mile of CO2 equivalent emissions limit is 
equivalent to 35.5 mpg \42\ if the automotive industry were to meet 
this CO2 level all through fuel economy improvements. As a 
consequence of the prohibition against NHTSA's allowing credits for air 
conditioning improvements for purposes of passenger car CAFE 
compliance, NHTSA is proposing fuel economy standards that are 
estimated to require a combined (passenger car and light truck) average 
fuel economy level of 34.1 mpg by MY 2016.
---------------------------------------------------------------------------

    \42\ The agencies are using a common conversion factor between 
fuel economy in units of miles per gallon and CO2 
emissions in units of grams per mile. This conversion factor is 
8,887 grams CO2 per gallon gasoline fuel. Diesel fuel has 
a conversion factor of 10,180 grams CO2 per gallon diesel 
fuel though for the purposes of this calculation, we are assuming 
100% gasoline fuel.
---------------------------------------------------------------------------

    NHTSA and EPA's proposed standards, like the standards NHTSA 
promulgated in March 2009 for model year 2011 (MY 2011), are expressed 
as mathematical functions depending on vehicle footprint. Footprint is 
one measure of vehicle size, and is determined by multiplying the 
vehicle's wheelbase by the vehicle's average track width.\43\ The 
standards that must be met by the fleet of each manufacturer would be 
determined by computing the sales-weighted harmonic average of the 
targets applicable to each of the manufacturer's passenger cars and 
light trucks. Under these proposed footprint-based standards, the 
levels required of individual manufacturers depend, as noted above, on 
the mix of vehicles sold. NHTSA and EPA's respective proposed standards 
are shown in the tables below. It is important to note that the 
standards are the attribute-based curves proposed by each agency. The 
values in the tables below reflect the agencies' projection of the 
corresponding fleet levels that would result from these attribute-based 
curves.
---------------------------------------------------------------------------

    \43\ See 49 CFR 523.2 for the exact definition of ``footprint.''
---------------------------------------------------------------------------

    As shown in Table I.D.2-1, NHTSA's proposed fleet-wide CAFE-
required levels for passenger cars under the proposed standards are 
projected to increase from 33.6 to 38.0 mpg between MY 2012 and MY 
2016. Similarly, fleet-wide CAFE levels for light trucks are projected 
to increase from 25.0 to 28.3 mpg. These numbers do not include the 
effects of other flexibilities and credits in the program. NHTSA has 
also estimated the average fleet-wide required levels for the combined 
car and truck fleets. As shown, the overall fleet average CAFE level is 
expected to be 34.1 mpg in MY 2016. These standards represent a 4.3 
percent average annual rate of increase relative to the MY 2011 
standards.\44\
---------------------------------------------------------------------------

    \44\ Because required CAFE levels depend on the mix of vehicles 
sold by manufacturers in a model year, NHTSA's estimate of future 
required CAFE levels depends on its estimate of the mix of vehicles 
that will be sold in that model year. NHTSA currently estimates that 
the MY 2011 standards will require average fuel economy levels of 
30.5 mpg for passenger cars, 24.2 mpg for light trucks, and 27.6 mpg 
for the combined fleet.

                Table I.D.2-1--Average Required Fuel Economy (mpg) Under Proposed CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                                2011-base     2012       2013       2014       2015       2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars................................       30.2       33.6       34.4       35.2       36.4       38.0
Light Trucks..................................       24.1       25.0       25.6       26.2       27.1       28.3
Combined Cars & Trucks........................       27.3       29.8       30.6       31.4       32.6       34.1
----------------------------------------------------------------------------------------------------------------


[[Page 49469]]

    Accounting for the expectation that some manufacturers would 
continue to pay civil penalties rather than achieving required CAFE 
levels, and the ability to use FFV credits, NHTSA estimates that the 
proposed CAFE standards would lead to the following average achieved 
fuel economy levels, based on the projections of what each 
manufacturer's fleet will comprise in each year of the program: \45\
---------------------------------------------------------------------------

    \45\ NHTSA's estimates account for availability of CAFE credits 
for the sale of flexibly-fuel vehicles (FFVs), and for the potential 
that some manufacturers would pay civil penalties rather than 
complying with the proposed CAFE standards. This yields NHTSA's 
estimates of the real-world fuel economy that could be achieved 
under the proposed CAFE standards. NHTSA has not included any 
potential impact of car-truck credit transfer in its estimate of the 
achieved CAFE levels.

Table I.D.2-2--Projected Fleet-Wide Achieved CAFE Levels Under the Proposed Footprint-Based CAFE Standards (mpg)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................     32.5     33.4     34.3     35.3     36.5
Light Trucks.......................................................     24.1     24.6     25.3     26.3     27.0
Combined Cars & Trucks.............................................     28.7     29.6     30.4     31.6     32.7
----------------------------------------------------------------------------------------------------------------

    NHTSA is also required by EISA to set a minimum fuel economy 
standard for domestically manufactured passenger cars in addition to 
the attribute-based passenger car standard. The minimum standard 
``shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent 
of the average fuel economy projected by the Secretary for the combined 
domestic and non-domestic passenger automobile fleets manufactured for 
sale in the United States by all manufacturers in the model year * * 
*.'' \46\
---------------------------------------------------------------------------

    \46\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    Based on NHTSA's current market forecast, the agency's estimates of 
these minimum standards under the proposed MY 2012-2016 CAFE standards 
(and, for comparison, the final MY 2011 standard) are summarized below 
in Table I.D.2-3.\47\ For eventual compliance calculations, the final 
calculated minimum standards will be updated to reflect any changes in 
the average fuel economy level required under the final standards.
---------------------------------------------------------------------------

    \47\ In the March 2009 final rule establishing MY 2011 standards 
for passenger cars and light trucks, NHTSA estimated that the 
minimum required CAFE standard for domestically manufactured 
passenger cars would be 27.8 mpg under the MY 2011 passenger car 
standard. Based on the agency's current forecast of the MY 2011 
passenger car market, NHTSA now estimates that the minimum required 
CAFE standard will be 28.0 mpg in MY 2011.

 Table I.D.2-3--Estimated Minimum Standard for Domestically Manufactured Passenger Cars Under Final MY 2011 and
                          Proposed MY 2012-2016 CAFE Standards for Passenger Cars (mpg)
----------------------------------------------------------------------------------------------------------------
                                2011                                   2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
28.0...............................................................     30.9     31.6     32.4     33.5     34.9
----------------------------------------------------------------------------------------------------------------

    EPA is proposing GHG emissions standards, and Table I.D.2-4 
provides EPA's estimates of their projected overall fleet-wide 
CO2 equivalent emission levels.\48\ The g/mi values are 
CO2 equivalent values because they include the projected use 
of A/C credits by manufacturers.
---------------------------------------------------------------------------

    \48\ These levels do not include the effect of flexible fuel 
credits, transfer of credits between cars and trucks, temporary lead 
time allowance, or any other credits with the exception of air 
conditioning.

Table I.D.2-4--Projected Fleet-Wide Emissions Compliance Levels Under the Proposed Footprint-Based CO2 Standards
                                                     (g/mi)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      261      253      246      235      224
Light Trucks.......................................................      352      341      332      317      302
Combined Cars & Trucks.............................................      295      286      276      263      250
----------------------------------------------------------------------------------------------------------------

    As shown in Table I.D.2-4, projected fleet-wide CO2 
emission level requirements for cars under the proposed approach are 
projected to increase in stringency from 261 to 224 grams per mile 
between MY 2012 and MY 2016. Similarly, fleet-wide CO2 
equivalent emission level requirements for trucks are projected to 
increase in stringency from 352 to 302 grams per mile. As shown, the 
overall fleet average CO2 level requirements are projected 
to be 250 g/mile in 2016.
    EPA anticipates that manufacturers will take advantage of program 
flexibilities such as flex fueled vehicle credits, and car/truck credit 
trading. Due to the credit trading between cars and trucks, the 
estimated improvements in CO2 emissions are distributed 
differently than shown in Table I.D 2-4, where full manufacturer 
compliance is assumed. Table I.D.2-5 shows EPA projection of the 
achieved emission levels of the fleet for MY 2012 through 2016, which 
does consider the impact of car/truck credit transfer and the increase 
in emissions due to program flexibilities including flex fueled vehicle 
credits and the temporary leadtime allowance alternative standards. The 
use of optional air conditioning credits is considered both in this 
analysis of achieved levels and of the projected levels described 
above.. As can be seen in Table I.D.2-5, the projected achieved levels 
are slightly higher for model years 2012-2015 due to the projected use 
of the proposed flexibilities, but in model

[[Page 49470]]

year 2016 the achieved value is projected to be 250 g/mi for the fleet.

Table I.D.2-5--Projected Fleet-Wide Achieved Emission Levels Under the Proposed Footprint-Based CO2 Standards (g/
                                                       mi)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      264      254      245      232      220
Light Trucks.......................................................      365      355      346      332      311
Combined Cars & Trucks.............................................      302      291      281      267      250
----------------------------------------------------------------------------------------------------------------

    NHTSA's and EPA's technology assessment indicates there is a wide 
range of technologies available for manufacturers to consider in 
upgrading vehicles to reduce GHG emissions and improve fuel 
economy.\49\ As noted, these include improvements to the engines such 
as use of gasoline direct injection and downsized engines that use 
turbochargers to provide performance similar to that of larger engines, 
the use of advanced transmissions, increased use of start-stop 
technology, improvements in tire performance, reductions in vehicle 
weight, increased use of hybrid and other advanced technologies, and 
the initial commercialization of electric vehicles and plug-in hybrids. 
EPA is also projecting improvements in vehicle air conditioners 
including more efficient as well as low leak systems. All of these 
technologies are already available today, and EPA's and NHTSA's 
assessment is that manufacturers would be able to meet the proposed 
standards through more widespread use of these technologies across the 
fleet.
---------------------------------------------------------------------------

    \49\ The close relationship between emissions of 
CO2--the most prevalent greenhouse gas emitted by motor 
vehicles--and fuel consumption, means that the technologies to 
control CO2 emissions and to improve fuel economy overlap 
to a great degree
---------------------------------------------------------------------------

    With respect to the practicability of the standards in terms of 
lead time, during MYs 2012-2016 manufacturers are expected to go 
through the normal automotive business cycle of redesigning and 
upgrading their light-duty vehicle products, and in some cases 
introducing entirely new vehicles not on the market today. This 
proposal would allow manufacturers the time needed to incorporate 
technology to achieve GHG reductions and improve fuel economy during 
the vehicle redesign process. This is an important aspect of the 
proposal, as it avoids the much higher costs that would occur if 
manufacturers needed to add or change technology at times other than 
their scheduled redesigns. This time period would also provide 
manufacturers the opportunity to plan for compliance using a multi-year 
time frame, again consistent with normal business practice. Over these 
five model years, there would be an opportunity for manufacturers to 
evaluate almost every one of their vehicle model platforms and add 
technology in a cost effective way to control GHG emissions and improve 
fuel economy. This includes redesign of the air conditioner systems in 
ways that will further reduce GHG emissions.
    Both agencies considered other standards as part of the rulemaking 
analyses, both more and less stringent than those proposed. EPA's and 
NHTSA's analysis of alternative standards are contained in Sections III 
and IV of this notice, respectively.
    The CAFE and GHG standards described above are based on determining 
emissions and fuel economy using the city and highway test procedures 
that are currently used in the CAFE program. Both agencies recognize 
that these test procedures are not fully representative of real world 
driving conditions. For example EPA has adopted more representative 
test procedures that are used in determining compliance with emissions 
standards for pollutants other than GHGs. These test procedures are 
also used in EPA's fuel economy labeling program. However, as discussed 
in Section III, the current information on effectiveness of the 
individual emissions control technologies is based on performance over 
the two CAFE test procedures. For that reason EPA is proposing to use 
the current CAFE test procedures for the proposed CO2 
standards and is not proposing to change those test procedures in this 
rulemaking. NHTSA, as discussed above, is limited by statute in what 
test procedures can be used for purposes of passenger car testing; 
however there is no such statutory limitation with respect to test 
procedures for trucks. However, the same reasons for not changing the 
truck test procedures apply for CAFE as well.
    Both EPA and NHTSA are interested in developing programs that 
employ test procedures that are more representative of real world 
driving conditions, to the extent authorized under their respective 
statutes. This is an important issue, and the agencies intend to 
address it in the context of a future rulemaking to address standards 
for model year 2017 and thereafter. This could include a range of test 
procedure changes to better represent real-world driving conditions in 
terms of speed, acceleration, deceleration, ambient temperatures, use 
of air conditioners, and the like. With respect to air conditioner 
operation, EPA discusses the procedures it intends to use for 
determining emissions credits for controls on air conditioners in 
Section III. Comment is also invited in Section IV on the issue of 
providing air conditioner credits under 49 U.S.C. 32902 and/or 32904 
for light-trucks in the model years covered by this proposal.
    Finally, based on the information EPA developed in its recent 
rulemaking that updated its fuel economy labeling program to better 
reflect average real-world fuel economy, the calculation of fuel 
savings and CO2 emissions reductions obtained by the 
proposed CAFE and GHG standards includes adjustments to account for the 
difference between the fuel economy level measured in the CAFE test 
procedure and the fuel economy actually achieved on average under real 
world driving conditions. These adjustments are industry averages for 
the vehicles' performance as a whole, however, and are not a substitute 
for the information on effectiveness of individual control technologies 
that will be explored for purposes of a future GHG and CAFE rulemaking.
3. Form of the Standards
    In this rule, NHTSA and EPA are proposing attribute-based standards 
for passenger cars and light trucks. NHTSA adopted an attribute 
standard based on vehicle footprint in its Reformed CAFE program for 
light trucks for model years 2008-2011,\50\ and recently extended this 
approach to passenger cars in the CAFE rule for MY 2011 as required by 
EISA.\51\ EPA and NHTSA are proposing vehicle footprint as the 
attribute for the GHG

[[Page 49471]]

and CAFE standards. Footprint is defined as a vehicle's wheelbase 
multiplied by its track width--in other words, the area enclosed by the 
points at which the wheels meet the ground. The agencies believe that 
the footprint attribute is the most appropriate attribute on which to 
base the standards under consideration, as further discussed later in 
this notice and in Chapter 2 of the joint TSD.
---------------------------------------------------------------------------

    \50\ 71 FR 17566 (Apr. 6, 2006).
    \51\ 74 FR 14196 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Under the proposed footprint-based standards, each manufacturer 
would have a GHG and CAFE target unique to its fleet, depending on the 
footprints of the vehicle models produced by that manufacturer. A 
manufacturer would have separate footprint-based standards for cars and 
for trucks. Generally, larger vehicles (i.e., vehicles with larger 
footprints) would be subject to less stringent standards (i.e., higher 
CO2 grams/mile standards and lower CAFE standards) than 
smaller vehicles. This is because, generally speaking, smaller vehicles 
are more capable of achieving higher standards than larger vehicles. 
While a manufacturer's fleet average standard could be estimated 
throughout the model year based on projected production volume of its 
vehicle fleet, the standard to which the manufacturer must comply would 
be based on its final model year production figures. A manufacturer's 
calculation of fleet average emissions at the end of the model year 
would thus be based on the production-weighted average emissions of 
each model in its fleet.
    In designing the footprint-based standards, the agencies built upon 
the footprint standard curves for passenger cars and light trucks used 
in the CAFE rule for MY 2011.\52\ EPA and NHTSA worked together to 
design car and truck footprint curves that followed from logistic 
curves used in that rule. The agencies started by addressing two main 
concerns regarding the car curve. The first concern was that the 2011 
car curve was relatively steep near the inflection point thus causing 
concern that small variations in footprint could produce relatively 
large changes in fuel economy targets. A curve that was directionally 
less steep would reduce the potential for gaming. The second issue was 
that the inflection point of the logistic curve was not centered on the 
distribution of vehicle footprints across the industries' fleet, thus 
resulting in a flat (universal or unreformed) standard for over half 
the fleet. The proposed car curve has been shifted and made less steep 
compared to the car curve adopted by NHTSA for 2011, such that it 
better aligns the sloped region with higher production volume vehicle 
models. Finally, both the car and truck curves are defined in terms of 
a constrained linear function for fuel consumption and, equivalently, a 
piece-wise linear function for CO2. NHTSA and EPA include a 
full discussion of the development of these curves in the joint TSD and 
a summary is found in Section II below. In addition, a full discussion 
of the equations and coefficients that define the curves is included in 
Section III for the CO2 curves and Section IV for the mpg 
curves. The following figures illustrate the standards. First Figure 
I.D.3-1 shows the fuel economy (mpg) car standard curve.
---------------------------------------------------------------------------

    \52\ 74 FR 14407-14409 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy for the CAFE standards, and 
CO2 g/mile for the GHG emissions standards), the level of 
which depends on the vehicle's attribute (for this proposal, 
footprint). The manufacturers' fleet average performance is determined 
by the production-weighed \53\ average (for CAFE, harmonic average) of 
those targets. NHTSA and EPA are proposing CAFE and CO2 
emissions standards defined by constrained linear functions and, 
equivalently, piecewise linear functions.\54\ As a possible option for 
future rulemakings, the constrained linear form was introduced by NHTSA 
in the 2007 NPRM proposing CAFE standards for MY 2011-2015.
---------------------------------------------------------------------------

    \53\ Production for sale in the United States.
    \54\ The equations are equivalent but are specified differently 
due to differences in the agencies' respective models.
---------------------------------------------------------------------------

    NHTSA is proposing the attribute curves below for assigning a fuel 
economy level to an individual vehicle's footprint value, for model 
years 2012 through 2016. These mpg values would be production weighted 
to determine each manufacturer's fleet average standard for cars and 
trucks. Although the general model of the equation is the same for each 
vehicle category and each year, the parameters of the equation differ 
for cars and trucks. Each parameter also changes on an annual basis, 
resulting in the yearly increases in stringency. Figure I.D.3-1 below 
illustrates the passenger car CAFE standard curves for model years 2012 
through 2016 while Figure I.D.3-2 below illustrates the light truck 
standard curves for model years 2012-2016. The MY 2011 final standards 
for cars and trucks, which are specified by a constrained logistic 
function rather than a constrained linear function, are shown for 
comparison.
BILLING CODE 4910-59-P

[[Page 49472]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.000


[[Page 49473]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.001

    EPA is proposing the attribute curves below for assigning a 
CO2 level to an individual vehicle's footprint value, for 
model years 2012 through 2016. These CO2 values would be 
production weighted to determine each manufacturer's fleet average 
standard for cars and trucks. Although the general model of the 
equation is the same for each vehicle category and each year, the 
parameters of the equation differ for cars and trucks. Each parameter 
also changes on an annual basis, resulting in the yearly increases in 
stringency. Figure I.D.3-3 below illustrates the CO2 car 
standard curves for model years 2012 through 2016 while Figure I.D.3-4 
shows the CO2 truck standard curves for Model Years 2012-
2016.

[[Page 49474]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.002


[[Page 49475]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.003

BILLING CODE 4910-59-C
    NHTSA and EPA propose to use the same vehicle category definitions 
for determining which vehicles are subject to the car footprint curves 
versus the truck curve standards. In other words, a vehicle classified 
as a car under the NHTSA CAFE program would also be classified as a car 
under the EPA GHG program, and likewise for trucks. EPA and NHTSA are 
proposing to employ the same car and truck definitions for the MY 2012-
2016 CAFE and GHG standards as those used in the CAFE program for the 
2011 model year standards.\55\ This proposed approach of using CAFE 
definitions allows EPA's

[[Page 49476]]

proposed CO2 standards and the proposed CAFE standards to be 
harmonized across all vehicles. EPA is not changing the car/truck 
definition for the purposes of any other previous rule.
---------------------------------------------------------------------------

    \55\ 49 CFR part 523.
---------------------------------------------------------------------------

    Generally speaking, a smaller footprint vehicle will have lower 
CO2 emissions relative to a larger footprint vehicle. A 
footprint-based CO2 standard can be relatively neutral with 
respect to vehicle size and consumer choice. All vehicles, whether 
smaller or larger, must make improvements to reduce CO2 
emissions, and therefore all vehicles will be relatively more 
expensive. With the footprint-based standard approach, EPA and NHTSA 
believe there should be no significant effect on the relative 
distribution of different vehicle sizes in the fleet, which means that 
consumers will still be able to purchase the size of vehicle that meets 
their needs. Table I.D.3-1 illustrates the fact that different vehicle 
sizes will have varying CO2 emissions and fuel economy 
targets under the proposed standards.

          Table I.D.3-1--Model Year 2016 CO2 and Fuel Economy Targets for Various MY 2008 Vehicle Types
----------------------------------------------------------------------------------------------------------------
                                                                   Example model
             Vehicle type                    Example models       footprint (sq.   CO2 emissions   Fuel economy
                                                                       ft.)       target  (g/mi)   target  (mpg)
----------------------------------------------------------------------------------------------------------------
                                             Example Passenger Cars
----------------------------------------------------------------------------------------------------------------
Compact car...........................  Honda Fit...............              40             214            41.4
Midsize car...........................  Ford Fusion.............              46             237            37.3
Fullsize car..........................  Chrysler 300............              53             270            32.8
----------------------------------------------------------------------------------------------------------------
                                            Example Light-Duty Trucks
----------------------------------------------------------------------------------------------------------------
Small SUV.............................  4WD Ford Escape.........              44             269            32.8
Midsize crossover.....................  Nissan Murano...........              49             289            30.6
Minivan...............................  Toyota Sienna...........              55             313            28.2
Large pickup truck....................  Chevy Silverado.........              67             358            24.7
----------------------------------------------------------------------------------------------------------------

E. Summary of Costs and Benefits for the Joint Proposal

    This section summarizes the projected costs and benefits of the 
proposed CAFE and GHG emissions standards. These projections helped 
inform the agencies' choices among the alternatives considered and 
provide further confirmation that proposed standards fall within the 
spectrum of choices allowable under their respective statutory 
criteria. The costs and benefits projected by NHTSA to result from 
NHTSA's proposed CAFE standards are presented first, followed by those 
from EPA's analysis of the proposed GHG emissions standards.
    The agencies recognize that there are uncertainties regarding the 
benefit and cost values presented in this proposal. Some benefits and 
costs are not quantified. The values of other benefits and costs could 
be too low or too high.
    For several reasons, the estimates for costs and benefits presented 
by NHTSA and EPA, while consistent, are not directly comparable, and 
thus should not be expected to be identical. Most important, NHTSA and 
EPA's proposed standards would require slightly different fuel 
efficiency improvements. EPA's proposed GHG standard is more stringent 
in part due to its assumptions about manufacturers' use of air 
conditioning credits, which result from reductions in air conditioning-
related emissions of HFCs and CO2. In addition, the proposed 
CAFE and GHG standards offer different program flexibilities, and the 
agencies' analyses differ in their accounting for these flexibilities 
(for example, FFVs etc.), primarily because NHTSA is statutorily 
prohibited from considering some flexibilities when establishing CAFE 
standards, while EPA is not. These differences contribute to 
differences in the agencies' respective estimates of costs and benefits 
resulting from the new standards.
    Because EPCA prohibits NHTSA from considering the use of FFV 
credits when establishing CAFE standards, the agency's primary analysis 
of costs, fuel savings, and related benefits from imposing higher CAFE 
standards does not include them. However, EPCA does not prohibit NHTSA 
from considering the fact that manufacturers may pay civil penalties 
rather than complying with CAFE standards, and NHTSA's primary analysis 
accounts for some manufacturers' tendency to do so. In addition, NHTSA 
performed a supplemental analysis of the effect of FFV credits on 
benefits and costs from its proposed CAFE standards, to demonstrate the 
real-world impacts of FFVs, and the summary estimates presented in 
Section IV include these effects. Including the use of FFV credits 
reduces estimated per-vehicle compliance costs of the program. However, 
as shown below, including FFV credits does not significantly change the 
projected fuel savings and CO2 reductions, because FFV 
credits reduce the fuel economy levels that manufacturers achieve not 
only under the proposed standards, but also under the baseline MY 2011 
CAFE standards.
    Also, EPCA, as amended by EISA, allows manufacturers to transfer 
credits between their passenger car and light truck fleets. However, 
EPCA also prohibits NHTSA from considering manufacturers' ability to 
use CAFE credits when determining the stringency of the CAFE standards. 
Because of this prohibition, NHTSA's primary analysis does not account 
for the extent to which credit transfers might actually occur. For 
purposes of its supplemental analysis, NHTSA considered accounting for 
the fact that EPCA allows some transfer of CAFE credits between the 
passenger car and light truck fleets, but determined that in NHTSA's 
year-by-year analysis, manufacturers' likely credit transfers cannot be 
reasonably estimated at this time.\56\
---------------------------------------------------------------------------

    \56\ NHTSA's analysis estimates multi-year planning effects 
within a context in which each model year is represented explicitly, 
and technologies applied in one model year carry forward to future 
model years. NHTSA does not currently have a basis to estimate how a 
manufacturer might, for example, weigh the transfer of credits from 
the passenger car to the light truck fleet in MY 2013 against the 
potential to carry light truck technologies forward from MY 2013 
through MY 2016. The agency is considering the possibility of 
implementing such analysis for purposes of the final rule.
---------------------------------------------------------------------------

    Therefore, NHTSA's primary analysis shows the estimates the agency 
considered for purposes of establishing new CAFE standards, and its 
supplemental analysis including manufacturers' potential use of FFV 
credits currently reflects the agency's best estimate of the potential 
real-world effects of the proposed CAFE standards.

[[Page 49477]]

    EPA made explicit assumptions about manufacturers' use of FFV 
credits under both the baseline and control alternatives, and its 
estimates of costs and benefits from the proposed GHG standards reflect 
these assumptions. However, under the proposed GHG standards, FFV 
credits would be available through MY 2015; starting in MY 2016, EPA 
proposes to allow FFV credits only based on a manfucturers's 
demonstration that the alternative fuel is actually being used in the 
vehicles and the actual GHG performance for the vehicle run on that 
alternative fuel.
    EPA's analysis also assumes that manufacturers would transfer 
credits between their car and truck fleets in the MY 2011 baseline 
subject to the maximum value allowed by EPCA, and that unlimited car-
truck credit transfers would occur under the proposed GHG standards. 
Including these assumptions in EPA's analysis increases the resulting 
estimates of fuel savings and reductions in GHG emissions, while 
reducing EPA's estimates of program compliance costs.
    Finally, under the proposed EPA GHG program, there is no ability 
for a manufacturer to intentionally pay fines in lieu of meeting the 
standard. Under EPCA, however, vehicle manufacturers are allowed to pay 
fines as an alternative to compliance with applicable CAFE standards. 
NHTSA's analysis explicitly estimates the level of voluntary fine 
payment by individual manufacturers, which reduces NHTSA's estimates of 
both the costs and benefits of its proposed CAFE standards. In 
contrast, the CAA does not allow for fine payment in lieu of compliance 
with emission standards, and EPA's analysis of costs and benefits from 
its proposed standard thus assumes full compliance. This assumption 
results in higher estimates of fuel savings, reductions in GHG 
emissions, and manufacturers' compliance costs to sell fleets that 
comply with both NHTSA's proposed CAFE program and EPA's proposed GHG 
program.
    In summary, the projected costs and benefits presented by NHTSA and 
EPA are not directly comparable, because the levels being proposed by 
EPA include air conditioning-related improvements in equivalent fuel 
efficiency and HFC reductions, because the assumptions incorporated in 
EPA's analysis regarding car-truck credit transfers, and because of the 
projection by EPA of complete compliance with the proposed GHG 
standards. It should also be expected that overall EPA's estimates of 
GHG reductions and fuel savings achieved by the proposed GHG standards 
will be slightly higher than those projected by NHTSA only for the CAFE 
standards because of the reasons described above. For the same reasons, 
EPA's estimates of manufacturers' costs for complying with the proposed 
passenger car and light trucks GHG standards are slightly higher than 
NHTSA's estimates for complying with the proposed CAFE standards.
1. Summary of Costs and Benefits of Proposed NHTSA CAFE Standards
    Without accounting for the compliance flexibilities that NHTSA is 
prohibited from considering when determining the level of new CAFE 
standards, since manufacturers' decisions to use those flexibilities 
are voluntary, NHTSA estimates that these fuel economy increases would 
lead to fuel savings totaling 62 billion gallons throughout the useful 
lives of vehicles sold in MYs 2012-2016. At a 3% discount rate, the 
present value of the economic benefits resulting from those fuel 
savings is $158 billion.
    The agency further estimates that these new CAFE standards would 
lead to corresponding reductions in CO2 emissions totaling 
656 million metric tons (mmt) during the useful lives of vehicles sold 
in MYs 2012-2016. The present value of the economic benefits from 
avoiding those emissions is $16.4 billion, based on a global social 
cost of carbon value of $20 per metric ton,\57\ although NHTSA 
estimated the benefits associated with five different values of a one 
ton GHG reduction ($5, $10, $20, $34, $56).\58\ See Section II for a 
more detailed discussion of the social cost of carbon. It is important 
to note that NHTSA's CAFE standards and EPA's GHG standards will both 
be in effect, and each will lead to increases in average fuel economy 
and CO2 emissions reductions. The two agencies' standards 
together comprise the National Program, and this discussion of costs 
and benefits of NHTSA's CAFE standards does not change the fact that 
both the CAFE and GHG standards, jointly, are the source of the 
benefits and costs of the National Program.
---------------------------------------------------------------------------

    \57\ We have developed two interim estimates of the global 
social cost of carbon (SCC) ($/tCO2 in 2007 (2006$)): $33 
per tCO2 at a 3% discount rate, and $5 per 
tCO2 with a 5% discount rate. The 3% and 5% estimates 
have independent appeal and at this time a clear preference for one 
over the other is not warranted. Thus, we have also included--and 
centered our current attention on--the average of the estimates 
associated with these discount rates, which is $19 (in 2006$) per 
ton of CO2 emissions. When converted to 2007$ for 
consistency with other economic values used in the agency's 
analysis, this figure corresponds to $20 per metric ton of 
CO2 emissions occurring in 2007. This value is assumed to 
increase at 3% annually for emissions occurring after 2007.
    \58\ The $10 and $56 figures are alternative interim estimates 
based on uncertainty about interest rates of long periods of time. 
They are based on an approach that models discount rate uncertainty 
as something that evolves over time; in contrast, the preferred 
approach mentioned in the immediately preceding paragraph assumes 
that there is a single discount rate with equal probability of 3% 
and 5%.

 Table I.E.1-1--NHTSA Fuel Saved (Billion Gallons) and CO2 Emissions Avoided (mmt) Under Proposed CAFE Standards
                                              (Without FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Fuel (b. gal.)............................................        4        9       13       16       19       62
CO2 (mmt).................................................       44       96      137      173      206      656
----------------------------------------------------------------------------------------------------------------

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

[[Page 49478]]



 Table I.E.1-2--NHTSA Fuel Saved (Billion Gallons) and CO2 Emissions Avoided (mmt) Under Proposed CAFE Standards
                                               (With FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Fuel (b. gal.)............................................        5        8       12       15       19       59
CO2 (mmt).................................................       49       90      129      167      204      639
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that these fuel economy increases would produce 
other benefits both to drivers (e.g., reduced time spent refueling) and 
to the U.S. (e.g., reductions in the costs of petroleum imports beyond 
the direct savings from reduced oil purchases, as well as some 
disbenefits (e.g., increase traffic congestion) caused by drivers' 
tendency to travel more when the cost of driving declines (as it does 
when fuel economy increases). NHTSA has estimated the total monetary 
value to society of these benefits and disbenefits, and estimates that 
the proposed standards will produce significant net benefits to 
society. Using a 3% discount rate, NHTSA estimates that the present 
value of these benefits would total more than $200 billion over the 
useful lives of vehicles sold during MYs 2012-2016. More discussion 
regarding monetized benefits can be found in Section IV of this notice 
and in NHTSA's Regulatory Impact Analysis.

 Table I.E.1-3--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (Before FFV Credits, Using 3
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      7.6     17.0     24.4     31.2     38.7    119.1
Light Trucks..............................................      5.5     11.6     17.3     22.2     26.0     82.6
Combined..................................................     13.1     28.7     41.8     53.4     64.7    201.7
----------------------------------------------------------------------------------------------------------------

    Using a 7% discount rate, NHTSA estimates that the present value of 
these benefits would total more than $159 billion over the same time 
period.

    Table I.E.1-4--NHTSA Discounted Benefits ($Billion) Under Proposed Standards (Before FFV Credits, Using 7
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      6.0     13.6     19.5     25.0     31.1     95.3
Light Trucks..............................................      4.3      9.1     13.5     17.4     20.4     64.6
Combined..................................................     10.3     22.6     33.1     42.4     51.5    159.8
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that FFV credits could reduce achieved benefits by 
about 4.5%:

 Table I.E.1-5a--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 3
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      7.8     15.9     22.5     28.6     37.1    111.9
Light Trucks..............................................      6.1     10.2     15.9     22.1     26.3     80.5
Combined..................................................     13.9     26.1     38.4     50.7     63.3    192.5
----------------------------------------------------------------------------------------------------------------


 Table I.E.1-5b--NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 7
                                             Percent Discount Rate)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      6.2     12.7     18.0     23.0     29.8     89.6
Light Trucks..............................................      4.7      7.9     12.4     17.3     20.6     63.0
Combined..................................................     10.9     20.6     20.4     40.3     50.4    152.5
----------------------------------------------------------------------------------------------------------------

    NHTSA attributes most of these benefits--about $158 billion (at a 
3% discount rate and excluding consideration of FFV credits), as noted 
above--to reductions in fuel consumption, valuing fuel (for societal 
purposes) at the future pre-tax prices projected in the Energy 
Information Administration's (EIA's) reference case forecast from 
Annual Energy Outlook (AEO) 2009. The Preliminary Regulatory Impact 
Analysis (PRIA) accompanying

[[Page 49479]]

this proposed rule presents a detailed analysis of specific benefits of 
the proposed rule.

Table I.E.1-6--Summary of Benefits Fuel Savings and CO2 Emissions Reduction Due to the Proposed Rule (Before FFV
                                                    Credits)
----------------------------------------------------------------------------------------------------------------
                                                                          Monetized value (discounted)
                                                Amount         -------------------------------------------------
                                                                    3% Discount rate         7% Discount rate
----------------------------------------------------------------------------------------------------------------
Fuel savings.........................  61.6 billion gallons...  $158.0 billion.........  $125.3 billion.
CO2 emissions reductions.............  656 million metric tons  $16.4 billion..........  $12.8 billion.
                                        (mmt).
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that the increases in technology application 
necessary to achieve the projected improvements in fuel economy will 
entail considerable monetary outlays. The agency estimates that 
incremental costs for achieving its proposed standards--that is, 
outlays by vehicle manufacturers over and above those required to 
comply with the MY 2011 CAFE standards--will total about $60 billion 
(i.e., during MYs 2012-2016).

    Table I.E.1-7--NHTSA Incremental Technology Outlays ($Billion) Under Proposed CAFE Standards (Before FFV
                                                    Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      4.1      6.5      8.4      9.9     11.8     40.8
Light Trucks..............................................      1.5      2.8      4.0      5.2      5.9     19.4
Combined..................................................      5.7      9.3     12.5     15.1     17.6     60.2
----------------------------------------------------------------------------------------------------------------

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

 Table I.E.1-8--NHTSA Incremental Technology Outlays ($Billion) Under Proposed CAFE Standards (With FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................      2.5      4.4      6.1      7.4      9.3     29.6
Light Trucks..............................................      1.3      2.0      3.1      4.3      5.0     15.6
Combined..................................................      3.7      6.3      9.2     11.7     14.2     45.2
----------------------------------------------------------------------------------------------------------------

    The agency projects that manufacturers will recover most or all of 
these additional costs through higher selling prices for new cars and 
light trucks. To allow manufacturers to recover these increased outlays 
(and, to a much lesser extent, the civil penalties that some companies 
are expected to pay for noncompliance), the agency estimates that the 
proposed standards would lead to increases in average new vehicle 
prices ranging from $476 per vehicle in MY 2012 to $1,091 per vehicle 
in MY 2016:

    Table I.E.1-9--NHTSA Incremental Increases in Average New Vehicle Costs ($) Under Proposed CAFE Standards
                                              (Before FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      591      735      877      979    1,127
Light Trucks.......................................................      283      460      678      882    1,020
Combined...........................................................      476      635      806      945    1,091
----------------------------------------------------------------------------------------------------------------

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

Table I.E.1-10--NHTSA Incremental Increases in Average New Vehicle Costs ($) Under Proposed CAFE Standards (With
                                                  FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.....................................................      295      448      591      695      851
Light Trucks.......................................................      231      347      533      758      895

[[Page 49480]]

 
Combined...........................................................      271      411      571      716      866
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates, therefore, that the total benefits of these 
proposed standards would be more than three times the magnitude of the 
corresponding costs. As a consequence, its proposed standards would 
produce net benefits of $142 billion at a 3 percent discount rate (with 
FFV credits, $147 billion) or $100 billion at a 7 percent discount rate 
over the useful lives of vehicles sold during MYs 2012-2016.
2. Summary of Costs and Benefits of Proposed EPA GHG Standards
    EPA has conducted a preliminary assessment of the costs and 
benefits of the proposed GHG standards. Table I.E.2-1 shows EPA's 
estimated lifetime fuel savings and CO2 equivalent emission 
reductions for all vehicles sold in the model years 2012-2016. The 
values in Table I.E.2-1 are projected lifetime totals for each model 
year and are not discounted. As documented in DRIA Chapter 5, the 
potential credit transfer between cars and trucks may change the 
distribution of the fuel savings and GHG emission impacts between cars 
and trucks. As discussed above with respect to NHTSA's CAFE standards, 
it is important to note that NHTSA's CAFE standards and EPA's GHG 
standards will both be in effect, and each will lead to increases in 
average fuel economy and CO2 emissions reductions. The two 
agency's standards together comprise the National Program, and this 
discussion of costs and benefits of EPA's GHG standards does not change 
the fact that both the CAFE and GHG standards, jointly, are the source 
of the benefits and costs of the National Program.

        Table I.E.2-1--EPA's Estimated 2012-2016 Model Year Lifetime Fuel Saved and GHG Emissions Avoided
----------------------------------------------------------------------------------------------------------------
                                                        2012      2013      2014      2015      2016      Total
----------------------------------------------------------------------------------------------------------------
Cars............................  Fuel (billion            4         6         8        11        14        43
                                   gallons).
                                  Fuel (billion            0.1       0.1       0.2       0.3       0.3       1.0
                                   barrels).
                                  CO2 EQ (mmt)......      51        74        98       137       179       539
Light Trucks....................  Fuel (billion            2         4         6         9        12        33
                                   gallons).
                                  Fuel (billion            0.1       0.1       0.1       0.2       0.3       0.8
                                   barrels).
                                  CO2 EQ (mmt)......      30        51        77       107       143       408
Combined........................  Fuel (billion            7        10        14        19        26        76
                                   gallons).
                                  Fuel (billion            0.2       0.2       0.3       0.5       0.6       1.8
                                   barrels).
                                  CO2 EQ (mmt)......      81       125       174       244       323       947
----------------------------------------------------------------------------------------------------------------

    Table I.E.2-2 shows EPA's estimated lifetime discounted benefits 
for all vehicles sold in model years 2012-2016. Although EPA estimated 
the benefits associated with five different values of a one ton GHG 
reduction ($5, $10, $20, $34, $56), for the purposes of this overview 
presentation of estimated benefits EPA is showing the benefits 
associated with one of these marginal values, $20 per ton of 
CO2, in 2007 dollars and 2007 emissions, in this joint 
proposal. Table I.E.2-2 presents benefits based on the $20 value. 
Section III.H presents the five marginal values used to estimate 
monetized benefits of GHG reductions and Section III.H presents the 
program benefits using each of the five marginal values, which 
represent only a partial accounting of total benefits due to omitted 
climate change impacts and other factors that are not readily 
monetized. These factors are being used on an interim basis while 
analysis is conducted to generate new estimates. The values in the 
table are discounted values for each model year throughout their 
projected lifetimes. The benefits include all benefits considered by 
EPA such as fuel savings, GHG reductions, PM benefits, energy security 
and other externalities such as reduced refueling and accidents, 
congestion and noise. The lifetime discounted benefits are shown for 
one of five different social cost of carbon (SCC) values considered by 
EPA. The values in Table I.E.2-2 do not include costs associated with 
new technology required to meet the proposal.

 Table I.E.2-2--EPA's Estimated 2012-2016 Model Year Lifetime Discounted Benefits Assuming the $20/Ton SCC Value
                                                       \a\
                                           [$Billions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                 Model year
                       Discount rate                       -----------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
3%........................................................    $20.4    $31.7    $44.9    $63.7    $87.2     $248
7.........................................................     15.8     24.7     34.9     49.3     67.7      193
----------------------------------------------------------------------------------------------------------------
\a\ The benefits include all benefits considered by EPA such as fuel savings, GHG reductions, PM benefits,
  energy security and other externalities such as reduced refueling and accidents, congestion and noise.


[[Page 49481]]

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

    Table I.E.2-3--EPA's Estimated 2012-2016 Model Year Lifetime Fuel
Savings, CO2 Emission Reductions, and Discounted Monetized Benefits at a
                            3% Discount Rate
                   [Monetized values in 2007 dollars]
------------------------------------------------------------------------
                                        Amount        $ value (billions)
------------------------------------------------------------------------
Fuel savings....................  1.8 billion         $193, 3% discount
                                   barrels.            rate.
                                                      $151, 7% discount
                                                       rate.
CO2 emission reductions (valued   947 MMT CO2e......  $21.0, 3% discount
 assuming $20/ton CO2 in 2007).                        rate.
                                                      $15.0, 7% discount
                                                       rate.
------------------------------------------------------------------------

    Table I.E.2-4 shows EPA's estimated incremental technology outlays 
for cars and trucks for each of the model years 2012-2016. The total 
outlays are also shown. The technology outlays shown in Table I.E.2-4 
are for the industry as a whole and do not account for fuel savings 
associated with the proposal.

                          Table I.E.2-4--EPA's Estimated Incremental Technology Outlays
                                           [$Billions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Cars......................................................     $3.5     $5.3     $7.0     $8.9    $10.7    $35.3
Trucks....................................................      2.0      3.1      4.0      5.1      6.8     20.9
Combined..................................................      5.4      8.4     10.9     13.9     17.5     56.1
----------------------------------------------------------------------------------------------------------------

    Table I.E.2-5 shows EPA's estimated incremental cost increase of 
the average new vehicle for each model year 2012-2016. The values shown 
are incremental to a baseline vehicle and are not cumulative. In other 
words, the estimated increase for 2012 model year cars is $374 relative 
to a 2012 model year car absent the proposal. The estimated increase 
for a 2013 model year car is $531 relative to a 2013 model year car 
absent the proposal (not $374 plus $531).

                 Table I.E.2-5--EPA's Estimated Incremental Increase in Average New Vehicle Cost
                                             [2007 Dollars per unit]
----------------------------------------------------------------------------------------------------------------
                                                                       2012     2013     2014     2015     2016
----------------------------------------------------------------------------------------------------------------
Cars...............................................................     $374     $531     $663     $813     $968
Trucks.............................................................      358      539      682      886    1,213
Combined...........................................................      368      534      670      838    1,050
----------------------------------------------------------------------------------------------------------------

F. Program Flexibilities for Achieving Compliance

    EPA's and NHTSA's proposed programs provide compliance flexibility 
to manufacturers, especially in the early years of the National 
Program. This flexibility is expected to provide sufficient lead time 
for manufacturers to make necessary technological improvements and 
reduce the overall cost of the program, without compromising overall 
environmental and fuel economy objectives. The broad goal of 
harmonizing the two agencies' proposed standards includes preserving 
manufacturers' flexibilities in meeting the standards, to the extent 
appropriate and required by law. The following section provides an 
overview of the flexibility provisions the agencies are proposing.
1. CO2/CAFE Credits Generated Based on Fleet Average 
Performance
    Under the NHTSA and EPA proposal the fleet average standards that 
apply to a manufacturer's car and truck fleets would be based on the 
applicable footprint-based curves. At the end of each model year, when 
production of the model year is complete, a production-weighted fleet 
average would be calculated for each averaging set (cars and trucks). 
Under this approach, a manufacturer's car and/or truck fleet that 
achieves a fleet average CO2/CAFE level better than the 
standard would generate credits. Conversely, if the fleet average 
CO2/CAFE level does not meet the standard the fleet would 
generate debits (also referred to as a shortfall).
    Under the proposed program, a manufacturer whose fleet generates 
credits in a given model year would have several options for using 
those credits, including credit carry-back, credit carry-forward, 
credit transfers,

[[Page 49482]]

and credit trading. These provisions exist in the MY 2011 CAFE program 
under EPCA and EISA, and similar provisions are part of EPA's Tier 2 
program for light duty vehicle criteria pollutant emissions, as well as 
many other mobile source standards issued by EPA under the CAA. EPA is 
proposing that the manufacturer would be able to carry-back credits to 
offset any deficit that had accrued in a prior model year and was 
subsequently carried over to the current model year. EPCA already 
provides for this. EPCA restricts the carry-back of CAFE credits to 
three years and EPA is proposing the same limitation, in keeping with 
the goal of harmonizing both sets of proposed standards.
    After satisfying any need to offset pre-existing deficits, 
remaining credits could be saved (banked) for use in future years. 
Under the CAFE program, EISA allows manufacturers to apply credits 
earned in a model year to compliance in any of the five subsequent 
model years.\59\ EPA is also proposing, under the GHG program, to allow 
manufacturers to use these banked credits in the five years after the 
year in which they were generated (i.e., five years carry-forward).
---------------------------------------------------------------------------

    \59\ 49 U.S.C. 32903(a)(2).
---------------------------------------------------------------------------

    EISA required NHTSA to establish by regulation a CAFE credits 
transferring program, which NHTSA established in a March 2009 final 
rule codified at 49 CFR part 536, to allow a manufacturer to transfer 
credits between its vehicle fleets to achieve compliance with the 
standards. For example, credits earned by over-compliance with a 
manufacturer's car fleet average standard could be used to offset 
debits incurred due to that manufacturer's not meeting the truck fleet 
average standard in a given year. EPA's Tier 2 program also provides 
for this type of credit transfer. For purposes of this NPRM, EPA 
proposes unlimited credit transfers across a manufacturer's car-truck 
fleet to meet the GHG standard. This is based on the expectation that 
this kind of credit transfer provision will allow the required GHG 
emissions reductions to be achieved in the most cost effective way, and 
this flexibility will facilitate the ability of the manufacturers to 
comply with the GHG standards in the lead time provided. Under the CAA, 
unlike under EISA, there is no statutory limitation on car-truck credit 
transfers. Therefore EPA is not proposing to constrain car-truck credit 
transfers as doing so would increase costs with no corresponding 
environmental benefit. For the CAFE program, however, EISA limits the 
amount of credits that may be transferred, and also prohibits the use 
of transferred credits to meet the statutory minimum level for the 
domestic car fleet standard.\60\ These and other statutory limits would 
continue to apply to the determination of compliance with the CAFE 
standard.
---------------------------------------------------------------------------

    \60\ 49 U.S.C. 32903(g)(4).
---------------------------------------------------------------------------

    Finally, EISA also allowed NHTSA to establish by regulation a CAFE 
credit trading program, which NHTSA established in the March 2009 final 
rule at 40 CFR Part 536, to allow credits to be traded (sold) to other 
vehicle manufacturers. EPA is also proposing to allow credit trading in 
the GHG program. These sorts of exchanges are typically allowed under 
EPA's current mobile source emission credit programs, although 
manufacturers have seldom made such exchanges. Under the NHTSA CAFE 
program, EPCA also allows these types of credit trades, although, as 
with transferred credits, traded credits may not be used to meet the 
minimum domestic car standards specified by statute.\61\
---------------------------------------------------------------------------

    \61\ 49 U.S.C. 32903(f)(2).
---------------------------------------------------------------------------

2. Air Conditioning Credits
    Air conditioning (A/C) systems contribute to GHG emissions in two 
ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHG 
pollutants, can leak from the A/C system. Operation of the A/C system 
also places an additional load on the engine, which results in 
additional CO2 tailpipe emissions. EPA is proposing an 
approach that allows manufacturers to generate credits by reducing GHG 
emissions related to A/C systems. Specifically, EPA is proposing a test 
procedure and method to calculate CO2 equivalent reductions 
for the full useful life on a grams/mile basis that can be used as 
credits in meeting the fleet average CO2 standards. EPA's 
analysis indicates this approach provides manufacturers with a highly 
cost-effective way to achieve a portion of GHG emissions reductions 
under the EPA program. EPA is estimating that manufacturers will on 
average take advantage of 11 g/mi GHG credit toward meeting the 250 g/
mi by 2016 (though some companies may have more). EPA is also proposing 
to allow manufacturers to earn early A/C credits starting in MY 2009 
through 2011, as discussed further in a later section.
    Comment is also sought on the approach of providing CAFE credits 
under 49 U.S.C. 32904(c) for light trucks equipped with relatively 
efficient air conditioners for MYs 2012-2016. The agencies invite 
comment on allowing a manufacturer to generate additional CAFE credits 
from the reduction of fuel consumption through the application of air 
conditioning efficiency improvement technologies to trucks. Currently, 
the CAFE program does not induce manufacturers to install more 
efficient air conditioners because the air conditioners are not turned 
on during fuel economy testing. The agencies note that if such credits 
were adopted, it may be necessary to reflect them in the setting of the 
CAFE standards for light trucks for the same model years and invite 
comment on that issue.
3. Flex-Fuel and Alternative Fuel Vehicle Credits
    EPCA authorizes an incentive under the CAFE program for production 
of dual-fueled or flexible-fuel vehicles (FFV) and dedicated 
alternative fuel vehicles. FFVs are vehicles that can run both on an 
alternative fuel and conventional fuel. Most FFVs are E-85 capable 
vehicles, which can run on either gasoline or a mixture of up to 85 
percent ethanol and 15 percent gasoline. Dedicated alternative fuel 
vehicles are vehicles that run exclusively on an alternative fuel. EPCA 
was amended by EISA to extend the period of availability of the FFV 
incentive, but to begin phasing it out by annually reducing the amount 
of FFV incentive that can be used toward compliance with the CAFE 
standards.\62\ EPCA does not premise the availability of the FFV 
credits on actual use of alternative fuel by an FFV vehicle. Under 
NHTSA's CAFE program, pursuant to EISA, after MY 2019, no FFV credits 
will be available for CAFE compliance.\63\ For dedicated alternative 
fuel vehicles, there are no limits or phase-out of the credits. 
Consistent with the statute, NHTSA will continue to allow the use of 
FFV credits for purposes of compliance with the proposed standards 
until the end of the phase-out period.
---------------------------------------------------------------------------

    \62\ EPCA provides a statutory incentive for production of FFVs 
by specifying that their fuel economy is determined using a special 
calculation procedure that results in those vehicles being assigned 
a higher fuel economy level than would otherwise occur. This is 
typically referred to as an FFV credit.
    \63\ Id.
---------------------------------------------------------------------------

    For the GHG program, EPA is proposing to allow FFV credits in line 
with EISA limits only during the period from MYs 2012 to 2015. After MY 
2015, EPA proposes to allow FFV credits only based on a manufacturer's 
demonstration that the alternative fuel is actually being used in the 
vehicles. EPA is seeking comments on how that demonstration could be 
made. EPA discusses this in more detail in Section III.C of the 
preamble.

[[Page 49483]]

4. Temporary Lead-Time Allowance Alternative Standards
    Manufacturers with limited product lines may be especially 
challenged in the early years of the proposed program. Manufacturers 
with narrow product offerings may not be able to take full advantage of 
averaging or other program flexibilities due to the limited scope of 
the types of vehicles they sell. For example, some smaller volume 
manufacturers focus on high performance vehicles with higher 
CO2 emissions, above the CO2 emissions target for 
that vehicle footprint, but do not have other types of vehicles in 
their production mix with which to average. Often, these manufacturers 
pay fines under the CAFE program rather than meeting the applicable 
CAFE standard. EPA believes that these technological circumstances may 
call for a more gradual phase-in of standards so that manufacturer 
resources can be focused on meeting the 2016 levels.
    EPA is proposing a temporary lead-time allowance for manufacturers 
who sell vehicles in the U.S. in MY 2009 whose vehicle sales in that 
model year are below 400,000 vehicles. EPA proposes that this allowance 
would be available only during the MY 2012-2015 phase-in years of the 
program. A manufacturer that satisfies the threshold criteria would be 
able to treat a limited number of vehicles as a separate averaging 
fleet, which would be subject to a less stringent GHG standard.\64\ 
Specifically, a standard of 125 percent of the vehicle's otherwise 
applicable foot-print target level would apply to up to 100,000 
vehicles total, spread over the four year period of MY 2012 through 
2015. Thus, the number of vehicles to which the flexibility could apply 
is limited. EPA also is proposing appropriate restrictions on credit 
use for these vehicles, as discussed further in Section III. By MY 
2016, these allowance vehicles must be averaged into the manufacturer's 
full fleet (i.e., they are no longer eligible for a different 
standard). EPA discusses this in more detail in Section III.B of the 
preamble.
---------------------------------------------------------------------------

    \64\ EPCA does not permit such an allowance. Consequently, 
manufacturers who may be able to take advantage of a lead-time 
allowance under the proposed GHG standards would be required to 
comply with the applicable CAFE standard or be subject to penalties 
for non-compliance.
---------------------------------------------------------------------------

5. Additional Credit Opportunities Under the CAA
    EPA is proposing additional opportunities for early credits in MYs 
2009-2011 through over-compliance with a baseline standard. The 
baseline standard would be set to be equivalent, on a national level, 
to the California standards. Potentially, credits could be generated by 
over-compliance with this baseline in one of two ways--over-compliance 
by the fleet of vehicles sold in California and the CAA section 177 
States (i.e., those States adopting the California program), or over-
compliance with the fleet of vehicles sold in the 50 States. EPA is 
also proposing early credits based on over-compliance with CAFE, but 
only for vehicles sold in States outside of California and the CAA 
section 177 States. Under the proposed early credit provisions, no 
early FFV credits would be allowed, except those achieved by over-
compliance with the California program based on California's provisions 
that manufacturers demonstrate actual use of the alternative fuel. 
EPA's proposed early credits options are designed to ensure that there 
would be no double counting of early credits. Consistent with this 
paragraph, NHTSA notes, however, that credits for overcompliance with 
CAFE standards during MYs 2009-2011 will still be available for 
manufacturers to use toward compliance in future model years, just as 
before.
    EPA is proposing additional credit opportunities to encourage the 
commercialization of advanced GHG/fuel economy control technologies, 
such as electric vehicles, plug-in hybrid electric vehicles, and fuel 
cell vehicles. These proposed advanced technology credits are in the 
form of a multiplier that would be applied to the number of vehicles 
sold, such that each eligible vehicle counts as more than one vehicle 
in the manufacturer's fleet average. EPA is also proposing to allow 
early advanced technology credits to be generated beginning in MYs 2009 
through 2011.
    EPA is also proposing an Option for manufacturers to generate 
credits for employing technologies that achieve GHG reductions that are 
not reflected on current test procedures. Examples of such ``off-
cycle'' technologies might include solar panels on hybrids, adaptive 
cruise control, and active aerodynamics, among other technologies. EPA 
is seeking comments on the best ways to quantify such credits to ensure 
any off-cycle credits applied for by a manufacturer are verifiable, 
reflect real-world reductions, based on repeatable test procedures, and 
are developed through a transparent process allowing appropriate 
opportunities for public comment.

G. Coordinated Compliance

    Previous NHTSA and EPA regulations and statutory provisions 
establish ample examples on which to develop an effective compliance 
program that achieves the energy and environmental benefits from CAFE 
and motor vehicle GHG standards. NHTSA and EPA are proposing a program 
that recognizes, and replicates as closely as possible, the compliance 
protocols associated with the existing CAA Tier 2 vehicle emission 
standards, and with CAFE standards. The certification, testing, 
reporting, and associated compliance activities closely track current 
practices and are thus familiar to manufacturers. EPA already oversees 
testing, collects and processes test data, and performs calculations to 
determine compliance with both CAFE and CAA standards. Under this 
proposed coordinated approach, the compliance mechanisms for both 
programs are consistent and non-duplicative. EPA will also apply the 
CAA authorities applicable to its separate in-use requirements in this 
program.
    The proposed approach allows manufacturers to satisfy the new 
program requirements in the same general way they comply with existing 
applicable CAA and CAFE requirements. Manufacturers would demonstrate 
compliance on a fleet-average basis at the end of each model year, 
allowing model-level testing to continue throughout the year as is the 
current practice for CAFE determinations. The proposed compliance 
program design establishes a single set of manufacturer reporting 
requirements and relies on a single set of underlying data. This 
approach still allows each agency to assess compliance with its 
respective program under its respective statutory authority.
    NHTSA and EPA do not anticipate any significant noncompliance under 
the proposed program. However, failure to meet the fleet average 
standards (after credit opportunities are exhausted) would ultimately 
result in the potential for penalties under both EPCA and the CAA. The 
CAA allows EPA considerable discretion in assessment of penalties. 
Penalties under the CAA are typically determined on a vehicle-specific 
basis by determining the number of a manufacturer's highest emitting 
vehicles that caused the fleet average standard violation. This is the 
same mechanism used for EPA's National Low Emission Vehicle and Tier 2 
corporate average standards, and to date there have been no instances 
of noncompliance. CAFE penalties are specified by EPCA and would be 
assessed for the entire noncomplying fleet at a rate of $5.50 times the 
number of vehicles in the fleet, times the number of tenths of mpg by 
which the fleet average falls below the standard. In

[[Page 49484]]

the event of a compliance action arising out of the same facts and 
circumstances, EPA could consider CAFE penalties when determining 
appropriate remedies for the EPA case.

H. Conclusion

    This joint proposal by NHTSA and EPA represents a strong and 
coordinated National Program to achieve greenhouse gas emission 
reductions and fuel economy improvements from the light-duty vehicle 
part of the transportation sector. EPA's proposal for GHG standards 
under the Clean Air Act is discussed in Section III of this notice; 
NHTSA's proposal for CAFE standards under EPCA is discussed in Section 
IV. Each agency includes analyses on a variety of relevant issues under 
its respective statute, such as feasibility of the proposed standards, 
costs and benefits of the proposal, and effects on the economy, auto 
manufacturers, and consumers. This joint rulemaking proposal reflects a 
carefully coordinated and harmonized approach to developing and 
implementing standards under the two agencies' statutes and is in 
accordance with all substantive and procedural requirements required by 
law.
    NHTSA and EPA believe that the MY 2012 through 2016 standards 
proposed would provide substantial reductions in emissions of GHGs and 
oil consumption, with significant fuel savings for consumers. The 
proposed program is technologically feasible at a reasonable cost, 
based on deployment of available and effective control technology 
across the fleet, and industry would have the opportunity to plan over 
several model years and incorporate the vehicle upgrades into the 
normal redesign cycles. The proposed program would result in enormous 
societal net benefits, including greenhouse gas emission reductions, 
fuel economy savings, improved energy security, and cost savings to 
consumers from reduced fuel utilization.

II. Joint Technical Work Completed for This Proposal

A. Introduction

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

B. How Did NHTSA and EPA Develop the Baseline Market Forecast?

1. Why Do the Agencies Establish a Baseline Vehicle Fleet?
    In order to calculate the impacts of the EPA and NHTSA proposed 
regulations, it is necessary to estimate the composition of the future 
vehicle fleet absent these proposed regulations in order to conduct 
comparisons. EPA and NHTSA have developed a comparison fleet in two 
parts. The first step was to develop a baseline fleet based on model 
year 2008 data. The second step was to project that fleet into 2011-
2016. This is called the reference fleet. The third step was to modify 
that 2011-2016 reference fleet such that it had sufficient technologies 
to meet the 2011 CAFE standards. This final ``reference fleet'' is the 
light duty fleet estimated to exist in 2012-2016 if these proposed 
rules are not adopted. Each agency developed a final reference fleet to 
use in its modeling. All of the agencies' estimates of emission 
reductions, fuel economy improvements, costs, and societal impacts are 
developed in relation to the respective reference fleets.
2. How Do the Agencies Develop the Baseline Vehicle Fleet?
    EPA and NHTSA have based the projection of total car and total 
light truck sales on recent projections made by the Energy Information 
Administration (EIA). EIA publishes a long-term projection of national 
energy use annually called the Annual Energy Outlook. This projection 
utilizes a number of technical and econometric models which are 
designed to reflect both economic and regulatory conditions expected to 
exist in the future. In support of its projection of fuel use by light-
duty vehicles, EIA projects sales of new cars and light trucks. Due to 
the state of flux of both energy prices and the economy, EIA published 
three versions of its 2009 Annual Energy Outlook. The Preliminary 2009 
report was published early (in November 2008) in order to reflect the 
dramatic increase in fuel prices which occurred during 2008 and which 
occurred after the development of the 2008 Annual Energy Outlook. The 
official 2009 report was published in March of 2009. A third 2009 
report was published a month later which reflected the economic 
stimulus package passed by Congress earlier this year. We use the sales 
projections of this latest report, referred to as the updated 2009 
Annual Energy Outlook, here.
    In their updated 2009 report, EIA projects that total light-duty 
vehicle sales will gradually recover from their currently depressed 
levels by roughly 2013. In 2016, car and light truck sales are 
projected to be 9.5 and 7.1 million units, respectively. While the 
total level of sales of 16.6 million units is similar to pre-2008 
levels, the fraction of car sales is higher than that existing in the 
2000-2007 timeframe. This presumably reflects the impact of higher fuel 
prices and that fact that cars tend to have higher levels of fuel 
economy than trucks. We note that EIA's definition of cars and trucks 
follows that used by NHTSA prior to the MY 2011 CAFE final rule 
published earlier this year. That recent CAFE rule, which established 
the MY 2011 standards, reclassified a number of 2-wheel drive sport 
utility vehicles from the truck fleet to the car fleet. This has the 
impact of shifting a considerable number of previously defined trucks 
into the car category. Sales projections of cars and trucks for all 
future model years can be found in the draft Joint TSD for this 
proposal.
    In addition to a shift towards more car sales, sales of segments 
within both the car and truck markets have also been changing and are 
expected to continue to change in the future. Manufacturers are 
introducing more crossover models which offer much of the utility of 
SUVs but using more car-like designs. In order to reflect these changes 
in fleet makeup, EPA and NHTSA considered several available forecasts. 
After review EPA purchased and shared with NHTSA forecasts from two 
well-known industry analysts, CSM-Worldwide (CSM), and J.D. Powers. 
NHTSA and EPA decided to use the forecast from CSM, for several 
reasons. One, CSM agreed to allow us to publish the data, on which our 
forecast is based, in the public domain.\65\ Two, it covered nearly all 
the timeframe of greatest relevance to this proposed rule (2012-2015 
model years). Three, it provided projections of vehicle sales both by 
manufacturer and by market segment. Four, it utilized market segments 
similar to those used in the

[[Page 49485]]

EPA emission certification program and fuel economy guide. As discussed 
further below, this allowed the CSM forecast to be combined with other 
data obtained by NHTSA and EPA. We also assumed that the breakdowns of 
car and truck sales by manufacturer and by market segment for 2016 
model year and beyond were the same as CSM's forecast for 2015 calendar 
year. The changes between company market share and industry market 
segments were most significant from 2011-2014, while for 2014-2015 the 
changes were relatively small. Therefore, we assumed 2016 market share 
and market segments to be the same as for 2015. To the extent that the 
agencies have received CSM forecasts for 2016, we will consider using 
them for the final rule.
---------------------------------------------------------------------------

    \65\ The CSM data made public includes only the higher level 
volume projections by market segment and manufacturer. The 
projections by nameplate and model are strictly the agencies' 
estimates based on these higher level CSM segment and manufacturer 
distribution.
---------------------------------------------------------------------------

    We then projected the CSM forecasts for relative sales of cars and 
trucks by manufacturer and by market segment on to the total sales 
estimates of the updated 2009 Annual Energy Outlook. Tables II.B.1-1 
and II.B.1-2 show the resulting projections for the 2016 model year and 
compare these to actual sales which occurred in 2008 model year. Both 
tables show sales using the traditional or classic definition of cars 
and light trucks. Determining which classic trucks will be defined as 
cars using the revised definition established by NHTSA earlier this 
year and included in this proposed rule requires more detailed 
information about each vehicle model which is developed next.

       Table II.B.2-1--Annual Sales of Light-Duty Vehicles by Manufacturer in 2008 and Estimated for 2016
----------------------------------------------------------------------------------------------------------------
                                         Cars                    Light trucks                    Total
                             -----------------------------------------------------------------------------------
                                 2008 MY       2016 MY       2008 MY       2016 MY       2008 MY       2016 MY
----------------------------------------------------------------------------------------------------------------
BMW.........................       291,796       380,804        61,324       134,805       353,120       515,609
Chrysler....................       537,808       110,438     1,119,397       133,454     1,657,205       243,891
Daimler.....................       208,052       235,205        79,135       109,917       287,187       345,122
Ford........................       641,281       990,700     1,227,107     1,713,376     1,868,388     2,704,075
General Motors..............     1,370,280     1,562,791     1,749,227     1,571,037     3,119,507     3,133,827
Honda.......................       899,498     1,429,262       612,281       812,325     1,511,779     2,241,586
Hyundai.....................       270,293       437,329       120,734       287,694       391,027       725,024
Kia.........................       145,863       255,954       135,589       162,515       281,452       418,469
Mazda.......................       191,326       290,010       111,220       112,837       302,546       402,847
Mitsubishi..................        76,701        49,697        24,028        10,872       100,729        60,569
Porsche.....................        18,909        37,064        18,797        17,175        37,706        54,240
Nissan......................       653,121       985,668       370,294       571,748     1,023,415     1,557,416
Subaru......................       149,370       128,885        49,211        75,841       198,581       204,726
Suzuki......................        68,720        69,452        45,938        34,307       114,658       103,759
Tata........................         9,596        41,584        55,584        47,105        65,180        88,689
Toyota......................     1,143,696     1,986,824     1,067,804     1,218,223     2,211,500     3,205,048
Volkswagen..................       290,385       476,699        26,999        99,459       317,384       576,158
                             -----------------------------------------------------------------------------------
    Total...................     6,966,695     9,468,365     6,874,669     7,112,689    13,841,364    16,581,055
----------------------------------------------------------------------------------------------------------------


      Table II.B.2-2--Annual Sales of Light-Duty Vehicles by Market Segment in 2008 and Estimated for 2016
----------------------------------------------------------------------------------------------------------------
                             Cars                                                            Light trucks
----------------------------------------------------------------------------------------------------------------
                                       2008 MY       2016 MY                             2008 MY       2016 MY
----------------------------------------------------------------------------------------------------------------
Full-Size Car.....................       730,355       466,616  Full-Size Pickup....     1,195,073     1,475,881
Mid-Size Car......................     1,970,494     2,641,739  Mid-Size Pickup.....       598,197       510,580
Small/Compact Car.................     1,850,522     2,444,479  Full-Size Van.......        33,384       284,110
                                                                Mid-Size Van........       719,529       615,349
Subcompact/Mini Car...............       599,643     1,459,138  Mid-Size MAV *......       191,448       158,930
                                                                Small MAV...........       235,524       289,880
Luxury Car........................     1,057,875     1,432,162  Full-Size SUV*......       530,748        90,636
Specialty Car.....................       754,547     1,003,078  Mid-Size SUV........       347,026       110,155
Others............................         3,259        21,153  Small SUV...........       377,262       124,397
                                                                Full-Size CUV *.....       406,554       319,201
                                                                Mid-Size CUV........       798,335     1,306,770
                                                                Small CUV...........     1,441,589     1,866,580
                                   -----------------------------------------------------------------------------
    Total Sales...................     6,966,695     9,468,365  ....................     6,874,669     7,152,470
----------------------------------------------------------------------------------------------------------------
* MAV--Multi-Activity Vehicle, SUV--Sport Utility Vehicle, CUV--Crossover Utility Vehicle.

    The agencies recognize that CSM forecasts a very significant 
reduction in market share for Chrysler. This may be a result of the 
extreme uncertainty surrounding Chrysler in early 2009. The forecast 
from CSM used in this proposal is CSM's forecast from the 2nd quarter 
of 2009. CSM also provided to the agencies an updated forecast in the 
3rd quarter of 2009, which we were unable to use for this proposal due 
to time constraints. However, we have placed a copy of the 3rd Quarter 
CSM forecast in the public docket for this rulemaking, and we will 
consider its use, and any further updates from CSM or other data 
received during the comment period when developing the analysis for the 
final rule.\66\ CSM's forecast for Chrysler for the 3rd quarter of 2009 
was significantly increased compared to the 2nd quarter, by nearly a 
factor of two

[[Page 49486]]

increase in projected sales over the 2012-2015 time frame.
---------------------------------------------------------------------------

    \66\ ``CSM North America Sales Forecast Comparison 2Q09 3Q09 For 
Docket.'' 2nd and 3rd quarter forecasting results from CSM World 
Wide (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    The forecasts obtained from CSM provided estimates of car and 
trucks sales by segment and by manufacturer, but not by manufacturer 
for each market segment. Therefore, we needed other information on 
which to base these more detailed market splits. For this task, we used 
as a starting point each manufacturer's sales by market segment from 
model year 2008. Because of the larger number of segments in the truck 
market, we used slightly different methodologies for cars and trucks.
    The first step for both cars and trucks was to break down each 
manufacturer's 2008 sales according to the market segment definitions 
used by CSM. For example, we found that Ford's car sales in 2008 were 
broken down as shown in Table II.B.2-3:

           Table II.B.2-3--Breakdown of Ford's 2008 Car Sales
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Full-size cars........................  76,762 units.
Mid-size cars.........................  170,399 units.
Small/Compact cars....................  180,249 units.
Subcompact/Mini cars..................  None.
Luxury cars...........................  100,065 units.
Specialty cars........................  110,805 units.
------------------------------------------------------------------------

    We then adjusted each manufacturer's sales of each of its car 
segments (and truck segments, separately) so that the manufacturer's 
total sales of cars (and trucks) matched the total estimated for each 
future model year based on EIA and CSM forecasts. For example, as 
indicated in Table II.B.2-1, Ford's total car sales in 2008 were 
641,281 units, while we project that they will increase to 990,700 
units by 2016. This represents an increase of 54.5 percent. Thus, we 
increased the 2008 sales of each Ford car segment by 54.5 percent. This 
produced estimates of future sales which matched total car and truck 
sales per EIA and the manufacturer breakdowns per CSM (and exemplified 
for 2016 in Table II.B.1-1). However, the sales splits by market 
segment would not necessarily match those of CSM (and exemplified for 
2016 in Table II.B.2-2).
    In order to adjust the market segment mix for cars, we first 
adjusted sales of luxury, specialty and other cars. Since the total 
sales of cars for each manufacturer were already set, any changes in 
the sales of one car segment had to be compensated by the opposite 
change in another segment. For the luxury, specialty and other car 
segments, it is not clear how changes in sales would be compensated. 
For example, if luxury car sales decreased, would sales of full-size 
cars increase, mid-size cars, etc.? Thus, any changes in the sales of 
cars within these three segments were assumed to be compensated for by 
proportional changes in the sales of the other four car segments. For 
example, for 2016, the figures in Table II.B.2-2 indicate that luxury 
car sales in 2016 are 1,432,162 units. Luxury car sales are 1,057,875 
units in 2008. However, after adjusting 2008 car sales by the change in 
total car sales for 2016 projected by EIA and a change in manufacturer 
market share per CSM, luxury car sales increased to 1,521,892 units. 
Thus, overall for 2016, luxury car sales had to decrease by 89,730 
units or 6 percent. We decreased the luxury car sales by each 
manufacturer by this percentage. The absolute decrease in luxury car 
sales was spread across sales of full-size, mid-size, compact and 
subcompact cars in proportion to each manufacturer's sales in these 
segments in 2008. The same adjustment process was used for specialty 
cars and the ``other cars'' segment defined by CSM.
    A slightly different approach was used to adjust for changing sales 
of the remaining four car segments. Starting with full-size cars, we 
again determined the overall percentage change that needed to occur in 
future year full-size cars sales after (1) adjusting for total sales 
per EIA, (2) manufacturer sales mix per CSM and (3) adjustments in the 
luxury, specialty and other car segments, in order to meet the segment 
sales mix per CSM. Sales of each manufacturer's large cars were 
adjusted by this percentage. However, instead of spreading this change 
over the remaining three segments, we assigned the entire change to 
mid-size vehicles. We did so because, as shown in 2008, higher fuel 
prices tend to cause car purchasers to purchase smaller vehicles. We 
are using AEO 2009 for this analysis, which assumes fuel prices similar 
in magnitude to actual high fuel prices seen in the summer of 2008.\67\ 
However, if a consumer had previously purchased a full-size car, we 
thought it unlikely that they would jump all the way to a subcompact. 
It seemed more reasonable to project that they would drop one vehicle 
size category smaller. Thus, the change in each manufacturer's sales of 
full-size cars was matched by an opposite change (in absolute units 
sold) in mid-size cars.
---------------------------------------------------------------------------

    \67\ J.D. Power and Associates, Press Release, May 16, 2007. 
``Rising Gas Prices Begin to Sway New-Vehicle Owners Toward Smaller 
Versions of Trucks and Utility Vehicles.''
---------------------------------------------------------------------------

    The same process was then applied to mid-size cars, with the change 
in mid-size car sales being matched by an opposite change in compact 
car sales. This process was repeated one more time for compact car 
sales, with changes in sales in this segment being matched by the 
opposite change in the sales of subcompacts. The overall result was a 
projection of car sales for 2012-2016 which matched the total sales 
projections of EIA and the manufacturer and segment splits of CSM. 
These sales splits can be found in Chapter 1 of the draft Joint 
Technical Support Document for this proposal.
    As mentioned above, a slightly different process was applied to 
truck sales. The reason for this was we could not confidently project 
how the change in sales from one segment preferentially went to or came 
from another particular segment. Some trend from larger vehicles to 
smaller vehicles would have been possible. However, the CSM forecasts 
indicated large changes in total sport utility vehicle, multi-activity 
vehicle and cross-over sales which could not be connected. Thus, we 
applied an iterative, but straightforward process for adjusting 2008 
truck sales to match the EIA and CSM forecasts.
    The first three steps were exactly the same as for cars. We broke 
down each manufacturer's truck sales into the truck segments as defined 
by CSM. We then adjusted all manufacturers' truck segment sales by the 
same factor so that total truck sales in each model year matched EIA 
projections for truck sales by model year. We then adjusted each 
manufacturer's truck sales by segment proportionally so that each 
manufacturer's percentage of total truck sales matched that forecast by 
CSM. This again left the need to adjust truck sales by segment to match 
the CSM forecast for each model year.
    In the fourth step, we adjusted the sales of each truck segment by 
a common factor so that total sales for that segment matched the 
combination of the EIA and CSM forecasts. For example, sales of large 
pickups across all manufacturers were 1,144,166 units in 2016 after 
adjusting total sales to match EIA's forecast and adjusting each 
manufacturer's truck sales to match CSM's forecast for the breakdown of 
sales by manufacturer. Applying CSM's forecast of the large pickup 
segment of truck sales to EIA's total sales forecast indicated total 
large pickup sales of 1,475,881 units. Thus, we increased each 
manufacturer's sales of large pickups by 29 percent. The same type of 
adjustment was applied to all the other truck segments at the same 
time. The result was a set of sales projections which matched EIA's 
total truck sales projection and CSM's market segment forecast. 
However, after this step, sales

[[Page 49487]]

by manufacturer no longer met CSM's forecast. Thus, we repeated step 
three and adjusted each manufacturer's truck sales so that they met 
CSM's forecast. The sales of each truck segment (by manufacturer) were 
adjusted by the same factor. The resulting sales projection matched 
EIA's total truck sales projection and CSM's manufacturer forecast, but 
sales by market segment no longer met CSM's forecast. However, the 
difference between the sales projections after this fifth step was 
closer to CSM's market segment forecast than it was after step three. 
In other words, the sales projection was converging. We repeated these 
adjustments, matching manufacturer sales mix in one step and then 
market segment in the next for a total of 19 times. At this point, we 
were able to match the market segment splits exactly and the 
manufacturer splits were within 0.1% of our goal, which is well within 
the needs of this analysis.
    The next step in developing the baseline fleet was to characterize 
the vehicles within each manufacturer-segment combination. In large 
part, this was based on the characterization of the specific vehicle 
models sold in 2008. EPA and NHTSA chose to base our estimates of 
detailed vehicle characteristics on 2008 sales for several reasons. 
One, these vehicle characteristics are not confidential and can thus be 
published here for careful review and comment by interested parties. 
Two, being actual sales data, this vehicle fleet represents the 
distribution of consumer demand for utility, performance, safety, etc.
    We gathered most of the information about the 2008 vehicle fleet 
from EPA's emission certification and fuel economy database. The data 
obtained from this source included vehicle production volume, fuel 
economy, engine size, number of engine cylinders, transmission type, 
fuel type, etc. EPA's certification database does not include a 
detailed description of the types of fuel economy-improving/
CO2-reducing technologies considered in this proposal. Thus, 
we augmented this description with publicly available data which 
includes more complete technology descriptions from Ward's Automotive 
Group.\68\ In a few instances when required vehicle information was not 
available from these two sources (such as vehicle footprint), we 
obtained this information from publicly accessible Internet sites such 
as Motortrend.com and Edmunds.com.\69\
---------------------------------------------------------------------------

    \68\ Note that WardsAuto.com is a fee-based service, but all 
information is public to subscribers.
    \69\ Motortrend.com and Edmunds.com are free, no-fee Internet 
sites.
---------------------------------------------------------------------------

    The projections of future car and truck sales described above apply 
to each manufacturer's sales by market segment. The EPA emissions 
certification sales data are available at a much finer level of detail, 
essentially vehicle configuration. As mentioned above, we placed each 
vehicle in the EPA certification database into one of the CSM market 
segments. We then totaled the sales by each manufacturer for each 
market segment. If the combination of EIA and CSM forecasts indicated 
an increase in a given manufacturer's sales of a particular market 
segment, then the sales of all the individual vehicle configurations 
were adjusted by the same factor. For example, if the Prius represented 
30% of Toyota's sales of compact cars in 2008 and Toyota's sales of 
compact cars in 2016 was projected to double by 2016, then the sales of 
the Prius were doubled, and the Prius sales in 2016 remained 30% of 
Toyota's compact car sales.
    NHTSA and EPA request comment on the methodology and data sources 
used for developing the baseline vehicle fleet for this proposal and 
the reasonableness of the results.
3. How Is the Development of the Baseline Fleet for This Proposal 
Different From NHTSA's Historical Approach, and Why Is This Approach 
Preferable?
    NHTSA has historically based its analysis of potential new CAFE 
standards on detailed product plans the agency has requested from 
manufacturers planning to produce light vehicles for sale in the United 
States. Although the agency has not attempted to compel manufacturers 
to submit such information, most major manufacturers and some smaller 
manufacturers have voluntarily provided it when requested.
    As in this and other prior rulemakings, NHTSA has requested 
extensive and detailed information regarding the models that 
manufacturers plan to offer, as well as manufacturers' estimates of the 
volume of each model they expect to produce for sale in the U.S. 
NHTSA's recent requests have sought information regarding a range of 
engineering and planning characteristics for each vehicle model (e.g., 
fuel economy, engine, transmission, physical dimensions, weights and 
capacities, redesign schedules), each engine (e.g., fuel type, fuel 
delivery, aspiration, valvetrain configuration, valve timing, valve 
lift, power and torque ratings), and each transmission (e.g., type, 
number of gears, logic).
    The information that manufacturers have provided in response to 
these requests has varied in completeness and detail. Some 
manufacturers have submitted nearly all of the information NHTSA has 
requested, have done so for most or all of the model years covered by 
NHTSA's requests, and have closely followed NHTSA's guidance regarding 
the structure of the information. Other manufacturers have submitted 
partial information, information for only a few model years, and/or 
information in a structure less amenable to analysis. Still other 
manufacturers have not responded to NHTSA's requests or have responded 
on occasion, usually with partial information.
    In recent rulemakings, NHTSA has integrated this information and 
estimated missing information based on a range of public and commercial 
sources (such as those used to develop today's market forecast). For 
unresponsive manufacturers, NHTSA has estimated fleet composition based 
on the latest-available CAFE compliance data (the same data used as 
part of the foundation for today's market forecast). NHTSA has then 
adjusted the size of the fleet based on AEO's forecast of the light 
vehicle market and normalized manufacturers' market shares based on the 
latest-available CAFE compliance data.
    Compared to this approach, the market forecast the agencies have 
developed for this analysis has both advantages and disadvantages.
    Most importantly, today's market forecast is much more transparent. 
The information sources used to develop today's market forecast are all 
either in the public domain or available commercially. Therefore, NHTSA 
and EPA are able to make public the market inputs actually used in the 
agencies' respective modeling systems, such that any reviewer may 
independently repeat and review the agencies' analyses. Previously, 
although NHTSA provided this type of information to manufacturers upon 
request (e.g., GM requested and received outputs specific to GM), NHTSA 
was otherwise unable to release market inputs and the most detailed 
model outputs (i.e., the outputs containing information regarding 
specific vehicle models) because doing so would violate requirements 
protecting manufacturers' confidential business information from 
disclosure.\70\ Therefore, this approach provides much greater 
opportunity for the public to

[[Page 49488]]

review every aspect of the agencies' analyses and comment accordingly.
---------------------------------------------------------------------------

    \70\ See 49 CFR part 512.
---------------------------------------------------------------------------

    Another significant advantage of today's market forecast is the 
agencies' ability to assess more fully the incremental costs and 
benefits of the proposed standards. In the past two years, NHTSA has 
requested and received three sets of future product plan submissions 
from the automotive companies, most recently this past spring. These 
submissions are intended to be the actual future product plans for the 
companies. In the most recent submission it is clear that many of the 
firms have been and are clearly planning for future CAFE standard 
increases for model years 2012 and later. The results for the product 
plans for many firms are a significant increase in their projected 
future application of fuel economy improvement technology. However, for 
the purposes of assessing the costs of the model year 2012-2016 
standards the use of the product plans presents a difficulty, namely, 
how to assess the increased costs of the proposed future standards if 
the companies have already anticipated the future standards and the 
costs are therefore now part of the agencies' baseline. This is a real 
concern with the most recent product plans received from the companies, 
and is one of the reasons the agencies have decided not to use the 
recent product plans to define the baseline market data for assessing 
our proposed standards. The approach used for this proposal does not 
raise this concern, as the underlying data comes from model year 2008 
production.\71\
---------------------------------------------------------------------------

    \71\ However, as discussed below, an alternative approach that 
NHTSA is exploring would be to use only manufacturers' near-term 
product plans, e.g., from MY 2010 or MY 2011. NHTSA believes 
manufacturers' near-term plans should be less subject to this 
concern about missing costs and benefits already included in the 
baseline. NHTSA is also hopeful that in connection with the 
agencies' rulemaking efforts, manufacturers will be willing to make 
their near-term plans available to the public.
---------------------------------------------------------------------------

    In addition, by developing a baseline fleet from common sources, 
the agencies have been able to avoid some errors--perhaps related to 
interpretation of requests--that have been observed in past responses 
to NHTSA's requests. For example, while reviewing information submitted 
to support the most recent CAFE rulemaking, NHTSA staff discovered that 
one manufacturer had misinterpreted instructions regarding the 
specification of vehicle track width, leading to important errors in 
estimates of vehicle footprints. Although the manufacturer resubmitted 
the information with corrections, with this approach, the agencies are 
able to reduce the potential for such errors and inconsistencies by 
utilizing common data sources and procedures.
    An additional advantage of the approach used for this proposal is a 
consistent projection of the change in fuel economy and CO2 
emissions across the various vehicles from the application of new 
technology. In the past, company product plans would include the 
application of new fuel economy improvement technology for a new or 
improved vehicle model with the resultant estimate from the company of 
the fuel economy levels for the vehicle. However, companies did not 
always provide to NHTSA the detailed analysis which showed how they 
forecasted what the fuel economy performance of the new vehicle was--
that is, whether it came from actual test data, from vehicle simulation 
modeling, from best engineering judgment or some other methodology. 
Thus, it was not possible for NHTSA to review the methodology used by 
the manufacturer, nor was it possible to review what approach the 
different manufacturers utilized from a consistency perspective. With 
the approach used for this proposal, the baseline market data comes 
from actual vehicles which have actual fuel economy test data--so there 
is no question what is the basis for the fuel economy or CO2 
performance of the baseline market data as it is actual measured data.
    Another advantage of today's approach is that future market shares 
are based on a forecast of what will occur in the future, rather than a 
static value. In the past, NHTSA has utilized a constant market share 
for each model year, based on the most recent year available, for 
example from the CAFE compliance data, that is, a forecast of the 2011-
2015 time frame where company market shares do not change. In the 
approach used today, we have utilized the forecasts from CSM of how 
future market shares among the companies may change over time.\72\
---------------------------------------------------------------------------

    \72\ We note that market share forecasts like CSM's could, of 
course, be applied to any data used to create the baseline market 
forecast. If, as mentioned above, manufacturers do consent to make 
public MY 2010 or 2011 product plan data for the final rule, the 
agencies could consider applying market share forecast to that data 
as well.
---------------------------------------------------------------------------

    The approach the agencies have taken in developing today's market 
forecast does, however, have some disadvantages. Most importantly, it 
produces a market forecast that does not represent some important 
changes likely to occur in the future.
    Some of the changes not captured by today's approach are specific. 
For example, the agencies' current market forecast includes some 
vehicles for which manufacturers have announced plans for elimination 
or drastic production cuts such as the Chevrolet Trailblazer, the 
Chrysler PT Cruiser, the Chrysler Pacifica, the Dodge Magnum, the Ford 
Crown Victoria, the Hummer H2, the Mercury Sable, the Pontiac Grand 
Prix, and the Pontiac G5. These vehicle models appear explicitly in 
market inputs to NHTSA's analysis, and are among those vehicle models 
included in the aggregated vehicle types appearing in market inputs to 
EPA's analysis.
    Conversely, the agencies' market forecast does not include some 
forthcoming vehicle models, such as the Chevrolet Volt, the Chevrolet 
Camaro, the Ford Fiesta and several publicly announced electric 
vehicles, including the announcements from Nissan. Nor does it include 
several MY 2009 or 2010 vehicles, such as the Honda Insight, the 
Hyundai Genesis and the Toyota Venza, as our starting point for vehicle 
definitions was Model Year 2008. Additionally, the market forecast does 
not account for publicly announced technology introductions, such as 
Ford's EcoBoost system, whose product plans specify which vehicles and 
how many are planned to have this technology. Were the agencies to rely 
on manufacturers' product plans (that were submitted), the market 
forecast would account for not only these specific examples, but also 
for similar examples that have not yet been announced publicly.
    The agencies anticipate that including vehicles after MY 2008 would 
not significantly impact our estimates of the technology required to 
comply with the proposed standards. If they were included, these 
vehicles could make the standards appear to cost less relative to the 
reference case. First, the projections of sales by vehicle segment and 
manufacturer include these expected new vehicle models. Thus, to the 
extent that these new vehicles are expected to change consumer demand, 
they should be reflected in our reference case. While we are projecting 
the characteristics of the new vehicles with MY 2008 vehicles, the 
primary difference between the new vehicles and 2008 vehicles in the 
same vehicle segment is the use of additional CO2-reducing 
and fuel-saving technology. Both the NHTSA and EPA models add such 
technology to facilitate compliance with the proposed standards. Thus, 
our future projections of the vehicle fleet generally shift vehicle 
designs towards those of these newer vehicles. The advantage of our 
approach is that it helps clarify the costs of this proposal, as the 
cost of all fuel economy

[[Page 49489]]

improvements beyond those required by the MY 2011 CAFE standards are 
being assigned to the proposal. In some cases, the new vehicles being 
introduced by manufacturers are actually in response to their 
anticipation of this rulemaking. Our approach prevents some of these 
technological improvements and their associated cost from being assumed 
in the baseline. Thus, the added technology will not be considered to 
be free for the purposes of this rule.
    We note that, as a result of these issues, the market file may show 
sales volumes for certain vehicles during MYs 2012-2016 even though 
they will be discontinued before that time frame. Although the agencies 
recognize that these specific vehicles will be discontinued, we 
continue to include them in the market forecast because they are useful 
for representing successor vehicles that may appear in the rulemaking 
time frame to replace the discontinued vehicles in that market segment.
    Other market changes not captured by today's approach are broader. 
For example, Chrysler Group LLC has announced plans to offer small- and 
medium-sized cars using Fiat powertrains. The product plan submitted by 
Chrysler includes vehicles that appear to reflect these plans. However, 
none of these specific vehicle models are included in the market 
forecast the agencies have developed starting with MY 2008 CAFE 
compliance data. The product plan submitted by Chrysler is also more 
optimistic with regard to Chrysler's market share during MYs 2012-2016 
than the market forecast projected by CSM and used by the agencies for 
this proposal. Similarly, the agencies' market forecast does not 
reflect Nissan's plans regarding electric vehicles.
    Additionally, some technical information that manufacturers have 
provided in product plans regarding specific vehicle models is, at 
least insofar as NHTSA and EPA have been able to determine, not 
available from public or commercial sources. While such gaps do not 
bear significantly on the agencies' analysis, the diversity of pickup 
configurations necessitated utilizing a sales-weighted average 
footprint value \73\ for many manufacturers' pickups. Since our 
modeling only utilizes footprint in order to estimate each 
manufacturer's CO2 or fuel economy standard and all the 
other vehicle characteristics are available for each pickup 
configuration, this approximation has no practical impact on the 
projected technology or cost associated with compliance with the 
various standards evaluated. The only impact which could arise would be 
if the relative sales of the various pickup configurations changed, or 
if the agencies were to explore standards with a different shape. This 
would necessitate recalculating the average footprint value in order to 
maintain accuracy.
---------------------------------------------------------------------------

    \73\ A full-size pickup might be offered with various 
combinations of cab style (e.g., regular, extended, crew) and box 
length (e.g., 5\1/2\', 6\1/2\', 8') and, therefore, multiple 
footprint sizes. CAFE compliance data for MY 2008 data does not 
contain footprint information, and does not contain information that 
can be used to reliably identify which pickup entries correspond to 
footprint values estimable from public or commercial sources. 
Therefore, the agencies have used the known production levels of 
average values to represent all variants of a given pickup line 
(e.g., all variants of the F-150 and the Sierra/Silverado) in order 
to calculate the sales-weighted average footprint value for each 
pickup family. Again, this has no impact on the results of our 
modeling effort, although it would require re-estimation if we were 
to examine light truck standards of a different shape. In the 
extreme, one single footprint value could be used for every vehicle 
sold by a single manufacturer as long as the fuel economy standard 
associated with this footprint value represented the sales-weighted, 
harmonic average of the fuel economy standards associated with each 
vehicle's footprint values.
---------------------------------------------------------------------------

    The agencies have carefully considered these advantages and 
disadvantages of using a market forecast derived from public and 
commercial sources rather than from manufacturers' product plans, and 
we believe that the advantages outweigh the disadvantages for the 
purpose of proposing standards for model years 2012-2016. NHTSA's 
inability to release confidential market inputs and corresponding 
detailed outputs from the CAFE model has raised serious concerns among 
many observers regarding the transparency of NHTSA's analysis, as well 
as related concerns that the lack of transparency might enable 
manufacturers to provide unrealistic information to try to influence 
NHTSA's determination of the maximum feasible standards. Although NHTSA 
does not agree with some observers' assertions that some manufacturers 
have deliberately provided inaccurate or otherwise misleading 
information, today's market forecast is fully open and transparent, and 
is therefore not subject to such concerns.
    With respect to the disadvantages, the agencies are hopeful that 
manufacturers will, in the future, agree to make public their plans 
regarding model years that are very near, such as MY 2010 or perhaps MY 
2011, so that this information can be considered for purposes of the 
final rule analysis and be available for the public. In any event, 
because NHTSA and EPA are releasing market inputs used in the agencies' 
respective analyses, manufacturers, suppliers, and other automobile 
industry observers and participant can submit comments on how these 
inputs should be improved, as can all other reviewers.
4. How Does Manufacturer Product Plan Data Factor into the Baseline 
Used in This Proposal?
    In the Spring of 2009, many manufacturers submitted product plans 
in response to NHTSA's request that they do so.\74\ NHTSA and EPA both 
have access to these plans, and both agencies have reviewed them in 
detail. A small amount of product plan data was used in the development 
of the baseline. The specific pieces of data are:
---------------------------------------------------------------------------

    \74\ 74 FR 9185 (Mar. 3, 2009)
---------------------------------------------------------------------------

     Wheelbase;
     Track Width Front;
     Track Width Rear;
     EPS (Electric Power Steering);
     ROLL (Reduced Rolling Resistance);
     LUB (Advance Lubrication i.e., low weight oil);
     IACC (Improved Electrical Accessories);
     Curb Weight;
     GVWR (Gross Vehicle Weight Rating)
    The track widths, wheelbase, curb weight, and GVWR could have been 
looked up on the Internet (159 were), but were taken from the product 
plans when available for convenience. To ensure accuracy, a sample from 
each product plan was used as a check against the numbers available 
from Motortrend.com. These numbers will be published in the baseline 
file since they can be easily looked up on the Internet. On the other 
hand, EPS, ROLL, LUB, and IACC are difficult to determine without using 
manufacturer's product plans. These items will not be published in the 
baseline file, but the data has been aggregated into the EPA baseline 
in the technology effectiveness and cost effectiveness for each vehicle 
in a way that allows the baseline for the model to be published without 
revealing the manufacturers' data.
    Considering both the publicly-available baseline used in this 
proposal and the product plans provided recently by manufacturers, 
however, it is possible that the latter could potentially be used to 
develop a more realistic forecast of product mix and vehicle 
characteristics of the near-future light-duty fleet. At the core of 
concerns about using company product plans are two concerns about doing 
so: (a) Uncertainty and possible inaccuracy in manufacturers' forecasts 
and (b) the transparency of using product plan data. With respect to 
the first concern, the

[[Page 49490]]

agencies note that manufacturers' near-term forecasts (i.e., for model 
years two or three years into the future) should be less uncertain and 
more amenable to eventual retrospective analysis (i.e., comparison to 
actual sales) than manufacturers' longer-term forecasts (i.e., for 
model years more than five years into the future). With respect to the 
second concern, NHTSA has consulted with most manufacturers and 
believes that although few, if any, manufacturers would be willing to 
make public their longer-term plans, many responding manufacturers may 
be willing to make public their short-term plans. In a companion 
notice, NHTSA is seeking product plan information from manufacturers 
for MYs 2008 to 2020, and the agencies will also continue to consult 
with manufacturers regarding the possibility of releasing plans for MY 
2010 and/or MY 2011 for purposes of developing and analyzing the final 
GHG and CAFE standards for MYs 2012-2016. The agencies are hopeful that 
manufacturers will agree to do so, and that NHTSA and EPA would 
therefore be able to use product plans in ways that might aid in 
increasing the accuracy of the baseline market forecast.

C. Development of Attribute-Based Curve Shapes

    NHTSA and EPA are setting attribute-based CAFE and CO2 
standards that are defined by a mathematical function for MYs 2012-2016 
passenger cars and light trucks. EPCA, as amended by EISA, expressly 
requires that CAFE standards for passenger cars and light trucks be 
based on one or more vehicle attributes related to fuel economy, and be 
expressed in the form of a mathematical function.\75\ The CAA has no 
such requirement, though in past rules, EPA has relied on both 
universal and attribute-based standards (e.g., for nonroad engines, EPA 
uses the attribute of horsepower). However, given the advantages of 
using attribute-based standards and given the goal of coordinating and 
harmonizing CO2 standards promulgated under the CAA and CAFE 
standards promulgated under EPCA, as expressed in the joint NOI, EPA is 
also proposing to issue standards that are attribute-based and defined 
by mathematical functions.
---------------------------------------------------------------------------

    \75\ 49 U.S.C. 32902(a)(3)(A).
---------------------------------------------------------------------------

    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy and GHG emissions for CAFE and GHG 
emissions standards, respectively), the level of which depends on the 
vehicle's attribute (for this proposal, footprint). The manufacturers' 
fleet average performance is determined by the production-weighed \76\ 
average (for CAFE, harmonic average) of those targets. NHTSA and EPA 
are proposing CAFE and CO2 emissions standards defined by 
constrained linear functions and, equivalently, piecewise linear 
functions.\77\ As a possible option for future rulemakings, the 
constrained linear form was introduced by NHTSA in the 2007 NPRM 
proposing CAFE standards for MY 2011-2015. Described mathematically, 
the proposed constrained linear function is defined according to the 
following formula: \78\
---------------------------------------------------------------------------

    \76\ Production for sale in the United States.
    \77\ The equations are equivalent but are specified differently 
due to differences in the agencies' respective models.
    \78\ This function is linear in fuel consumption but not in fuel 
economy.

---------------------------------------------------------------------------
Where:

TARGET = the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet),
a = the function's upper limit (in mpg),
b = the function's lower limit (in mpg),
c = the slope (in gpm per square foot) of the sloped portion of the 
function,
d = the intercept (in gpm) of the sloped portion of the function 
(that is, the value the sloped portion would take if extended to a 
footprint of 0 square feet, and the MIN and MAX functions take the 
minimum and maximum, respectively, of the included values; for 
example, MIN(1,2) = 1, MAX(1,2) = 2, and MIN[MAX(1,2),3)] = 2.

[GRAPHIC] [TIFF OMITTED] TP28SE09.004

    Because the format is linear on a gallons-per-mile basis, not on a 
miles-per-gallon basis, it is plotted as fuel consumption below. 
Graphically, the constrained linear form appears as shown in Figure 
II.C.1-1.
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[[Page 49491]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.005

    The specific form and stringency for each fleet (passenger cars and 
light trucks) and model year are defined through specific values for 
the four coefficients shown above.
    EPA is proposing the equivalent equation below for assigning 
CO2 targets to an individual vehicle's footprint value. 
Although the general model of the equation is the same for each vehicle 
category and each year, the parameters of the equation differ for cars 
and trucks. Each parameter also changes on an annual basis, resulting 
in the yearly increases in stringency seen in the tables above. 
Described mathematically, EPA's proposed piecewise linear function is 
as follows:

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


[[Page 49492]]


    In the constrained linear form applied by NHTSA, this equation 
takes the simplified form:

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

Where:

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

    Graphically, piecewise linear form, like the constrained linear 
form, appears as shown in Figure II.C.1-2.
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[[Page 49493]]


BILLING CODE 4910-59-C
    As for the constrained linear form, the specific form and 
stringency for each fleet (passenger car and light trucks) and model 
year are defined through specific values for the four coefficients 
shown above.
    For purposes of this rule, NHTSA and EPA developed the basic curve 
shapes using methods similar to those applied by NHTSA in fitting the 
curves defining the MY 2011 standards. The first step is defining the 
reference market inputs (in the form used by NHTSA's CAFE model) 
described in Section II.B of this preamble and in Chapter 1 of the 
joint TSD. However, because the baseline fleet is technologically 
heterogeneous, NHTSA used the CAFE model to develop a fleet to which 
nearly all the technologies discussed in Chapter 3 of the joint TSD 
\79\ were applied, by taking the following steps: (1) Treating all 
manufacturers as unwilling to pay civil penalties rather than applying 
technology, (2) applying any technology at any time, irrespective of 
scheduled vehicle redesigns or freshening, and (3) ignoring ``phase-in 
caps'' that constrain the overall amount of technology that can be 
applied by the model to a given manufacturer's fleet. These steps 
helped to increase technological parity among vehicle models, thereby 
providing a better basis (than the baseline or reference fleets) for 
estimating the statistical relationship between vehicle size and fuel 
economy.
---------------------------------------------------------------------------

    \79\ The agencies excluded diesel engines and strong hybrid 
vehicle technologies from this exercise (and only this exercise) 
because the agencies expect that manufacturers would not need to 
rely heavily on these technologies in order to comply with the 
proposed standards. NHTSA and EPA did include diesel engines and 
strong hybrid vehicle technologies in all other portions of their 
analyses.
---------------------------------------------------------------------------

    In fitting the curves, NHTSA also continued to apply constraints to 
limit the function's value for both the smallest and largest vehicles. 
Without a limit at the smallest footprints, the function--whether 
logistic or linear--can reach values that would be unfairly burdensome 
for a manufacturer that elects to focus on the market for small 
vehicles; depending on the underlying data, an unconstrained form could 
apply to the smallest vehicles targets that are simply unachievable. 
Limiting the function's value for the smallest vehicles ensures that 
the function remains technologically achievable at small footprints, 
and that it does not unduly burden manufacturers focusing on small 
vehicles. On the other side of the function, without a limit at the 
largest footprints, the function may provide no floor on required fuel 
economy. Also, the safety considerations that support the provision of 
a disincentive for downsizing as a compliance strategy apply weakly--if 
at all--to the very largest vehicles. Limiting the function's value for 
the largest vehicles leads to a function with an inherent absolute 
minimum level of performance, while remaining consistent with safety 
considerations.
    Before fitting the sloped portion of the constrained linear form, 
NHTSA selected footprints above and below which to apply constraints 
(i.e., minimum and maximum values) on the function. For passenger cars, 
the agency noted that several manufacturers offer small and, in some 
cases, sporty coupes below 41 square feet, examples including the BMW 
Z4 and Mini, Saturn Sky, Honda Fit and S2000, Hyundai Tiburon, Mazda 
MX-5 Miata, Suzuki SX4, Toyota Yaris, and Volkswagen New Beetle. 
Because such vehicles represent a small portion (less than 10 percent) 
of the passenger car market, yet often have characteristics that could 
make it infeasible to achieve the very challenging targets that could 
apply in the absence of a constraint, NHTSA is proposing to ``cut off'' 
the linear portion of the passenger car function at 41 square feet. For 
consistency, the agency is proposing to do the same for the light truck 
function, although no light trucks are currently offered below 41 
square feet. The agency further noted that above 56 square feet, the 
only passenger car model present in the MY 2008 fleet were four luxury 
vehicles with extremely low sales volumes--the Bentley Arnage and three 
versions of the Rolls Royce Phantom. NHTSA is therefore proposing to 
``cut off'' the linear portion of the passenger car function at 56 
square feet. Finally, the agency noted that although public information 
is limited regarding the sales volumes of the many different 
configurations (cab designs and bed sizes) of pickup trucks, most of 
the largest pickups (e.g., the Ford F-150, GM Sierra/Silverado, Nissan 
Titan, and Toyota Tundra) appear to fall just above 66 square feet in 
footprint. NHTSA is therefore proposing to ``cut off'' the linear 
portion of the light truck function at 66 square feet.
    NHTSA and EPA seek comment on this approach to fitting the curves. 
We note that final decisions on this issue will play an important role 
in determining the form and stringency of the final CAFE and 
CO2 standards, the incentives those standards will provide 
(e.g., with respect to downsizing small vehicles), and the relative 
compliance burden faced by each manufacturer.
    For purposes of the CAFE and CO2 standards proposed in 
this NPRM, NHTSA and EPA recognize that there is some possibility that 
low fuel prices during the years in which MY 2012-2016 vehicles are in 
service might lead to less than currently anticipated fuel savings and 
emissions reductions. One way to assure that emission reductions are 
achieved in fact is through the use of explicit backstops, fleet 
average standards established at an absolute level. For purposes of the 
CAFE program, EISA requires a backstop for domestically-manufactured 
passenger cars--a universal minimum, non-attribute-based standard of 
either ``27.5 mpg or 92 percent of the average fuel economy projected 
by the Secretary of Transportation for the combined domestic and non-
domestic passenger automobile fleets manufactured for sale in the 
United States by all manufacturers in the model year * * *,'' whichever 
is greater.\80\ In the MY 2011 final rule, the first rule setting 
standards since EISA added the backstop provision to EPCA, NHTSA 
considered whether the statute permitted the agency to set backstop 
standards for the other regulated fleets of imported passenger cars and 
light trucks. Although commenters expressed support both for and 
against a more permissive reading of EISA, NHTSA concluded in that 
rulemaking that its authority was likely limited to setting only the 
backstop standard that Congress expressly provided, i.e., the one for 
domestic passenger cars. A backstop, however, could be adopted under 
section 202(a) of the CAA assuming it could be justified under the 
relevant statutory criteria. EPA and NHTSA also note that the flattened 
portion of the car curve directionally addresses the issue of a 
backstop (i.e., a flat curve is itself a backstop). The agencies seek 
comment on whether backstop standards, or any other method within the 
agencies' statutory authority, should and can be implemented in order 
to guarantee a level of CO2 emissions reductions and fuel 
savings under the attribute-based standards.
---------------------------------------------------------------------------

    \80\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    Having developed a set of baseline data to which to fit the 
mathematical fuel consumption function, the initial values for 
parameters c and d were determined for cars and trucks separately. c 
and d were initially set at the values for which the average 
(equivalently, sum) of the absolute values of the differences was 
minimized between the ``maximum technology'' fleet fuel consumption 
(within the footprints between the upper and lower

[[Page 49494]]

limits) and the straight line the function defined above at the same 
corresponding vehicle footprints. That is, c and d were determined by 
minimizing the average absolute residual, commonly known as the MAD 
(Mean Absolute Deviation) approach, of the corresponding straight line.
    Finally, NHTSA calculated the values of the upper and lower values 
(a and b) based on the corresponding footprints discussed above (41 and 
56 square feet for passenger cars, and 41 and 66 square feet for light 
trucks).
    The result of this methodology is shown below in Figures II.A.2-2 
and II.A.2-3 for passenger cars and light trucks, respectively. The 
fitted curves are shown with the underlying ``maximum technology'' 
passenger car and light truck fleets. For passenger cars, the mean 
absolute deviation of the sloped portion of the function was 14 
percent. For trucks, the corresponding MAD was 10 percent.
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[[Page 49496]]


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    The agencies used these functional forms as a starting point to 
develop mathematical functions defining the actual proposed standards 
as discussed above. The agencies then transposed these functions 
vertically (i.e., on a gpm or CO2 basis, uniformly downward) 
to produce the relative car and light truck standards described in the 
next section.

D. Relative Car-Truck Stringency

    The agencies have determined, under their respective statutory 
authorities, that it is appropriate to propose fleetwide standards with 
the projected levels of stringency of 34.1 mpg or 250 g/mi (as well as 
the corresponding intermediate year fleetwide standards) for NHTSA and 
EPA respectively. To determine the relative stringency of passenger car 
and light truck standards, the agencies are concerned that increasing 
the difference between the car and truck standards (either by

[[Page 49497]]

raising the car standards or lowering the truck standards) could 
encourage manufacturers to build fewer cars and more trucks, likely to 
the detriment of fuel economy and CO2 reductions.\81\ In 
order to maintain consistent car/truck standards, the agencies applied 
a constant ratio between the estimated average required performance 
under the passenger car and light truck standards, in order to maintain 
a stable set of incentives regarding vehicle classification.
---------------------------------------------------------------------------

    \81\ For example, since many 2WD SUVs are classified as 
passenger cars, manufacturers have already warned that high car 
standards relative to truck standards could create an incentive for 
them to drop the 2WD version and sell only the 4WD version.
---------------------------------------------------------------------------

    To calculate relative car-truck stringency in this proposal, the 
agencies explored a number of possible alternatives. In the interest of 
harmonization, the agencies agree to use the Volpe model in order to 
estimate stringencies at which net benefits would be maximized. Further 
details of the development of this scenario approach can be found in 
Section IV of this preamble as well as in NHTSA's PRIA and DEIS. NHTSA 
examined passenger car and light truck standards that would produce the 
proposed combined average fuel economy levels from Table I.B.2-2 above. 
NHTSA did so by shifting downward the curves that maximize net 
benefits, holding the relative stringency of passenger car and light 
truck standards constant at the level determined by maximizing net 
benefits, such that the average fuel economy required of passenger cars 
remains 34 percent higher than the average fuel economy required of 
light trucks. This methodology resulted in the average fuel economy 
levels for passenger cars and light trucks during MYs 2012-2016 as 
shown in Table I.D.2-1. The following chart illustrates this 
methodology of shifting the standards from the levels maximizing net 
benefits to the levels consistent with the combined fuel economy 
standards in this rule.

[[Page 49498]]

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    After this analysis was completed, EPA examined two alternative 
approaches to determine whether they would lead to significantly 
different outcomes. First, EPA analyzed the relative stringencies using 
a 10-year payback analysis (with the OMEGA model). This analysis sets 
the relative stringencies if increased technology cost is to be paid 
back out of fuel savings over a 10-year period (assuming a 3% discount 
rate). Second, EPA also conducted a technology maximized analysis, 
which sets the relative stringencies if all technologies (with the 
exception of strong hybrids and diesels) are assumed to be utilized in 
the fleet. (This is the same methodology that was used to determine the 
curve shape as explained in the section above and in Chapter 2 of the 
joint TSD section).

[[Page 49499]]

Compared to NHTSA's approach based on stringencies estimated to 
maximize net benefits, EPA staff found that these two other approaches 
produced very similar results to NHTSA's, i.e., similar ratios of car-
truck relative stringency (the ratio being within a range of 1.34 to 
1.37 relative stringency of the car to the truck fuel economy 
standard). EPA believes that this similarity supports the proposed 
relative stringency of the two standards.
    The car and truck standards for EPA (Table I.D. 2-4 above) were 
subsequently determined by first converting the average required fuel 
economy levels to average required CO2 emission rates, and 
then applying the expected air conditioning credits for 2012-2016. 
These A/C credits are shown in the following table. Further details of 
the derivation of these factors can be found in Section III of this 
preamble or in the EPA RIA.

                Table II.D.1-1 Expected Fleet A/C Credits (in CO2 Equivalent g/mi) From 2012-2016
----------------------------------------------------------------------------------------------------------------
                                                                                                       Average
                                                     Average technology      Average      Average     credit for
                                                   penetration  (percent)  credit  for   credit for    combined
                                                                               cars        trucks       fleet
----------------------------------------------------------------------------------------------------------------
2012............................................                       25          3.0          3.4          3.1
2013............................................                       40          4.8          5.4          5.0
2014............................................                       55          7.2          8.1          7.5
2015............................................                       75          9.6         10.8         10.0
2016............................................                       85         10.2         11.5         10.6
----------------------------------------------------------------------------------------------------------------

    The agencies seek comment on the use of this methodology for 
apportioning the fleet stringencies to relative car and truck standards 
for 2012-2016.

E. Joint Vehicle Technology Assumptions

    Vehicle technology assumptions, i.e., assumptions about their cost, 
effectiveness, and the rate at which they can be incorporated into new 
vehicles, are often very controversial as they have a significant 
impact on the levels of the standards. Agencies must, therefore, take 
great care in developing and justifying these assumptions. In 
developing technology inputs for MY 2012-2016 standards, the agencies 
reviewed the technology assumptions that NHTSA used in setting the MY 
2011 standards and the comments that NHTSA received in response to its 
May 2008 Notice of Proposed Rulemaking. This review is consistent with 
the request by President Obama in his January 26 memorandum to DOT. In 
addition, the agencies reviewed the technology input estimates 
identified in EPA's July 2008 Advanced Notice of Proposed Rulemaking. 
The review of these documents was supplemented with updated information 
from more current literature, new product plans and from EPA 
certification testing.
    As a general matter, the best way to derive technology cost 
estimates is to conduct real-world tear down studies. These studies 
break down each technology into its respective components, evaluate the 
costs of each component, and build up the costs of the entire 
technology based on the contribution of each component. As such, tear 
down studies require a significant amount of time and are very costly. 
EPA has begun conducting tear down studies to assess the costs of 4-5 
technologies under a contract with FEV. To date, only two technologies 
(stoichiometeric gasoline direct injection and turbo charging with 
engine downsizing for a 4 cylinder engine to a 4 cylinder engine) have 
been evaluated. The agencies relied on the findings of FEV for 
estimating the cost of these technologies in this rulemaking--directly 
for the 4 cylinder engines, and extrapolated for the 6 and 8 cylinder 
engines. The agencies request comment on the use of these estimated 
costs from the FEV study. For the other technologies, because tear down 
studies were not yet available, the agencies decided to pursue, to the 
extent possible, the Bill of Materials (BOM) approach as outlined in 
NHTSA's MY 2011 final rule. A similar approach was used by EPA in the 
EPA 2008 Staff Technical Report. This approach was recommended to NHTSA 
by Ricardo, an international engineering consulting firm retained by 
NHTSA to aid in the analysis of public comments on its proposed 
standards for MYs 2011-2015 because of its expertise in the area of 
fuel economy technologies. A BOM approach is one element of the process 
used in tear down studies. The difference is that under a BOM approach, 
the build up of cost estimates is conducted based on a review of cost 
and effectiveness estimates for each component from available 
literature, while under a tear down study, the cost estimates which go 
into the BOM come from the tear down study itself. To the extent that 
the agencies departed from the MY 2011 CAFE final rule estimates, the 
agencies explained the reasons and provided supporting analyses. As 
tear down studies are concluded by FEV during the rulemaking process, 
the agencies will make them available in the joint rulemaking docket of 
this rulemaking. The agencies will consider these studies and any 
comments received on them, as practicable and appropriate, as well as 
any other new information pertinent to the rulemaking of which the 
agencies become aware, in developing technology cost assumptions for 
the final rule.
    Similarly, the agencies followed a BOM approach for developing its 
effectiveness estimates, insofar as the BOM developed for the cost 
estimates helped to inform the appropriate effectiveness values derived 
from the literature review. The agencies supplemented the information 
with results from available simulation work and real world EPA 
certification testing.
    The agencies would also like to note that per the Energy 
Independence and Security Act (EISA), the National Academies of 
Sciences is conducting an updated study to update Chapter 3 of the 2002 
NAS Report, which outlines technology estimates. The update will take a 
fresh look at that list of technologies and their associated cost and 
effectiveness values.
    The report is expected to be available on September 30, 2009. As 
soon as the update to the NAS Report is received, it will be placed in 
the joint rulemaking docket for the public's review and comment. 
Because this will occur during the comment period, the public is 
encouraged to check the docket regularly and provide comments on the 
updated NAS Report by the closing of the comment period of this notice. 
NHTSA and EPA will consider the updated NAS Report and any comments 
received, as practicable and appropriate, on it when considering 
revisions to the technology cost and effectiveness estimates for the 
final rule.

[[Page 49500]]

Consideration of this report is consistent with the request by 
President Obama in his January 26 memorandum to DOT.
1. What Technologies Do the Agencies Consider?
    The agencies considered over 35 vehicle technologies that 
manufacturers could use to improve the fuel economy and reduce 
CO2 emissions of their vehicles during MYs 2012-2016. The 
majority of the technologies described in this section are readily 
available, well known, and could be incorporated into vehicles once 
production decisions are made. Other technologies considered may not 
currently be in production, but are beyond the research phase and under 
development, and are expected to be in production in the next few 
years. These are technologies which can, for the most part, be applied 
both to cars and trucks, and which are capable of achieving significant 
improvements in fuel economy and reductions in CO2 
emissions, at reasonable costs. The agencies did not consider 
technologies in the research stage because the leadtime available for 
this rule is not sufficient to move such technologies from research to 
production.
    The technologies considered in the agencies' analysis are briefly 
described below. They fall into five broad categories: engine 
technologies, transmission technologies, vehicle technologies, 
electrification/accessory technologies, and hybrid technologies. For a 
more detailed description of each technology and their costs and 
effectiveness, we refer the reader to Chapter 3 of the joint TSD, 
Chapter III of NHTSA's PRIA, and Chapter 1 of EPA's DRIA. Technologies 
to reduce CO2 and HFC emissions from air conditioning 
systems are discussed in Section III of this preamble and in EPA's 
DRIA.
    Types of engine technologies that improve fuel economy and reduce 
CO2 emissions include the following:
     Low-friction lubricants--low viscosity and advanced low 
friction lubricants oils are now available with improved performance 
and better lubrication. If manufacturers choose to make use of these 
lubricants, they would need to make engine changes and possibly conduct 
durability testing to accommodate the low-friction lubricants.
     Reduction of engine friction losses--can be achieved 
through low-tension piston rings, roller cam followers, improved 
material coatings, more optimal thermal management, piston surface 
treatments, and other improvements in the design of engine components 
and subsystems that improve engine operation.
     Conversion to dual overhead cam with dual cam phasing--as 
applied to overhead valves designed to increase the air flow with more 
than two valves per cylinder and reduce pumping losses.
     Cylinder deactivation--deactivates the intake and exhaust 
valves and prevents fuel injection into some cylinders during light-
load operation. The engine runs temporarily as though it were a smaller 
engine which substantially reduces pumping losses.
     Variable valve timing--alters the timing of the intake 
valve, exhaust valve, or both, primarily to reduce pumping losses, 
increase specific power, and control residual gases.
     Discrete variable valve lift--increases efficiency by 
optimizing air flow over a broader range of engine operation which 
reduces pumping losses. Accomplished by controlled switching between 
two or more cam profile lobe heights.
     Continuous variable valve lift--is an electromechanically 
controlled system in which valve timing is changed as lift height is 
controlled. This yields a wide range of performance optimization and 
volumetric efficiency, including enabling the engine to be valve 
throttled.
     Stoichiometric gasoline direct-injection technology--
injects fuel at high pressure directly into the combustion chamber to 
improve cooling of the air/fuel charge within the cylinder, which 
allows for higher compression ratios and increased thermodynamic 
efficiency.
     Combustion restart--can be used in conjunction with 
gasoline direct-injection systems to enable idle-off or start-stop 
functionality. Similar to other start-stop technologies, additional 
enablers, such as electric power steering, accessory drive components, 
and auxiliary oil pump, might be required.
     Turbocharging and downsizing--increases the available 
airflow and specific power level, allowing a reduced engine size while 
maintaining performance. This reduces pumping losses at lighter loads 
in comparison to a larger engine.
     Exhaust-gas recirculation boost--increases the exhaust-gas 
recirculation used in the combustion process to increase thermal 
efficiency and reduce pumping losses.
     Diesel engines--have several characteristics that give 
superior fuel efficiency, including reduced pumping losses due to lack 
of (or greatly reduced) throttling, and a combustion cycle that 
operates at a higher compression ratio, with a very lean air/fuel 
mixture, relative to an equivalent-performance gasoline engine. This 
technology requires additional enablers, such as NOx trap 
catalyst after-treatment or selective catalytic reduction 
NOx after-treatment. The cost and effectiveness estimates 
for the diesel engine and aftertreatment system utilized in this 
proposal have been revised from the NHTSA MY 2011 CAFE final rule, and 
the agencies request comment on these diesel cost estimates.
    Types of transmission technologies considered include:
     Improved automatic transmission controls--optimizes shift 
schedule to maximize fuel efficiency under wide ranging conditions, and 
minimizes losses associated with torque converter slip through lock-up 
or modulation.
     Six-, seven-, and eight-speed automatic transmissions--the 
gear ratio spacing and transmission ratio are optimized for a broader 
range of engine operating conditions.
     Dual clutch or automated shift manual transmissions--are 
similar to manual transmissions, but the vehicle controls shifting and 
launch functions. A dual-clutch automated shift manual transmission 
uses separate clutches for even-numbered and odd-numbered gears, so the 
next expected gear is pre-selected, which allows for faster and 
smoother shifting.
     Continuously variable transmission--commonly uses V-shaped 
pulleys connected by a metal belt rather than gears to provide ratios 
for operation. Unlike manual and automatic transmissions with fixed 
transmission ratios, continuously variable transmissions can provide 
fully variable transmission ratios with an infinite number of gears, 
enabling finer optimization of transmission torque multiplication under 
different operating conditions so that the engine can operate at higher 
efficiency.
     Manual 6-speed transmission--offers an additional gear 
ratio, often with a higher overdrive gear ratio, than a 5-speed manual 
transmission.
    Types of vehicle technologies considered include:
     Low-rolling-resistance tires--have characteristics that 
reduce frictional losses associated with the energy dissipated in the 
deformation of the tires under load, therefore improving fuel economy 
and reducing CO2 emissions.
     Low-drag brakes--reduce the sliding friction of disc brake 
pads on rotors when the brakes are not engaged because the brake pads 
are pulled away from the rotors.

[[Page 49501]]

     Front or secondary axle disconnect for four-wheel drive 
systems--provides a torque distribution disconnect between front and 
rear axles when torque is not required for the non-driving axle. This 
results in the reduction of associated parasitic energy losses.
     Aerodynamic drag reduction--is achieved by changing 
vehicle shape or reducing frontal area, including skirts, air dams, 
underbody covers, and more aerodynamic side view mirrors.
     Mass reduction and material substitution--Mass reduction 
encompasses a variety of techniques ranging from improved design and 
better component integration to application of lighter and higher-
strength materials. Mass reduction is further compounded by reductions 
in engine power and ancillary systems (transmission, steering, brakes, 
suspension, etc.). The agencies recognize there is a range of diversity 
and complexity for mass reduction and material substitution 
technologies and there are many techniques that automotive suppliers 
and manufacturers are using to achieve the levels of this technology 
that the agencies have modeled in our analysis for this proposal. The 
agencies seek comments on the methods, costs, and effectiveness 
estimates associated with mass reduction and material substitution 
techniques that manufacturers intend to employ for reducing fuel 
consumption and CO2 emissions during the rulemaking time 
frame.
    Types of electrification/accessory and hybrid technologies 
considered include:
     Electric power steering (EPS)--is an electrically-assisted 
steering system that has advantages over traditional hydraulic power 
steering because it replaces a continuously operated hydraulic pump, 
thereby reducing parasitic losses from the accessory drive.
     Improved accessories (IACC)--may include high efficiency 
alternators, electrically driven (i.e., on-demand) water pumps and 
cooling fans. This excludes other electrical accessories such as 
electric oil pumps and electrically driven air conditioner compressors.
     Air Conditioner Systems--These technologies include 
improved hoses, connectors and seals for leakage control. They also 
include improved compressors, expansion valves, heat exchangers and the 
control of these components for the purposes of improving tailpipe 
CO2 emissions as a result of A/C use. These technologies are 
covered separately in the EPA RIA.
     12-volt micro-hybrid (MHEV)--also known as idle-stop or 
start stop and commonly implemented as a 12-volt belt-driven integrated 
starter-generator, this is the most basic hybrid system that 
facilitates idle-stop capability. Along with other enablers, this 
system replaces a common alternator with a belt-driven enhanced power 
starter-alternator, and a revised accessory drive system.
     Higher Voltage Stop-Start/Belt Integrated Starter 
Generator (BISG)--provides idle-stop capability and uses a high voltage 
battery with increased energy capacity over typical automotive 
batteries. The higher system voltage allows the use of a smaller, more 
powerful electric motor. This system replaces a standard alternator 
with an enhanced power, higher voltage, higher efficiency starter-
alternator, that is belt driven and that can recover braking energy 
while the vehicle slows down (regenerative braking).
     Integrated Motor Assist (IMA)/Crank integrated starter 
generator (CISG)--provides idle-stop capability and uses a high voltage 
battery with increased energy capacity over typical automotive 
batteries. The higher system voltage allows the use of a smaller, more 
powerful electric motor and reduces the weight of the wiring harness. 
This system replaces a standard alternator with an enhanced power, 
higher voltage, higher efficiency starter-alternator that is crankshaft 
mounted and can recover braking energy while the vehicle slows down 
(regenerative braking).
     2-mode hybrid (2MHEV)--is a hybrid electric drive system 
that uses an adaptation of a conventional stepped-ratio automatic 
transmission by replacing some of the transmission clutches with two 
electric motors that control the ratio of engine speed to vehicle 
speed, while clutches allow the motors to be bypassed. This improves 
both the transmission torque capacity for heavy-duty applications and 
reduces fuel consumption and CO2 emissions at highway speeds 
relative to other types of hybrid electric drive systems.
     Power-split hybrid (PSHEV)--a hybrid electric drive system 
that replaces the traditional transmission with a single planetary 
gearset and a motor/generator. This motor/generator uses the engine to 
either charge the battery or supply additional power to the drive 
motor. A second, more powerful motor/generator is permanently connected 
to the vehicle's final drive and always turns with the wheels. The 
planetary gear splits engine power between the first motor/generator 
and the drive motor to either charge the battery or supply power to the 
wheels.
     Plug-in hybrid electric vehicles (PHEV)--are hybrid 
electric vehicles with the means to charge their battery packs from an 
outside source of electricity (usually the electric grid). These 
vehicles have larger battery packs with more energy storage and a 
greater capability to be discharged. They also use a control system 
that allows the battery pack to be substantially depleted under 
electric-only or blended mechanical/electric operation.
     Electric vehicles (EV)--are vehicles with all-electric 
drive and with vehicle systems powered by energy-optimized batteries 
charged primarily from grid electricity.
    The cost estimates for the various hybrid systems have been revised 
from the estimates used in the MY 2011 CAFE final rule, in particular 
with respect to estimated battery costs. The agencies request comment 
on the hybrid cost estimates detailed in the draft Joint Technical 
Support Document.
2. How Did the Agencies Determine the Costs and Effectiveness of Each 
of These Technologies?
    Building on NHTSA's estimates developed for the MY 2011 CAFE final 
rule and EPA's Advanced Notice of Proposed Rulemaking, which relied on 
the 2008 Staff Technical Report,\82\ the agencies took a fresh look at 
technology cost and effectiveness values for purposes of the joint 
proposal under the National Program. For costs, the agencies 
reconsidered both the direct or ``piece'' costs and indirect costs of 
individual components of technologies. For the direct costs, the 
agencies followed a bill of materials (BOM) approach employed by NHTSA 
in NHTSA's MY 2011 final rule based on recommendation from Ricardo, 
Inc. EPA used a similar approach in the 2008 EPA Staff Technical 
Report. A bill of materials, in a general sense, is a list of 
components or sub-systems that make up a system--in this case, an item 
of fuel economy-improving technology. In order to determine what a 
system costs, one of the first steps is to determine its components and 
what they cost.
---------------------------------------------------------------------------

    \82\ EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon 
Dioxide Emissions. EPA420-R-08-008, March 2008.
---------------------------------------------------------------------------

    NHTSA and EPA estimated these components and their costs based on a 
number of sources for cost-related information. The objective was to 
use those sources of information considered to be most credible for 
projecting the costs of individual vehicle technologies. For example, 
while NHTSA and Ricardo engineers had relied considerably in the

[[Page 49502]]

MY 2011 final rule on the 2008 Martec Report for costing contents of 
some technologies, upon further joint review and for purposes of the MY 
2012-2016 standards, the agencies decided that some of the costing 
information in that report was no longer accurate due to downward 
trends in commodity prices since the publication of that report. The 
agencies reviewed, then revalidated or updated cost estimates for 
individual components based on new information. Thus, while NHTSA and 
EPA found that much of the cost information used in NHTSA's MY 2011 
final rule and EPA's staff report was consistent to a great extent, the 
agencies, in reconsidering information from many 
sources,83,84,85,86,87,88,89 revised several component costs 
of several major technologies: turbocharging with engine downsizing, 
mild and strong hybrids, diesels, stoichiometric gasoline direct 
injection fuel systems, and valve train lift technologies. These are 
discussed at length in the joint TSD and in NHTSA's PRIA.
---------------------------------------------------------------------------

    \83\ National Research Council, ``Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy 
Press, Washington, DC (2002) (the ``2002 NAS Report''), available at 
http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed 
August 7, 2009).
    \84\ Northeast States Center for a Clean Air Future (NESCCAF), 
``Reducing Greenhouse Gas Emissions from Light-Duty Motor 
Vehicles,'' 2004 (the ``2004 NESCCAF Report''), available at http://www.nesccaf.org/documents/rpt040923ghglightduty.pdf (last accessed 
August 7, 2009).
    \85\ ``Staff Report: Initial Statement of Reasons for Proposed 
Rulemaking, Public Hearing to Consider Adoption of Regulations to 
Control Greenhouse Gas Emissions from Motor Vehicles,'' California 
Environmental Protection Agency, Air Resources Board, August 6, 
2004.
    \86\ Energy and Environmental Analysis, Inc., ``Technology to 
Improve the Fuel Economy of Light Duty Trucks to 2015,'' 2006 (the 
``2006 EEA Report''), Docket EPA-HQ-OAR-2009-0472.
    \87\ Martec, ``Variable Costs of Fuel Economy Technologies,'' 
June 1, 2008, (the ``2008 Martec Report'') available at Docket No. 
NHTSA-2008-0089-0169.1
    \88\ Vehicle fuel economy certification data.
    \89\ Confidential data submitted by manufacturers in response to 
the March 2009 and other requests for product plans.
---------------------------------------------------------------------------

    For two technologies (stoichiometric gasoline direct injection and 
turbocharging with engine downsizing), the agencies relied, to the 
extent possible, on the tear down data available and scaling 
methodologies used in EPA's ongoing study with FEV. This study consists 
of complete system tear-down to evaluate technologies down to the nuts 
and bolts to arrive at very detailed estimates of the costs associated 
with manufacturing them.\90\ The confidential information provided by 
manufacturers as part of their product plan submissions to the agencies 
or discussed in meetings between the agencies and the manufacturers and 
suppliers served largely as a check on publicly-available data.
---------------------------------------------------------------------------

    \90\ U.S. Environmental Protection Agency, ``Draft Report--
Light-Duty Technology Cost Analysis Pilot Study,'' Contract No. EP-
C-07-069, Work Assignment 1-3, September 3, 2009.
---------------------------------------------------------------------------

    For the other technologies, considering all sources of information 
and using the BOM approach, the agencies worked together intensively 
during the summer of 2009 to determine component costs for each of the 
technologies and build up the costs accordingly. Where estimates differ 
between sources, we have used engineering judgment to arrive at what we 
believe to be the best cost estimate available today, and explained the 
basis for that exercise of judgment.
    Once costs were determined, they were adjusted to ensure that they 
were all expressed in 2007 dollars using a ratio of GDP values for the 
associated calendar years,\91\ and indirect costs were accounted for 
using the new approach developed by EPA and explained in Chapter 3 of 
the draft joint TSD, rather than using the traditional Retail Price 
Equivalent (RPE) multiplier approach. A report explaining how EPA 
developed this approach can be found in the docket for this notice. 
NHTSA and EPA also reconsidered how costs should be adjusted by 
modifying or scaling content assumptions to account for differences 
across the range of vehicle sizes and functional requirements, and 
adjusted the associated material cost impacts to account for the 
revised content, although some of these adjustments may be different 
for each agency due to the different vehicle subclasses used in their 
respective models. In previous rulemakings, NHTSA has used the Producer 
Price Index (PPI) to adjust vehicle technology costs to consistent 
price levels, since the PPI measures the effects of cost changes that 
are specific to the vehicle manufacturing industry. For purposes of 
this NPRM, NHTSA and EPA chose to use the GDP deflator, which accounts 
for the effect of economy-wide price inflation on technology cost 
estimates, in order to express those estimates in comparable terms with 
forecasts of fuel prices and other economic values used in the analysis 
of costs and benefits from the proposed standards. Because it is 
specific to the automotive sector, the PPI tends to be highly volatile 
from year to year, reflecting rapidly changing balances between supply 
and demand for specific components, rather than longer-term trends in 
the real cost of producing a broad range of powertrain components. 
NHTSA and EPA seek comment on whether the agencies should use a GDP 
deflator or a PPI inflator for purposes of developing technology cost 
estimates for the final rule.
---------------------------------------------------------------------------

    \91\ NHTSA examined the use of the CPI multiplier instead of GDP 
for adjusting these dollar values, but found the difference to be 
exceedingly small--only $0.14 over $100.
---------------------------------------------------------------------------

    Regarding estimates for technology effectiveness, NHTSA and EPA 
also reexamined the estimates from NHTSA's MY 2011 final rule and EPA's 
ANPRM and 2008 Staff Technical Report, which were largely consistent 
with NHTSA's 2008 NPRM estimates. The agencies also reconsidered other 
sources such as the 2002 NAS Report, the 2004 NESCCAF report, recent 
CAFE compliance data (by comparing similar vehicles with different 
technologies against each other in fuel economy testing, such as a 
Honda Civic Hybrid versus a directly comparable Honda Civic 
conventional drive), and confidential manufacturer estimates of 
technology effectiveness. NHTSA and EPA engineers reviewed 
effectiveness information from the multiple sources for each technology 
and ensured that such effectiveness estimates were based on technology 
hardware consistent with the BOM components used to estimate costs. 
Together, they compared the multiple estimates and assessed their 
validity, taking care to ensure that common BOM definitions and other 
vehicle attributes such as performance, refinement, and drivability 
were taken into account. However, because the agencies' respective 
models employ different numbers of vehicle subclasses and use different 
modeling techniques to arrive at the standards, direct comparison of 
BOMs was somewhat more complicated. To address this and to confirm that 
the outputs from the different modeling techniques produced the same 
result, NHTSA and EPA developed mapping techniques, devising technology 
packages and mapping them to corresponding incremental technology 
estimates. This approach helped compare the outputs from the 
incremental modeling technique to those produced by the technology 
packaging approach to ensure results that are consistent and could be 
translated into the respective models of the agencies.
    In general, most effectiveness estimates used in both the MY 2011 
final rule and the 2008 EPA staff report were determined to be accurate 
and were carried forward without significant change into this proposal. 
When NHTSA and EPA's estimates for effectiveness diverged slightly due 
to

[[Page 49503]]

differences in how agencies apply technologies to vehicles in their 
respective models, we report the ranges for the effectiveness values 
used in each model. While the agencies believe that the ideal estimates 
for the final rule would be based on tear down studies or BOM approach 
and subjected to a transparent peer-reviewed process, NHTSA and EPA are 
confident that the thorough review conducted, led to the best available 
conclusion regarding technology costs and effectiveness estimates for 
the current rulemaking and resulted in excellent consistency between 
the agencies' respective analyses for developing the CAFE and 
CO2 standards.
    The agencies note that the effectiveness values estimated for the 
technologies considered in the modeling analyses may represent average 
values, and do not reflect the potentially-limitless spectrum of 
possible values that could result from adding the technology to 
different vehicles. For example, while the agencies have estimated an 
effectiveness of 0.5 percent for low friction lubricants, each vehicle 
could have a unique effectiveness estimate depending on the baseline 
vehicle's oil viscosity rating. Similarly, the reduction in rolling 
resistance (and thus the improvement in fuel economy and the reduction 
in CO2 emissions) due to the application of low rolling 
resistance tires depends not only on the unique characteristics of the 
tires originally on the vehicle, but on the unique characteristics of 
the tires being applied, characteristics which must be balanced between 
fuel efficiency, safety, and performance. Aerodynamic drag reduction is 
much the same--it can improve fuel economy and reduce CO2 
emissions, but it is also highly dependent on vehicle-specific 
functional objectives. For purposes of this NPRM, NHTSA and EPA believe 
that employing average values for technology effectiveness estimates, 
as adjusted depending on vehicle subclass, is an appropriate way of 
recognizing the potential variation in the specific benefits that 
individual manufacturers (and individual vehicles) might obtain from 
adding a fuel-saving technology. However, the agencies seek comment on 
whether additional levels of specificity beyond that already provided 
would improve the analysis for the final rule, and if so, how those 
levels of specificity should be analyzed.
    Chapter 3 of the draft Joint Technical Support Document contains a 
detailed description of our assessment of vehicle technology cost and 
effectiveness estimates. The agencies note that the technology costs 
included in this NPRM take into account only those associated with the 
initial build of the vehicle. The agencies seek comment on the 
additional lifetime costs, if any, associated with the implementation 
of advanced technologies including warranty costs, and maintenance and 
replacement costs such as replacement costs for low rolling resistance 
tires, low friction lubricants, and hybrid batteries, and maintenance 
on diesel aftertreatment components.

F. Joint Economic Assumptions

    The agencies' preliminary analysis of alternative CAFE and GHG 
standards for the model years covered by this proposed rulemaking rely 
on a range of forecast information, economic estimates, and input 
parameters. This section briefly describes the agencies' preliminary 
choices of specific parameter values. These proposed economic values 
play a significant role in determining the benefits of both CAFE and 
GHG standards.
    In reviewing these variables and the agency's estimates of their 
values for purposes of this NPRM, NHTSA and EPA reconsidered previous 
comments that NHTSA had received and reviewed newly available 
literature. As a consequence, the agencies elected to revise some 
economic assumptions and parameter estimates, while retaining others. 
Some of the most important changes, which are discussed in greater 
detail in the agencies' respective sections below, as well as in 
Chapter 4 of the joint TSD and in Chapter VIII of NHTSA's PRIA and 
Chapter 8 of EPA's DRIA, include significant revisions to the markup 
factors for technology costs; reducing the rebound effect from 15 to 10 
percent; and revising the value of reducing CO2 emissions 
based on recent interagency efforts to develop estimates of this value 
for government-wide use. The agencies seek comment on the economic 
assumptions described below.
     Costs of fuel economy-improving technologies--These 
estimates are presented in summary form above and in more detail in the 
agencies' respective sections of this preamble, in Chapter 3 of the 
joint TSD, and in the agencies' respective RIAs. The technology cost 
estimates used in this analysis are intended to represent 
manufacturers' direct costs for high-volume production of vehicles with 
these technologies and sufficient experience with their application so 
that all cost reductions due to ``learning curve'' effects have been 
fully realized. Costs are then modified by applying near-term indirect 
cost multipliers ranging from 1.11 to 1.64 to the estimates of vehicle 
manufacturers' direct costs for producing or acquiring each technology 
to improve fuel economy, depending on the complexity of the technology 
and the time frame over which costs are estimated.
     Potential opportunity costs of improved fuel economy--This 
estimate addresses the possibility that achieving the fuel economy 
improvements required by alternative CAFE or GHG standards would 
require manufacturers to compromise the performance, carrying capacity, 
safety, or comfort of their vehicle models. If it did so, the resulting 
sacrifice in the value of these attributes to consumers would represent 
an additional cost of achieving the required improvements, and thus of 
manufacturers' compliance with stricter standards. Currently the 
agencies assume that these vehicle attributes do not change, and 
include the cost of maintaining these attributes as part of the cost 
estimates for technologies. However, it is possible that the technology 
cost estimates do not include adequate allowance for the necessary 
efforts by manufacturers to maintain vehicle performance, carrying 
capacity, and utility while improving fuel economy and reducing GHG 
emissions. While, in principle, consumer vehicle demand models can 
measure these effects, these models do not appear to be robust across 
specifications, since authors derive a wide range of willingness-to-pay 
values for fuel economy from these models, and there is not clear 
guidance from the literature on whether one specification is clearly 
preferred over another. Thus, the agencies seek comment on how to 
estimate explicitly the changes in vehicle buyers' welfare from the 
combination of higher prices for new vehicle models, increases in their 
fuel economy, and any accompanying changes in vehicle attributes such 
as performance, passenger- and cargo-carrying capacity, or other 
dimensions of utility.
     The on-road fuel economy ``gap''--Actual fuel economy 
levels achieved by light-duty vehicles in on-road driving fall somewhat 
short of their levels measured under the laboratory-like test 
conditions used by NHTSA and EPA to establish compliance with the 
proposed CAFE and GHG standards. The agencies use an on-road fuel 
economy gap for light-duty vehicles of 20 percent lower than published 
fuel economy levels. For example, if the measured CAFE fuel economy 
value of a light truck is 20 mpg, the on-road fuel economy actually 
achieved by a typical driver of that vehicle is expected to be 16 mpg

[[Page 49504]]

(20*.80).\92\ NHTSA previously used this estimate in its MY 2011 final 
rule, and the agencies confirmed it based on independent analysis for 
use in this NPRM.
---------------------------------------------------------------------------

    \92\ U.S. Environmental Protection Agency, Final Technical 
Support Document, Fuel Economy Labeling of Motor Vehicle Revisions 
to Improve Calculation of Fuel Economy Estimates, EPA420-R-06-017, 
December 2006.
---------------------------------------------------------------------------

     Fuel prices and the value of saving fuel--Projected future 
fuel prices are a critical input into the preliminary economic analysis 
of alternative standards, because they determine the value of fuel 
savings both to new vehicle buyers and to society. The agencies relied 
on the most recent fuel price projections from the U.S. Energy 
Information Administration's (EIA) Annual Energy Outlook (AEO) for this 
analysis. Specifically, the agencies used the AEO 2009 (April 2009 
release) Reference Case forecasts of inflation-adjusted (constant-
dollar) retail gasoline and diesel fuel prices, which represent the 
EIA's most up-to-date estimate of the most likely course of future 
prices for petroleum products.\93\
---------------------------------------------------------------------------

    \93\ Energy Information Administration, Annual Energy Outlook 
2009, Revised Updated Reference Case (April 2009), Table 12. 
Available at http://www.eia.doe.gov/oiaf/servicerpt/stimulus/excel/aeostimtab_12.xls (last accessed July 26, 2009).
---------------------------------------------------------------------------

    EIA's Updated Reference Case reflects the effects of the American 
Reinvestment and Recovery Act of 2009, as well as the most recent 
revisions to the U.S. and global economic outlook. In addition, it also 
reflects the provisions of the Energy Independence and Security Act of 
2007 (EISA), including the requirement that the combined mpg level of 
U.S. cars and light trucks reach 35 miles per gallon by model year 
2020. Because this provision would be expected to reduce future U.S. 
demand for gasoline and other fuels, there is some concern about 
whether the AEO 2009 forecast of fuel prices already partly reflects 
the increases in CAFE standards considered in this rule, and thus 
whether it is suitable for valuing the projected reductions in fuel 
use. In response to this concern, the agencies note that EIA issued a 
revised version of AEO 2008 in June 2008, which modified its previous 
December 2007 Early Release of AEO 2008 to reflect the effects of the 
recently-passed EISA legislation.\94\ The fuel price forecasts reported 
in EIA's Revised Release of AEO 2008 differed by less than one cent per 
gallon over the entire forecast period (2008-230) from those previously 
issued as part of its initial release of AEO 2008. Thus, the agencies 
are reasonably confident that the fuel price forecasts presented in AEO 
2009 and used to analyze the value of fuel savings projected to result 
from this rule are not unduly affected by the CAFE provisions of EISA, 
and therefore do not cause a baseline problem. Nevertheless, the 
agencies request comment on the use of the AEO 2009 fuel price 
forecasts, and particularly on the potential impact of the EISA-
mandated CAFE improvements on these projections.
---------------------------------------------------------------------------

    \94\ Energy Information Administration, Annual Energy Outlook 
2008, Revised Early Release (June 2008), Table 12. Available at 
http://www.eia.doe.gov/oiaf/archive/aeo08/excel/aeotab_12.xls (last 
accessed September 12, 2009).
---------------------------------------------------------------------------

     Consumer valuation of fuel economy and payback period--In 
estimating the value of fuel economy improvements that would result 
from alternative CAFE and GHG standards to potential vehicle buyers, 
the agencies assume that buyers value the resulting fuel savings over 
only part of the expected lifetime of the vehicles they purchase. 
Specifically, we assume that buyers value fuel savings over the first 
five years of a new vehicle's lifetime, and that buyers discount the 
value of these future fuel savings using rates of 3% and 7%. The five-
year figure represents the current average term of consumer loans to 
finance the purchase of new vehicles.
     Vehicle sales assumptions--The first step in estimating 
lifetime fuel consumption by vehicles produced during a model year is 
to calculate the number that are expected to be produced and sold.\95\ 
The agencies relied on the AEO 2009 Reference Case for forecasts of 
total vehicle sales, while the baseline market forecast developed by 
the agencies (see Section II.B) divided total projected sales into 
sales of cars and light trucks.
---------------------------------------------------------------------------

    \95\ Vehicles are defined to be of age 1 during the calendar 
year corresponding to the model year in which they are produced; 
thus for example, model year 2000 vehicles are considered to be of 
age 1 during calendar year 2000, age 2 during calendar year 2001, 
and to reach their maximum age of 26 years during calendar year 
2025. NHTSA considers the maximum lifetime of vehicles to be the age 
after which less than 2 percent of the vehicles originally produced 
during a model year remain in service. Applying these conventions to 
vehicle registration data indicates that passenger cars have a 
maximum age of 26 years, while light trucks have a maximum lifetime 
of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed July 27, 2009).
---------------------------------------------------------------------------

     Vehicle survival assumptions--We then applied updated 
values of age-specific survival rates for cars and light trucks to 
these adjusted forecasts of passenger car and light truck sales to 
determine the number of these vehicles remaining in use during each 
year of their expected lifetimes.
     Total vehicle use--We then calculated the total number of 
miles that cars and light trucks produced in each model year will be 
driven during each year of their lifetimes using estimates of annual 
vehicle use by age tabulated from the Federal Highway Administration's 
2001 National Household Transportation Survey (NHTS),\96\ adjusted to 
account for the effect on vehicle use of subsequent increases in fuel 
prices. In order to insure that the resulting mileage schedules imply 
reasonable estimates of future growth in total car and light truck use, 
we calculated the rate of growth in annual car and light truck mileage 
at each age that is necessary for total car and light truck travel to 
increase at the rates forecast in the AEO 2009 Reference Case. The 
growth rate in average annual car and light truck use produced by this 
calculation is approximately 1.1 percent per year.\97\ This rate was 
applied to the mileage figures derived from the 2001 NHTS to estimate 
annual mileage during each year of the expected lifetimes of MY 2012-
2016 cars and light trucks.\98\
---------------------------------------------------------------------------

    \96\ For a description of the Survey, see http://nhts.ornl.gov/quickStart.shtml (last accessed July 27, 2009).
    \97\ It was not possible to estimate separate growth rates in 
average annual use for cars and light trucks, because of the 
significant reclassification of light truck models as passenger cars 
discussed previously.
    \98\ While the adjustment for future fuel prices reduces average 
mileage at each age from the values derived from the 2001 NHTS, the 
adjustment for expected future growth in average vehicle use 
increases it. The net effect of these two adjustments is to increase 
expected lifetime mileage by about 18 percent for passenger cars and 
about 16 percent for light trucks.
---------------------------------------------------------------------------

     Accounting for the rebound effect of higher fuel economy--
The rebound effect refers to the fraction of fuel savings expected to 
result from an increase in vehicle fuel economy--particularly an 
increase required by the adoption of higher CAFE and GHG standards--
that is offset by additional vehicle use. The increase in vehicle use 
occurs because higher fuel economy reduces the fuel cost of driving, 
typically the largest single component of the monetary cost of 
operating a vehicle, and vehicle owners respond to this reduction in 
operating costs by driving slightly more. For purposes of this NPRM, 
the agencies have elected to use a 10 percent rebound effect in their 
analyses of fuel savings and other benefits from higher standards.
     Benefits from increased vehicle use--The increase in 
vehicle use from the rebound effect provides additional benefits to 
their owners, who may make more frequent trips or travel farther to 
reach more desirable destinations. This

[[Page 49505]]

additional travel provides benefits to drivers and their passengers by 
improving their access to social and economic opportunities away from 
home. The benefits from increased vehicle use include both the fuel 
expenses associated with this additional travel, and the consumer 
surplus it provides. We estimate the economic value of the consumer 
surplus provided by added driving using the conventional approximation, 
which is one half of the product of the decline in vehicle operating 
costs per vehicle-mile and the resulting increase in the annual number 
of miles driven. Because it depends on the extent of improvement in 
fuel economy, the value of benefits from increased vehicle use changes 
by model year and varies among alternative standards.
     The value of increased driving range--By reducing the 
frequency with which drivers typically refuel their vehicles, and by 
extending the upper limit of the range they can travel before requiring 
refueling, improving fuel economy and reducing GHG emissions thus 
provides some additional benefits to their owners. No direct estimates 
of the value of extended vehicle range are readily available, so the 
agencies' analysis calculates the reduction in the annual number of 
required refueling cycles that results from improved fuel economy, and 
applies DOT-recommended values of travel time savings to convert the 
resulting time savings to their economic value.\99\ The agencies invite 
comment on the assumptions used in this analysis. Please see the 
Chapter 4 of the draft Joint TSD for details.
---------------------------------------------------------------------------

    \99\ Department of Transportation, Guidance Memorandum, ``The 
Value of Saving Travel Time: Departmental Guidance for Conducting 
Economic Evaluations,'' Apr. 9, 1997. http://ostpxweb.dot.gov/policy/Data/VOT97guid.pdf (last accessed October 20, 2007); update 
available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-03.pdf (last accessed October 20, 2007).
---------------------------------------------------------------------------

     Added costs from congestion, crashes and noise--Although 
it provides some benefits to drivers, increased vehicle use associated 
with the rebound effect also contributes to increased traffic 
congestion, motor vehicle accidents, and highway noise. Depending on 
how the additional travel is distributed over the day and on where it 
takes place, additional vehicle use can contribute to traffic 
congestion and delays by increasing traffic volumes on facilities that 
are already heavily traveled during peak periods. These added delays 
impose higher costs on drivers and other vehicle occupants in the form 
of increased travel time and operating expenses, increased costs 
associated with traffic accidents, and increased traffic noise. The 
agencies rely on estimates of congestion, accident, and noise costs 
caused by automobiles and light trucks developed by the Federal Highway 
Administration to estimate the increased external costs caused by added 
driving due to the rebound effect.\100\
---------------------------------------------------------------------------

    \100\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; http://www.fhwa.dot.gov/policy/hcas/final/index.htm (last accessed July 29, 2009).
---------------------------------------------------------------------------

     Petroleum consumption and import externalities--U.S. 
consumption and imports of petroleum products also impose costs on the 
domestic economy that are not reflected in the market price for crude 
petroleum, or in the prices paid by consumers of petroleum products 
such as gasoline. In economics literature on this subject, these costs 
include (1) higher prices for petroleum products resulting from the 
effect of U.S. oil import demand on the world oil price (``monopsony 
costs''); (2) the risk of disruptions to the U.S. economy caused by 
sudden reductions in the supply of imported oil to the U.S.; and (3) 
expenses for maintaining a U.S. military presence to secure imported 
oil supplies from unstable regions, and for maintaining the strategic 
petroleum reserve (SPR) to cushion against resulting price 
increases.\101\ Reducing U.S. imports of crude petroleum or refined 
fuels can reduce the magnitude of these external costs. Any reduction 
in their total value that results from lower fuel consumption and 
petroleum imports represents an economic benefit of setting more 
stringent standards over and above the dollar value of fuel savings 
itself. The agencies do not include a value for monopsony costs in 
order to be consistent with their use of a global value for the social 
cost of carbon. Based on a recently-updated ORNL study, we estimate 
that each gallon of fuel saved that results in a reduction in U.S. 
petroleum imports (either crude petroleum or refined fuel) will reduce 
the expected costs of oil supply disruptions to the U.S. economy by 
$0.169 (2007$). The agencies do not include savings in budgetary 
outlays to support U.S. military activities among the benefits of 
higher fuel economy and the resulting fuel savings. Each gallon of fuel 
saved as a consequence of higher standards is anticipated to reduce 
total U.S. imports of crude petroleum or refined fuel by 0.95 
gallons.\102\
---------------------------------------------------------------------------

    \101\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D. R., and M. A. Toman (1993). ``Energy and Security: Externalities 
and Policies,'' Energy Policy 21:1093-1109; and Toman, M. A. (1993). 
``The Economics of Energy Security: Theory, Evidence, Policy,'' in 
A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural 
Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, 
pp. 1167-1218.
    \102\ Each gallon of fuel saved is assumed to reduce imports of 
refined fuel by 0.5 gallons, and the volume of fuel refined 
domestically by 0.5 gallons. Domestic fuel refining is assumed to 
utilize 90% imported crude petroleum and 10% domestically-produced 
crude petroleum as feedstocks. Together, these assumptions imply 
that each gallon of fuel saved will reduce imports of refined fuel 
and crude petroleum by 0.50 gallons + 0.50 gallons*90% = 0.50 
gallons + 0.45 gallons = 0.95 gallons.
---------------------------------------------------------------------------

     Air pollutant emissions
    [cir] Impacts on criteria air pollutant emissions--While reductions 
in domestic fuel refining and distribution that result from lower fuel 
consumption will reduce U.S. emissions of criteria pollutants, 
additional vehicle use associated with the rebound effect will increase 
emissions of these pollutants. Thus the net effect of stricter 
standards on emissions of each criteria pollutant depends on the 
relative magnitudes of reduced emissions from fuel refining and 
distribution, and increases in emissions resulting from added vehicle 
use. Criteria air pollutants emitted by vehicles and during fuel 
production include carbon monoxide (CO), hydrocarbon compounds (usually 
referred to as ``volatile organic compounds,'' or VOC), nitrogen oxides 
(NOX), fine particulate matter (PM2.5), and 
sulfur oxides (SOX). It is assumed that the emission rates 
(per mile) stay constant for future year vehicles.
    [cir] EPA and NHTSA estimate the economic value of the human health 
benefits associated with reducing exposure to PM2.5 using a 
``benefit-per-ton'' method. These PM2.5-related benefit-per-
ton estimates provide the total monetized benefits to human health (the 
sum of reductions in premature mortality and premature morbidity) that 
result from eliminating one ton of directly emitted PM2.5, 
or one ton of a pollutant that contributes to secondarily-formed 
PM2.5 (such as NOX, SOX, and VOCs), from a specified source. 
Chapter 4.2.9 of the Technical Support Document that accompanies this 
proposal includes a description of these values.
    Reductions in GHG emissions--Emissions of carbon dioxide and other 
greenhouse gases (GHGs) occur throughout the process of producing and 
distributing transportation fuels, as well as from fuel combustion 
itself. By reducing the volume of fuel consumed by passenger cars and 
light trucks, higher standards will thus reduce GHG emissions generated 
by fuel use, as well as throughout the fuel supply cycle. The agencies 
estimated the increases of GHGs other than CO2, including

[[Page 49506]]

methane and nitrous oxide, from additional vehicle use by multiplying 
the increase in total miles driven by cars and light trucks of each 
model year and age by emission rates per vehicle-mile for these GHGs. 
These emission rates, which differ between cars and light trucks as 
well as between gasoline and diesel vehicles, were estimated by EPA 
using its recently-developed Motor Vehicle Emission Simulator (Draft 
MOVES 2009).\103\ Increases in emissions of non-CO2 GHGs are 
converted to equivalent increases in CO2 emissions using 
estimates of the Global Warming Potential (GWP) of methane and nitrous 
oxide.
---------------------------------------------------------------------------

    \103\ The MOVES model assumes that the per-mile rates at which 
cars and light trucks emit these GHGs are determined by the 
efficiency of fuel combustion during engine operation and chemical 
reactions that occur during catalytic after-treatment of engine 
exhaust, and are thus independent of vehicles' fuel consumption 
rates. Thus MOVES' emission factors for these GHGs, which are 
expressed per mile of vehicle travel, are assumed to be unaffected 
by changes in fuel economy.
---------------------------------------------------------------------------

    [cir] Economic value of reductions in CO2 emissions--EPA 
and NHTSA assigned a dollar value to reductions in CO2 
emissions using the marginal dollar value (i.e., cost) of climate-
related damages resulting from carbon emissions, also referred to as 
``social cost of carbon'' (SCC). The SCC is intended to measure the 
monetary value society places on impacts resulting from increased GHGs, 
such as property damage from sea level rise, forced migration due to 
dry land loss, and mortality changes associated with vector-borne 
diseases. Published estimates of the SCC vary widely as a result of 
uncertainties about future economic growth, climate sensitivity to GHG 
emissions, procedures used to model the economic impacts of climate 
change, and the choice of discount rates. EPA and NHTSA's coordinated 
proposals present a set of interim SCC values reflecting a Federal 
interagency group's interpretation of the relevant climate economics 
literature. Sections III.H and IV.C.3 provide more detail about SCC.
     Discounting future benefits and costs--Discounting future 
fuel savings and other benefits is intended to account for the 
reduction in their value to society when they are deferred until some 
future date, rather than received immediately. The discount rate 
expresses the percent decline in the value of these benefits--as viewed 
from today's perspective--for each year they are deferred into the 
future. In evaluating the non-climate related benefits of the proposed 
standards, the agencies have employed discount rates of both 3 percent 
and 7 percent.
    For the reader's reference, Table II.F.1-1 below summarizes the 
values used to calculate the impacts of each proposed standard. The 
values presented in this table are summaries of the inputs used for the 
models; specific values used in the agencies' respective analyses may 
be aggregated, expanded, or have other relevant adjustments. See the 
respective RIAs for details. The agencies seek comment on the economic 
assumptions presented in the table and discussed below.
    In addition, the agencies have conducted a range of sensitivities 
and present them in their respective RIAs. For example, NHTSA has 
conducted a sensitivity analysis on several assumptions including (1) 
forecasts of future fuel prices, (2) the discount rate applied to 
future benefits and costs, (3) the magnitude of the rebound effect, (4) 
the value to the U.S. economy of reducing carbon dioxide emissions, (5) 
the monopsony effect, and (6) the reduction in external economic costs 
resulting from lower U.S. oil imports. This information is provided in 
NHTSA's PRIA. The agencies will consider additional sensitivities for 
the final rule as appropriate, including sensitivities on the markup 
factors applied to direct manufacturing costs to account for indirect 
costs (i.e., the Indirect Cost Markups (ICMs) which are discussed in 
Sections III and IV), and the learning curve estimates used in this 
analysis.

    Table II.F.1-1--Economic Values for Benefits Computations (2007$)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Fuel Economy Rebound Effect.............................             10%
``Gap'' between test and on-road MPG....................             20%
Value of refueling time per ($ per vehicle-hour)........           24.64
Annual growth in average vehicle use....................            1.1%
Fuel Prices (2012-50 average, $/gallon):
    Retail gasoline price...............................            3.77
    Pre-tax gasoline price..............................            3.40
Economic Benefits from Reducing Oil Imports ($/gallon):
    ``Monopsony'' Component.............................            0.00
    Price Shock Component...............................            0.17
    Military Security Component.........................            0.00
    Total Economic Costs ($/gallon).....................            0.17
Emission Damage Costs (2020, $/ton or $/metric ton):
    Carbon monoxide.....................................               0
    Volatile organic compounds (VOC)....................           1,283
    Nitrogen oxides (NOX)--vehicle use..................           5,116
    Nitrogen oxides (NOX)--fuel production and                     5,339
     distribution.......................................
    Particulate matter (PM2.5)--vehicle use.............         238,432
    Particulate matter (PM2.5)--fuel production and              292,180
     distribution.......................................
    Sulfur dioxide (SO2)................................          30,896
                                                                       5
                                                                      10
                                                                      20
                                                                      34
    Carbon dioxide (CO2)................................              56
    Annual Increase in CO2 Damage Cost..................              3%
External Costs from Additional Automobile Use ($/vehicle-
 mile):
    Congestion..........................................           0.054
    Accidents...........................................           0.023
    Noise...............................................           0.001
    Total External Costs................................           0.078
External Costs from Additional Light Truck Use ($/        ..............
 vehicle-mile):

[[Page 49507]]

 
    Congestion..........................................           0.048
    Accidents...........................................           0.026
    Noise...............................................           0.001
    Total External Costs................................           0.075
Discount Rates Applied to Future Benefits...............          3%, 7%
------------------------------------------------------------------------

III. EPA Proposal for Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Proposal

1. Introduction
    The Environmental Protection Agency (EPA) is proposing to establish 
greenhouse gas emissions standards for the largest sources of 
transportation greenhouse gases--light-duty vehicles, light-duty 
trucks, and medium-duty passenger vehicles (hereafter light vehicles). 
These vehicle categories, which include cars, sport utility vehicles, 
minivans, and pickup trucks used for personal transportation, are 
responsible for almost 60% of all U.S. transportation related 
greenhouse gas emissions. This action represents the first-ever 
proposal by EPA to regulate vehicle greenhouse gas emissions under the 
Clean Air Act (CAA) and would establish standards for model years 2012 
and later light vehicles sold in the U.S.
    EPA is proposing three separate standards. The first and most 
important is a set of fleet-wide average carbon dioxide 
(CO2) emission standards for cars and trucks. These 
standards are based on CO2 emissions-footprint curves, where 
each vehicle has a different CO2 emissions compliance target 
depending on its footprint value. Vehicle CO2 emissions 
would be measured over the EPA city and highway tests. The proposed 
standard allows for credits based on demonstrated improvements in 
vehicle air conditioner systems, including both efficiency and 
refrigerant leakage improvement, which are not captured by the EPA 
tests. The EPA projects that the average light vehicle tailpipe 
CO2 level in model year 2011 will be 326 grams per mile 
while the average vehicle tailpipe CO2 emissions compliance 
level for the proposed model year 2016 standard will be 250 grams per 
mile, an average reduction of 23 percent from today's CO2 
levels.
    EPA is also proposing standards that will cap tailpipe nitrous 
oxide (N2O) and methane (CH4) emissions at 0.010 
and 0.030 grams per mile, respectively. Even after adjusting for the 
higher relative global warming potencies of these two compounds, 
nitrous oxide and methane emissions represent less than one percent of 
overall vehicle greenhouse gas emissions from new vehicles. 
Accordingly, the goal of these two proposed standards is to limit any 
potential increases in the future and not to force reductions relative 
to today's low levels.
    This proposal represents the second-phase of EPA's response to the 
Supreme Court's 2007 decision in Massachusetts v. EPA \104\ which found 
that greenhouse gases were air pollutants for purposes of the Clean Air 
Act. The Court held that the Administrator must determine whether or 
not emissions from new motor vehicles cause or contribute to air 
pollution which may reasonably be anticipated to endanger public health 
or welfare, or whether the science is too uncertain to make a reasoned 
decision. The Court further ruled that, in make these decisions, the 
EPA Administrator is required to follow the language of section 202(a) 
of the CAA. The Court remanded the case back to the Agency for 
reconsideration in light of its finding.
---------------------------------------------------------------------------

    \104\ 549 U.S. 497 (2007). For further information on 
Massachusetts v. EPA see the July 30, 2008 Advance Notice of 
Proposed Rulemaking, ``Regulating Greenhouse Gas Emissions under the 
Clean Air Act'', 73 FR 44354 at 44397. There is a comprehensive 
discussion of the litigation's history, the Supreme Court's 
findings, and subsequent actions undertaken by the Bush 
Administration and the EPA from 2007-2008 in response to the Supreme 
Court remand.
---------------------------------------------------------------------------

    The Administrator responded to the Court's remand by issuing two 
proposed findings under section 202(a) of the Clean Air Act.\105\ 
First, the Administrator proposed to find that the science supports a 
positive endangerment finding that a mix of certain greenhouse gases in 
the atmosphere endangers the public health and welfare of current and 
future generations. This is referred to as the endangerment finding. 
Second, the Administrator proposed to find that the emissions of four 
of these gases--carbon dioxide, methane, nitrous oxide, and 
hydrofluorocarbons--from new motor vehicles and new motor vehicle 
engines contribute to the atmospheric concentrations of these key 
greenhouse gases and hence to the threat of climate change. This is 
referred to as the cause and contribute finding. Finalizing this 
proposed light vehicle regulations is contingent upon EPA finalizing 
both the endangerment finding and cause or contribute finding. Sections 
III.B.1 through III.B.4 below provide more details on the legal and 
scientific bases for this proposal.
---------------------------------------------------------------------------

    \105\ 74 FR 18886, April 24, 2009.
---------------------------------------------------------------------------

    As discussed in Section I, this GHG proposal is part of a joint 
National Program such that a large majority of the projected benefits 
are achieved jointly with NHTSA's proposed CAFE rule which is described 
in detail in Section IV of this preamble. EPA's proposal projects total 
carbon dioxide emissions savings of nearly 950 million metric tons, and 
oil savings of 1.8 billion barrels over the lifetimes of the vehicles 
sold in model years 2012-2016. EPA projects net societal benefits of 
$192 billion at a 3 percent discount rate for these same vehicles, or 
$136 billion at a 7 percent discount rate (both values assume a $20/ton 
SCC value). Accordingly, these proposed light vehicle greenhouse gas 
emissions standards would make an important ``first step'' contribution 
as part of the National Program toward meeting long-term greenhouse gas 
emissions and import oil reduction goals, while providing important 
economic benefits as well.
2. Why is EPA Proposing this Rule?
    This proposal addresses only light vehicles. EPA is addressing 
light vehicles as a first step in control of greenhouse gas emissions 
under the Clean Air Act for four reasons. First, light vehicles are 
responsible for almost 60% of all mobile source greenhouse gas 
emissions, a share three times larger than any other mobile source 
subsector, and represent about one-sixth of all U.S. greenhouse gas 
emissions. Second, technology exists that can be readily and cost-
effectively applied to these vehicles to reduce greenhouse gas 
emissions in the near term. Third, EPA already has an existing testing 
and compliance program for these vehicles, refined since the mid-1970s 
for emissions certification and fuel economy compliance, which would 
require only minor modifications to accommodate greenhouse gas 
emissions regulations. Finally, this proposal is an important first 
step in responding to the Supreme Court's ruling in Massachusetts vs. 
EPA. In addition, EPA is currently evaluating controls for motor 
vehicles other than those covered

[[Page 49508]]

by this proposal, and is reviewing seven petitions submitted by various 
States and organizations requesting that EPA use its Clean Air Act 
authorities to take action to reduce greenhouse gas emissions from 
aircraft (under Sec.  231(a)(2)), ocean-going vessels (under Sec.  
213(a)(4)), and other nonroad engines and vehicle sources (also under 
Sec.  213(a)(4)).
a. Light Vehicle Emissions Contribute to Greenhouse Gases and the 
Threat of Climate Change
    Greenhouse gases are gases in the atmosphere that effectively trap 
some of the Earth's heat that would otherwise escape to space. 
Greenhouse gases are both naturally occurring and anthropogenic. The 
primary greenhouse gases of concern are directly emitted by human 
activities and include carbon dioxide, methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.
    These gases, once emitted, remain in the atmosphere for decades to 
centuries. Thus, they become well mixed globally in the atmosphere and 
their concentrations accumulate when emissions exceed the rate at which 
natural processes remove greenhouse gases from the atmosphere. The 
heating effect caused by the human-induced buildup of greenhouse gases 
in the atmosphere is very likely\106\ the cause of most of the observed 
global warming over the last 50 years. The key effects of climate 
change observed to date and projected to occur in the future include, 
but are not limited to, more frequent and intense heat waves, more 
severe wildfires, degraded air quality, heavier and more frequent 
downpours and flooding, increased drought, greater sea level rise, more 
intense storms, harm to water resources, continued ocean acidification, 
harm to agriculture, and harm to wildlife and ecosystems. A detailed 
explanation of observed and projected changes in greenhouse gases and 
climate change and its impact on health, society, and the environment 
is included in EPA's technical support document for the recently 
released Proposed Endangerment and Cause or Contribute Findings for 
Greenhouse Gases Under Section 202(a) of the Clean Air Act.\107\
---------------------------------------------------------------------------

    \106\ According to Intergovernmental Panel on Climate Change 
(IPCC) terminology, ``very likely'' conveys a 90 to 99 percent 
probability of occurrence. ``Virtually certain'' conveys a greater 
than 99 percent probability, ``likely'' conveys a 66 to 90 percent 
probability, and ``about as likely as not'' conveys a 33 to 66 
percent probability.
    \107\ 74 FR18886, April 24, 2009. Both the Federal Register 
Notice and the Technical Support Document for this rulemaking are 
found in the public docket for this rulemaking. Docket is EPA-OAR-
2009-0171.
---------------------------------------------------------------------------

    Transportation sources represent a large and growing share of 
United States greenhouse gases and include automobiles, highway heavy 
duty trucks, airplanes, railroads, marine vessels and a variety of 
other sources. In 2006, all transportation sources emitted 31.5% of all 
U.S. greenhouse gases, and were the fastest-growing source of 
greenhouse gases in the U.S., accounting for 47% of the net increase in 
total U.S. greenhouse gas emissions from 1990-2006.\108\ The only 
sector with larger greenhouse gas emissions was electricity generation 
which emitted 33.7% of all U.S. greenhouse gases.
---------------------------------------------------------------------------

    \108\ Inventory of U.S. Greenhouse Gases and Sinks: 1990-2006.
---------------------------------------------------------------------------

    Light vehicles emit four greenhouse gases: carbon dioxide, methane, 
nitrous oxide and hydrofluorocarbons. Carbon dioxide (CO2) 
is the end product of fossil fuel combustion. During combustion, the 
carbon stored in the fuels is oxidized and emitted as CO2 
and smaller amounts of other carbon compounds.\109\ Methane 
(CH4) emissions are a function of the methane content of the 
motor fuel, the amount of hydrocarbons passing uncombusted through the 
engine, and any post-combustion control of hydrocarbon emissions (such 
as catalytic converters).\110\ Nitrous oxide (N2O) (and 
nitrogen oxide (NOX)) emissions from vehicles and their 
engines are closely related to air-fuel ratios, combustion 
temperatures, and the use of pollution control equipment. For example, 
some types of catalytic converters installed to reduce motor vehicle 
NOX, carbon monoxide (CO) and hydrocarbon emissions can 
promote the formation of N2O.\111\ Hydrofluorocarbons (HFC) 
emissions are progressively replacing chlorofluorocarbons (CFC) and 
hydrochlorofluorocarbons (HCFC) in these vehicles' cooling and 
refrigeration systems as CFCs and HCFCs are being phased out under the 
Montreal Protocol and Title VI of the CAA. There are multiple emissions 
pathways for HFCs with emissions occurring during charging of cooling 
and refrigeration systems, during operations, and during 
decommissioning and disposal.\112\
---------------------------------------------------------------------------

    \109\ Mobile source carbon dioxide emissions in 2006 equaled 26 
percent of total U.S. CO2 emissions.
    \110\ In 2006, methane emissions equaled 0.32 percent of total 
U.S. methane emissions Nitrous oxide is a product of the reaction 
that occurs between nitrogen and oxygen during fuel combustion.
    \111\ In 2006, nitrous oxide emissions for these sources 
accounted for 8 percent of total U.S. nitrous oxide emissions.
    \112\ In 2006 HFC from these source categories equaled 56 
percent of total U.S. HFC emissions, making it the single largest 
source category of U.S. HFC emissions.
---------------------------------------------------------------------------

b. Basis for Action Under Clean Air Act
    Section 202(a)(1) of the Clean Air Act (CAA) states that ``the 
Administrator shall by regulation prescribe (and from time to time 
revise) * * * standards applicable to the emission of any air pollutant 
from any class or classes of new motor vehicles * * *, which in his 
judgment cause, or contribute to, air pollution which may reasonably be 
anticipated to endanger public health or welfare.'' As noted above, the 
Administrator has proposed to find that the air pollution of elevated 
levels of greenhouse gas concentrations may reasonably be anticipated 
to endanger public health and welfare.\113\ The Administrator has 
proposed to define the air pollution to be the elevated concentrations 
of the mix of six GHGs: carbon dioxide (CO2), methane 
(CH4), nitrous oxide (N2O), hydrofluorocarbons 
(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride 
(SF6). The Administrator has further proposed to find under 
CAA section 202(a) that CO2, methane, N2O and HFC 
emissions from new motor vehicles and engines contribute to this air 
pollution. This preamble describes proposed standards that would 
control emissions of CO2, HFCs, nitrous oxide, and methane. 
Standards for these GHGs would only be finalized if EPA determines that 
the criteria have been met for endangerment by the air pollution, and 
that emissions of GHGs from new motor vehicles or engines ``cause or 
contribute'' to that air pollution. In that case, section 202(a) would 
authorize EPA to issue standards applicable to emissions of those 
pollutants. For further discussion of EPA's authority under section 
202(a), see Section I.C.2 of the proposal.
---------------------------------------------------------------------------

    \113\ 74 FR18886, April 24, 2009.
---------------------------------------------------------------------------

    There are a variety of other CAA Title II provisions that are 
relevant to standards established under section 202(a). As noted above, 
the standards are applicable to motor vehicles for their useful life. 
EPA has the discretion in determining what standard applies over the 
useful life. For example, EPA may set a single standard that applies 
both when the vehicles are new and throughout the useful life, or where 
appropriate may set a standard that varies during the term of useful 
life, such as a standard that is more stringent in the early years of 
the useful life and less stringent in the later years.

[[Page 49509]]

    The standards established under CAA section 202(a) are implemented 
and enforced through various mechanisms. Manufacturers are required to 
obtain an EPA certificate of conformity with the section 202 
regulations before they may sell or introduce their new motor vehicle 
into commerce, according to CAA section 206(a). The introduction into 
commerce of vehicles without a certificate of conformity is a 
prohibited act under CAA section 203 that may subject a manufacturer to 
civil penalties and injunctive actions (see CAA sections 204 and 205). 
Under CAA section 206(b), EPA may conduct testing of new production 
vehicles to determine compliance with the standards. For in-use 
vehicles, if EPA determines that a substantial number of vehicles do 
not conform to the applicable regulations then the manufacturer must 
submit and implement a remedial plan to address the problem (see CAA 
section 207(c)). There are also emissions-based warranties that the 
manufacturer must implement under CAA section 207(a).
c. EPA's Greenhouse Gas Proposal Under Section 202(a) Concerning 
Endangerment and Cause or Contribute Findings
    EPA's Administrator recently signed a proposed action with two 
distinct findings regarding greenhouse gases under section 202(a) of 
the Clean Air Act. This action is called the Proposed Endangerment and 
Cause or Contribute Findings for Greenhouse Gases under the Clean Air 
Act (Endangerment Proposal).\114\ The Administrator proposed an 
affirmative endangerment finding that the current and projected 
concentrations of a mix of six key greenhouse gases--carbon dioxide 
(CO2), methane (CH4), nitrous oxide 
(N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), 
and sulfur hexafluoride(SF6)--in the atmosphere threaten the 
public health and welfare of current and future generations. She also 
proposed to find that the combined emissions of four of the gases--
carbon dioxide, methane, nitrous oxide and hydrofluorocarbons from new 
motor vehicles and motor vehicle engines--contribute to the atmospheric 
concentrations of these greenhouse gases and therefore to the climate 
change problem.
---------------------------------------------------------------------------

    \114\ 74 FR 18886 (April 24, 2009).
---------------------------------------------------------------------------

    Specifically, the Administrator proposed, after a thorough 
examination of the scientific evidence on the causes and impact of 
current and future climate change, to find that the science 
compellingly supports a positive finding that atmospheric 
concentrations of these greenhouse gases result in air pollution which 
may reasonably be anticipated to endanger both public health and 
welfare. In her proposed finding, the Administrator relied heavily upon 
the major findings and conclusions from the recent assessments of the 
U.S. Climate Change Science Program and the U.N. Intergovernmental 
Panel on Climate Change.\115\ The Administrator proposed a positive 
endangerment finding after considering both observed and projected 
future effects of climate change, key uncertainties, and the full range 
of risks and impacts to public health and welfare occurring within the 
United States. In addition, the proposed finding noted that the 
evidence concerning risks and impacts occurring outside the U.S. 
provided further support for the proposed finding.
---------------------------------------------------------------------------

    \115\ The U.S. Climate Change Science Program (CCSP) is now 
called the U.S. Global Change Research Program (GCRP).
---------------------------------------------------------------------------

    The key scientific findings supporting the proposed endangerment 
finding are that:

--Concentrations of greenhouse gases are at unprecedented levels 
compared to recent and distant past. These high concentrations are the 
unambiguous result of anthropogenic emissions and are very likely the 
cause of the observed increase in average temperatures and other 
climatic changes.
--The effects of climate change observed to date and projected to occur 
in the future include more frequent and intense heat waves, more severe 
wildfires, degraded air quality, heavier downpours and flooding, 
increasing drought, greater sea level rise, more intense storms, harm 
to water resources, harm to agriculture, and harm to wildlife and 
ecosystems. These impacts are effects on public health and welfare 
within the meaning of the Clean Air Act.
    With regard to new motor vehicles and engines, the Administrator 
also proposed a finding that the combined emissions of four greenhouse 
gases--carbon dioxide, methane, nitrous oxide and hydrofluorocarbons--
from new motor vehicles and engines contributes to this air pollution, 
i.e., the atmospheric concentrations of the mix of six greenhouse gases 
which create the threat of climate change and its impacts. Key facts 
supporting the proposed cause and contribute finding for on-highway 
vehicles regulated under section 202(a) of the Clean Air Act are that 
these sources are responsible for 24% of total U.S. greenhouse gas 
emissions, and more than 4% of total global greenhouse gas 
emissions.\116\ The Administrator also considered whether emissions of 
each greenhouse gas individually, as a separate air pollutant, would 
contribute to this air pollution.
---------------------------------------------------------------------------

    \116\ This figure includes the greenhouse gas contributions of 
light vehicles, heavy duty vehicles, and remaining on-highway mobile 
sources.
---------------------------------------------------------------------------

    If the Administrator makes affirmative findings under section 
202(a) on both endangerment and cause or contribute, then EPA is to 
issue standards ``applicable to emission'' of the air pollutant or 
pollutants that EPA finds causes or contributes to the air pollution 
that endangers public health and welfare. The Endangerment Proposal 
invited public comment on whether the air pollutant should be 
considered the group of GHGs, or whether each GHG should be treated as 
a separate air pollutant. Either way, the emissions standards proposed 
today would satisfy the requirements of section 202(a) as the 
Administrator has significant discretion in how to structure the 
standards that apply to the emission of the air pollutant or air 
pollutants at issue. For example, under either approach EPA would have 
the discretion under section 202(a) to adopt separate standards for 
each GHG, a single composite standard covering various gases, or any 
combination of these. In this rulemaking EPA is proposing separate 
standards for nitrous oxide and methane, and a CO2 standard 
that provides for credits based on reductions of HFCs, as the 
appropriate way to issue standards applicable to emissions of these 
GHGs.
3. What is EPA Proposing?
a. Proposed Light-Duty Vehicle, Light-Duty Truck, and Medium-Duty 
Passenger Vehicle Greenhouse Gas Emission Standards and Projected 
Compliance Levels
    The CO2 emissions standards are by far the most 
important of the three standards and are the primary focus of this 
summary. EPA is proposing an attribute-based approach for the 
CO2 fleet-wide standard (one for cars and one for trucks), 
based on vehicle footprint as the attribute. These curves establish 
different CO2 emissions targets for each unique car and 
truck footprint. Generally, the larger the vehicle footprint, the 
higher the corresponding vehicle CO2 emissions target. Table 
III.A.3-1 shows the greenhouse gas standards for light vehicles that 
EPA is proposing for model years (MY) 2012 and later:

[[Page 49510]]



                   Table III.A.3-1--Proposed Industry-Wide Greenhouse Gas Emissions Standards
----------------------------------------------------------------------------------------------------------------
  Standard/covered  pollutants     Form of  standard  Level of  standard        Credits           Test cycles
----------------------------------------------------------------------------------------------------------------
CO2 Standard \117\: Tailpipe CO2  Fleetwide average   See footprint--CO2  CO2-e credits       EPA 2-cycle (FTP
                                   footprint CO2-      curves in Figure    \118\.              and HFET test
                                   curves for cars     I.C-1 for cars                          cycles), with
                                   and trucks.         and Figure I.C-2                        separate
                                                       for trucks.                             mechanisms for A/
                                                                                               C credits.\119\
N2O Standard: Tailpipe N2O......  Cap per vehicle...  0.010 g/mi........  None..............  EPA FTP test.
CH4 Standard: Tailpipe CH4......  Cap per vehicle...  0.030 g/mi........  None..............  EPA FTP test.
----------------------------------------------------------------------------------------------------------------

    One important flexibility associated with the proposed 
CO2 standard is the proposed option for manufacturers to 
obtain credits associated with improvements in their air conditioning 
systems. As will be discussed in greater detail in later sections, EPA 
is establishing test procedures and design criteria by which 
manufacturers can demonstrate improvements in both air conditioner 
efficiency (which reduces vehicle tailpipe CO2 by reducing 
the load on the engine) and air conditioner refrigerants (using lower 
global warming potency refrigerants and/or improving system design to 
reduce GHG emissions associated with leaks). Neither of these 
strategies to reduce GHG emissions from air conditioners would be 
reflected in the EPA FTP or HFET tests. These improvements would be 
translated to a g/mi CO2-equivalent credit that can be 
subtracted from the manufacturer's tailpipe CO2 compliance 
value. EPA expects a high percentage of manufacturers to take advantage 
of this flexibility to earn air conditioning-related credits for 
MY2012-2016 vehicles such that the average credit earned is about 11 
grams per mile CO2-equivalent in 2016.
---------------------------------------------------------------------------

    \117\ While over 99 percent of the carbon in automotive fuels is 
converted to CO2 in a properly functioning engine, 
compliance with the CO2 standard will also account for 
the very small levels of carbon associated with vehicle tailpipe 
hydrocarbon (HC) and carbon monoxide (CO) emissions, converted to 
CO2 on a mass basis, as discussed further in section x.
    \118\ CO2-e refers to CO2-equivalent, and 
is a metric that allows non-CO2 greenhouse gases (such as 
hydrofluorocarbons used as automotive air conditioning refrigerants) 
to be expressed as an equivalent mass (i.e., corrected for relative 
global warming potency) of CO2 emissions.
    \119\ FTP is the Federal Test Procedure which uses what is 
commonly referred to as the ``city'' driving schedule, and HFET is 
the Highway Fuel Economy Test which uses the ``highway'' driving 
schedule. Compliance with the CO2 standard will be based 
on the same 2-cycle values that are currently used for CAFE 
standards compliance; EPA projects that fleet-wide in-use or real 
world CO2 emissions are approximately 25 percent higher, 
on average, than 2-cycle CO2 values.
---------------------------------------------------------------------------

    A second flexibility being proposed is CO2 credits for 
flexible and dual fuel vehicles, similar to the CAFE credits for such 
vehicles which allow manufacturers to gain up to 1.2 mpg in their 
overall CAFE ratings. The Energy Independence and Security Act of 2007 
(EISA) mandated a phase-out of these flexible fuel vehicle CAFE credits 
beginning in 2015, and ending after 2019. EPA is proposing to allow 
comparable CO2 credits for flexible fuel vehicles through MY 
2015, but for MY 2016 and beyond, EPA is proposing to treat flexible 
and dual fuel vehicles on a CO2-performance basis, 
calculating the overall CO2 emissions for flexible and dual 
fuel vehicles based on a fuel use-weighted average of the 
CO2 levels on gasoline and on a manufacturer's demonstrated 
actual usage of the alternative fuel in its vehicle fleet.
    Table III.A.3-2 summarizes EPA projections of industry-wide 2-cycle 
CO2 emissions and fuel economy levels that would be achieved 
by manufacturer compliance with the proposed GHG standards for MY2012-
2016.
    For MY2011, Table III.A.3-2 uses the projected NHTSA compliance 
values for its MY2011 CAFE standards of 30.2 mpg for cars and 24.1 mpg 
for trucks, converted to an equivalent combined car and truck 
CO2 level of 325 grams per mile.\120\ EPA believes this is a 
reasonable estimate with which to compare the proposed MY2012-2016 
CO2 emission standards. Identifying the proper MY2011 
estimate is complicated for many reasons, among them being the turmoil 
in the current automotive market for consumers and manufacturers, 
uncertain and volatile oil and gasoline prices, the ability of 
manufacturers to use flexible fuel vehicle credits to meet MY2011 CAFE 
standards, and the fact that most manufacturers have been surpassing 
CAFE standards (particularly the car standard) in recent years. Taking 
all of these considerations into account, EPA believes that the MY2011 
projected CAFE compliance values, converted to CO2 emissions 
levels, represent a reasonable estimate.
---------------------------------------------------------------------------

    \120\ 74 FR 14196.
---------------------------------------------------------------------------

    Table III.A.3-2 shows projected industry-wide average 
CO2 emissions values. The Projected CO2 Emissions 
for the Footprint-Based Standard column shows the CO2 g/mi 
level corresponding with the footprint standard that must be met. It is 
based on the proposed CO2-footprint curves and projected 
footprint values, and will decrease each year to 250 grams per mile (g/
mi) in MY2016. For MY2012-2015, the emissions impact of the projected 
utilization of flexible fuel vehicle (FFV) credits and the temporary 
lead-time allowance alternative standard (TLAAS, discussed below) are 
shown in the next two columns. Neither of these programs is proposed to 
be available in MY2016. The Projected CO2 Emissions column 
gives the CO2 emissions levels projected to be achieved 
given use of the flexible fuel credits and temporary lead-time 
allowance program. This column shows that, relative to the MY 2011 
estimate, EPA projects that MY2016 CO2 emissions will be 
reduced by 23 percent over five years. The Projected A/C Credit column 
represents the industry wide average air conditioner credit 
manufacturers are expected to earn on an equivalent CO2 gram 
per mile basis in a given model year. In MY2016, the projected A/C 
credit of 10.6 g/mi represents 14 percent of the 75 g/mi CO2 
emissions reductions associated with the proposed standards. The 
Projected 2-cycle CO2 Emissions column shows the projected 
CO2 emissions as measured over the EPA 2-cycle tests, which 
would allow compliance with the standard assuming utilization of the 
projected FFV, TLAAS, and A/C credits.

[[Page 49511]]



                Table III.A.3-2--Projected Fleetwide CO[ihel2] Emissions Values (grams per mile)
----------------------------------------------------------------------------------------------------------------
                                     Projected
                                     CO[ihel2]
                                     emissions                 Projected    Projected                 Projected
            Model year                for the     Projected      TLAAS      CO[ihel2]   Projected A/   2-cycle
                                     footprint-   FFV credit     credit     emissions     C credit    CO[ihel2]
                                       based                                                          emissions
                                      standard
----------------------------------------------------------------------------------------------------------------
2011..............................  ...........  ...........  ...........        (325)  ...........        (325)
2012..............................          295            6          0.3          302          3.1          305
2013..............................          286          5.7          0.2          291          5.0          296
2014..............................          276          5.4          0.2          281          7.5          289
2015..............................          263          4.1          0.1          267         10.0          277
2016..............................          250            0            0          250         10.6          261
----------------------------------------------------------------------------------------------------------------

    EPA is also proposing a series of flexibilities for compliance with 
the CO2 standard which are not expected to significantly 
affect the projected compliance and achieved values shown above, but 
which should significantly reduce the costs of achieving those 
reductions. These flexibilities include the ability to earn: annual 
credits for a manufacturer's over-compliance with its unique fleet-wide 
average standard, early credits from MY2009-2011, credits for early 
introduction of advanced technology vehicles, credit for ``off-cycle'' 
CO2 reductions not reflected in CO2/fuel economy 
tests, as well as the carry-forward and carry-backward of credits, the 
ability to transfer credits between a manufacturer's car and truck 
fleets, and a temporary lead-time allowance alternative standard 
(included in the tables above) that will permit manufacturers with less 
than 400,000 vehicles produced in MY 2009 to designate a fraction of 
their vehicles to meet a 25% higher CO2 standard for MY 
2012-2015. All of these proposed flexibilities are discussed in greater 
detail in later sections.
    EPA is also proposing caps on the tailpipe emissions of nitrous 
oxide (N2O) and methane (CH4)--0.010 g/mi for 
N2O and 0.030 g/mi for CH4--over the EPA FTP 
test. While N2O and CH4 can be potent greenhouse 
gases on a relative mass basis, their emission levels from modern 
vehicle designs are extremely low and represent only about 1% of total 
light vehicle GHG emissions. These cap standards are designed to ensure 
that N2O and CH4 emissions levels do not rise in 
the future, rather than to force reductions in the already low 
emissions levels. Accordingly, these standards are not designed to 
require automakers to make any changes in current vehicle designs, and 
thus EPA is not projecting any environmental or economic impacts 
associated with these proposed standards.
    EPA has attempted to build on existing practice wherever possible 
in designing a compliance program for the proposed GHG standards. In 
particular, the program structure proposed will streamline the 
compliance process for both manufacturers and EPA by enabling 
manufacturers to use a single data set to satisfy both the new GHG and 
CAFE testing and reporting requirements. Timing of certification, 
model-level testing, and other compliance activities also follow 
current practices established under the Tier 2 and CAFE programs.
b. Environmental and Economic Benefits and Costs of EPA's Proposed 
Standards
    In Table III.A.3-3 EPA presents estimated annual net benefits for 
the indicated calendar years. The table also shows the net present 
values of those benefits for the calendar years 2012-2050 using both a 
3% and a 7% discount rate. As discussed previously, EPA recognizes that 
much of these same costs and benefits are also attributed to the 
proposed CAFE standard contained in this joint proposal.

                               Table III.A.3-3--Projected Quantifiable Benefits and Costs for Proposed CO[ihel2] Standard
                                                 [(In million 2007 $s) [Note: B = unquantified benefits]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2020            2030            2040            2050           NPV, 3%         NPV, 7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantified Annual Costs \a\.............................        -$25,100        -$72,500       -$105,700       -$146,100     -$1,287,600       -$529,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits from Reduced GHG Emissions at each assumed SCC value:
--------------------------------------------------------------------------------------------------------------------------------------------------------
    SCC 5%..............................................           1,200           3,300           5,700           9,500          69,200          28,600
    SCC 5% Newell-Pizer.................................           2,500           6,600          11,000          19,000         138,400          57,100
    SCC from 3% and 5%..................................           4,700          12,000          22,000          36,000         263,000         108,500
    SCC 3%..............................................           8,200          22,000          38,000          63,000         456,900         188,500
    SCC 3% Newell-Pizer.................................          14,000          36,000          63,000         100,000         761,400         314,200
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other Quantified Externalities
--------------------------------------------------------------------------------------------------------------------------------------------------------
PM[ihel2].[ihel5] Related Benefits \b\ \c\ \d\..........           1,400           3,000           4,600           6,700          59,800          26,300
Energy Security Impacts (price shock)...................           2,300           4,800           6,200           7,800          85,800          38,800
Reduced Refueling.......................................           2,500           4,900           6,400           8,000          89,600          41,000
Value of Increased Driving \e\..........................           4,900          10,000          13,600          18,000         184,700          82,700
Accidents, Noise, Congestion............................          -2,400          -4,900          -6,300          -7,900         -88,200         -40,200
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantified Net Benefits at each assumed SCC value:
--------------------------------------------------------------------------------------------------------------------------------------------------------
    SCC 5%..............................................          35,000          93,600         135,900         188,200       1,688,500         706,700
    SCC 5% Newell-Pizer.................................          36,300          96,900         141,200         197,700       1,757,700         735,200
    SCC from 3% and 5%..................................          38,500         102,300         152,200         214,700       1,882,300         786,600

[[Page 49512]]

 
    SCC 3%..............................................          42,000         112,300         168,200         241,700       2,076,200         866,600
    SCC 3% Newell-Pizer.................................          47,800         126,300         193,200         278,700       2,380,700         992,300
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Quantified annual costs are negative because fuel savings are included as negative costs (i.e., positive savings). Since the fuel savings outweigh
  the vehicle technology costs, the costs of as presented here are actually negative (i.e., they represent savings).
\b\ Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified
  and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton
  values that reflect only human health impacts associated with reductions in PM[ihel2].[ihel5] exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM[ihel2].[ihel5] and ozone as determined by full-scale air quality modeling. However, EPA was unable to
  conduct a full-scale air quality modeling analysis in time for the proposal. EPA does intend to more fully capture the co-pollutant benefits for the
  analysis of the final standards.
\c\ The PM[ihel2].[ihel5]-related benefits (derived from benefit-per-ton values) presented in this table are based on an estimate of premature mortality
  derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six Cities study (Laden et al., 2006), the values
  would be approximately 145% (nearly two-and-a-half times) larger.
\d\ The PM[ihel2].[ihel5]-related benefits (derived from benefit-per-ton values) presented in this table assume a 3% discount rate in the valuation of
  premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9%
  lower.
\e\ Calculated using pre-tax fuel prices.

4. Basis for the Proposed GHG Standards Under Section 202(a)
    EPA statutory authority under section 202(a)(1) of the Clean Air 
Act (CAA) is discussed in more detail in Section I.C.2. The following 
is a summary of the basis for the proposed standards under section 
202(a), which is discussed in more detail in the following portions of 
Section III.
    With respect to CO2 and HFCs, EPA is proposing 
attribute-based light-duty car and truck standards that achieve large 
and important emissions reductions of GHGs. EPA has evaluated the 
technological feasibility of the proposed standards, and the 
information and analysis performed by EPA indicates that these 
standards are feasible in the lead time provided. EPA and NHTSA have 
carefully evaluated the effectiveness of individual technologies as 
well as the interactions when technologies are combined. EPA's 
projection of the technology that would be used to comply with the 
proposed standards indicates that manufacturers will be able to meet 
the proposed standards by employing a wide variety of technology that 
is already commercially available and can be incorporated into their 
vehicle at the time of redesign. In addition to the use of the 
manufacturers' redesign cycle, EPA's analysis also takes into account 
certain flexibilities that will facilitate compliance especially in the 
early years of the program when potential lead time constraints are 
most challenging. These flexibilities include averaging, banking, and 
trading of various types of credits. For the industry as a whole, EPA's 
projections indicate that the proposed standards can be met using 
technology that will be available in the lead-time provided.
    To account for additional lead-time concerns for various 
manufacturers of typically higher performance vehicles, EPA is 
proposing a Temporary Lead-time Allowance that will further facilitate 
compliance for limited volumes of such vehicles in the program's 
initial years. For a few very small volume manufacturers, EPA projects 
that manufacturers will likely comply using a combination of credits 
and technology.
    EPA has also carefully considered the cost to manufacturers of 
meeting the standards, estimating piece costs for all candidate 
technologies, direct manufacturing costs, cost markups to account for 
manufacturers' indirect costs, and manufacturer cost reductions 
attributable to learning. In estimating manufacturer costs, EPA took 
into account manufacturers' own standard practices such as making major 
changes to model technology packages during a planned redesign cycle. 
EPA then projected the average cost across the industry to employ this 
technology, as well as manufacturer-by-manufacturer costs. EPA 
considers the per vehicle costs estimated from this analysis to be well 
within a reasonable range in light of the emissions reductions and 
benefits received. EPA projects, for example, that the fuel savings 
over the life of the vehicles will more than offset the increase in 
cost associated with the technology used to meet the standards.
    EPA has also evaluated the impacts of these standards with respect 
to reductions in GHGs and reductions in oil usage. For the lifetime of 
the model year 2012-2016 vehicles we estimate GHG reductions of 
approximately 950 million metric tons CO2 eq. and fuel 
reductions of 1.8 billion barrels of oil. These are important and 
significant reductions that would be achieved by the proposed 
standards. EPA has also analyzed a variety of other impacts of the 
standards, ranging from the standards' effects on emissions of non-GHG 
pollutants, impacts on noise, energy, safety and congestion. EPA has 
also quantified the cost and benefits of the proposed standards, to the 
extent practicable. Our analysis to date indicates that the overall 
quantified benefits of the proposed standards far outweigh the 
projected costs. Utilizing a 3% discount rate and a $20 per ton social 
cost of carbon we estimate the total net social benefits over the life 
of the model year 2012-2016 vehicles is $192 billion, and the net 
present value of the net social benefits of the standards through the 
year 2050 is $1.9 trillion dollars. These values are estimated at $136 
billion and $787 billion, respectively, using a 7% discount rate and 
the $20 per ton SCC value.
    Under section 202(a) EPA is called upon to set standards that 
provide adequate lead-time for the development and application of 
technology to meet the standards. EPA's proposed standards satisfy this 
requirement, as discussed above. In setting the standards, EPA is 
called upon to weigh and balance various factors, and to exercise 
judgment in setting standards that are a reasonable balance of the 
relevant factors. In this case, EPA has considered many factors, such 
as cost, impacts on emissions (both GHG and non-GHG), impacts on oil 
conservation, impacts on noise, energy, safety, and other factors, and 
has where practicable quantified the costs and benefits of the rule. In 
summary, given the technical feasibility of the standard, the moderate 
cost per vehicle in light of the savings in fuel costs over the life 
time of the vehicle, the very significant reductions

[[Page 49513]]

in emissions and in oil usage, and the significantly greater quantified 
benefits compared to quantified costs, EPA is confident that the 
proposed standards are an appropriate and reasonable balance of the 
factors to consider under section 202(a). See Husqvarna AB v. EPA, 254 
F.3d 195, 200 (D.C. Cir. 2001) (great discretion to balance statutory 
factors in considering level of technology-based standard, and 
statutory requirement ``to [give appropriate] consideration to the cost 
of applying * * * technology'' does not mandate a specific method of 
cost analysis); see also Hercules Inc. v. EPA, 598 F.2d 91, 106 (D.C. 
Cir. 1978) (``In reviewing a numerical standard we must ask whether the 
agency's numbers are within a zone of reasonableness, not whether its 
numbers are precisely right''); Permian Basin Area Rate Cases, 390 U.S. 
747, 797 (1968) (same); Federal Power Commission v. Conway Corp., 426 
U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 
F.3d 1071, 1084 (D.C. Cir. 2002) (same).
    EPA recognizes that the vast majority of technology which we are 
considering for purposes of setting standards under section 202(a) is 
commercially available and already being utilized to a limited extent 
across the fleet. The vast majority of the emission reductions which 
would result from this proposed rule would result from the increased 
use of these technologies. EPA also recognizes that this proposed rule 
would enhance the development and limited use of more advanced 
technologies, such as PHEVs and EVs. In this technological context, 
there is no clear cut line that indicates that only one projection of 
technology penetration could potentially be considered feasible for 
purposes of section 202(a), or only one standard that could potentially 
be considered a reasonable balancing of the factors relevant under 
section 202(a). EPA has therefore evaluated two sets of alternative 
standards, one more stringent than the proposed standards and one less 
stringent.
    The alternatives are 4% per year increase in standards which would 
be less stringent than our proposal and a 6% per year increase in the 
standards which would be more stringent than our proposal. EPA is not 
proposing either of these. As discussed in Section III.D.7, the 4% per 
year compared to the proposal forgoes CO2 reductions which 
can be achieved at reasonable costs and are achievable by the industry 
within the rule's timeframe. The 6% per year alternative requires a 
significant increase in the projected required technology which may not 
be achievable in this timeframe due to the limited available lead time 
and the current difficult financial condition of the automotive 
industry. (See Section III.D.7 for a detailed discussion of why EPA is 
not proposing either of the alternatives.) EPA thus believes that it is 
appropriate to propose the CO2 standards discussed above. 
EPA invites comment on all aspects of this judgment, as well as comment 
on the alternative standards.
    EPA is also proposing standards for N2O and 
CH4. EPA has designed these standards to act as emission 
rate (i.e., gram per mile) caps and to avoid future increases in light 
duty vehicle emissions. As discussed in Section III.B.6, N2O 
and CH4 emissions are already generally well controlled by 
current emissions standards, and EPA has not identified clear 
technological steps available to manufacturers today that would 
significantly reduce current emission levels for the vast majority of 
vehicles manufactured today (i.e., stoichiometric gasoline vehicles). 
However, for both N2O and CH4, some vehicle 
technologies (and, for CH4, use of natural gas fuel) could 
potentially increase emissions of these GHGs in the future, and EPA 
believes it is important that this be avoided. EPA expects that, almost 
universally across current car and truck designs, manufacturers will be 
able to meet the ``cap'' standards with little if any technological 
improvements or cost. EPA has designed the level of the N2O 
and CH4 standards with the intent that manufacturers would 
be able to meet them without the need for technological improvement; in 
other words, these emission standards are designed to be ``anti-
backsliding'' standards.

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

    EPA is proposing new emission standards to control greenhouse gases 
(GHGs) from light-duty vehicles. First, EPA is proposing emission 
standards for carbon dioxide (CO2) on a gram per mile (g/
mile) basis that would apply to a manufacturer's fleet of cars, and a 
separate standard that would apply to a manufacturer's fleet of trucks. 
CO2 is the primary pollutant resulting from the combustion 
of vehicular fuels, and the amount of CO2 emitted is 
directly correlated to the amount of fuel consumed. Second, EPA is 
providing auto manufacturers with the opportunity to earn credits 
toward the fleet-wide average CO2 standards for improvements 
to air conditioning systems, including both hydrofluorocarbon (HFC) 
refrigerant losses (i.e., system leakage) and indirect CO2 
emissions related to the increased load on the engine. Third, EPA is 
proposing separate emissions standards for two other GHG pollutants: 
Methane (CH4) and nitrous oxide (N2O). 
CH4 and N2O emissions relate closely to the 
design and efficient use of emission control hardware (i.e., catalytic 
converters). The standards for CH4 and N2O would 
be set as a cap that would limit emissions increases and prevent 
backsliding from current emission levels. The proposed standards 
described below would apply to passenger cars, light-duty trucks, and 
medium-duty passenger vehicles (MDPVs). As an overall group, they are 
referred to in this preamble as light vehicles or simply as vehicles. 
In this preamble section passenger cars may be referred to simply as 
``cars'', and light-duty trucks and MDPVs as ``light trucks'' or 
``trucks.'' \121\
---------------------------------------------------------------------------

    \121\ As described in Section III.B.2., EPA is proposing for 
purposes of GHG emissions standards to use the same vehicle category 
definitions as are used in the CAFE program.
---------------------------------------------------------------------------

    EPA is establishing a system of averaging, banking, and trading of 
credits integral to the fleet averaging approach, based on manufacturer 
fleet average CO2 performance, as discussed in Section 
III.B.4. This approach is similar to averaging, banking, and trading 
(ABT) programs EPA has established in other programs and is also 
similar to provisions in the CAFE program. In addition to traditional 
ABT credits based on the fleet emissions average, EPA is also proposing 
to include A/C credits as an aspect of the standards, as mentioned 
above. EPA is also proposing several additional credit provisions that 
apply only in the initial model years of the program. These include 
flex fuel vehicle credits, credits based on the use of advanced 
technologies, and generation of credits prior to model year 2012. The 
proposed A/C credits and additional credit opportunities are described 
in Section III.C. These credit programs would provide flexibility to 
manufacturers, which may be especially important during the early 
transition years of the program. EPA is also proposing to allow a 
manufacturer to carry a deficit into the future for a limited number of 
model years. A parallel provision, referred to as credit carry-back, is 
proposed as part of the CAFE program.
1. What Fleet-Wide Emissions Levels Correspond to the CO2 
Standards?
    The proposed attribute-based CO2 standards, if made 
final, are projected to achieve a national fleet-wide average, covering 
both light cars and trucks, of

[[Page 49514]]

250 grams/mile of CO2 in model year (MY) 2016. This includes 
CO2-equivalent emission reductions from A/C improvements, 
reflected as credits in the standard. The standards would begin with MY 
2012, with a generally linear increase in stringency from MY 2012 
through MY 2016. EPA is proposing separate standards for cars and light 
trucks. The tables in this section below provide overall fleet average 
levels that are projected for both cars and light trucks over the 
phase-in period which is estimated to correspond with the proposed 
standards. The actual fleet-wide average g/mi level that will be 
achieved in any year for cars and trucks will depend on the actual 
production for that year, as well as the use of the various credit and 
averaging, banking, and trading provisions. For example, in any year, 
manufacturers may generate credits from cars and use them for 
compliance with the truck standard. Such transfer of credits between 
cars and trucks is not reflected in the table below. In Section III.F, 
the year-by-year estimate of emissions reductions that are projected to 
be achieved by the proposed standards are discussed.
    In general, the proposed schedule of standards acts as a phase-in 
to the MY 2016 standards, and reflects consideration of the appropriate 
lead-time for each manufacturer to implement the requisite emission 
reductions technology across its product line.\122\ Note that 2016 is 
the final model year in which standards become more stringent. The 2016 
CO2 standards would remain in place for 2017 and later model 
years, until revised by EPA in a future rulemaking.
---------------------------------------------------------------------------

    \122\ See CAA section 202(a)(2).
---------------------------------------------------------------------------

    EPA estimates that, on a combined fleet-wide national basis, the 
proposed 2016 MY standards would achieve a level of 250 g/mile 
CO2, including CO2-equivalent credits from A/C 
related reductions. The derivation of the 250 g/mile estimate is 
described in Section III.B.2.
    EPA has estimated the overall fleet-wide CO2-equivalent 
emission levels that correspond with the proposed attribute-based 
standards, based on the projections of the composition of each 
manufacturer's fleet in each year of the program. Tables III.B.1-1 and 
III.B.1-2 provide these estimates for each manufacturer.\123\
---------------------------------------------------------------------------

    \123\ These levels do not include the effect of flexible fuel 
credits, transfer of credits between cars and trucks, temporary lead 
time allowance, or any other credits.

 Table III.B.1-1--Estimated Fleet CO2-Equivalent Levels Corresponding to
                     the Proposed Standards for Cars
------------------------------------------------------------------------
                                                Model year
          Manufacturer           ---------------------------------------
                                   2012    2013    2014    2015    2016
------------------------------------------------------------------------
BMW.............................     265     257     249     238     227
Chrysler........................     266     259     251     242     231
Daimler.........................     270     263     257     245     234
Ford............................     266     259     251     239     228
General Motors..................     266     258     250     239     228
Honda...........................     259     251     244     232     221
Hyundai.........................     260     252     244     233     221
Kia.............................     262     253     246     235     223
Mazda...........................     258     250     243     231     220
Mitsubishi......................     255     247     240     228     217
Nissan..........................     263     255     247     236     225
Porsche.........................     242     234     227     215     204
Subaru..........................     252     244     237     225     214
Suzuki..........................     244     236     229     217     206
Tata............................     286     278     271     259     248
Toyota..........................     257     250     242     231     220
Volkswagen......................     254     246     239     228     217
------------------------------------------------------------------------


 Table III.B.1-2--Estimated Fleet CO2-Equivalent Levels Corresponding to
                 the Proposed Standards for Light Trucks
------------------------------------------------------------------------
                                                Model year
          Manufacturer           ---------------------------------------
                                   2012    2013    2014    2015    2016
------------------------------------------------------------------------
BMW.............................     334     324     313     298     283
Chrysler........................     349     339     329     315     300
Daimler.........................     346     334     323     308     293
Ford............................     363     352     343     329     314
General Motors..................     372     361     351     337     322
Honda...........................     333     322     311     295     280
Hyundai.........................     330     320     308     293     278
Kia.............................     341     330     319     303     288
Mazda...........................     321     311     300     286     271
Mitsubishi......................     320     310     299     284     269
Nissan..........................     352     341     332     318     303
Porsche.........................     338     327     316     301     286
Subaru..........................     319     308     297     282     267
Suzuki..........................     324     313     301     286     271
Tata............................     326     316     305     289     275
Toyota..........................     342     332     320     305     291

[[Page 49515]]

 
Volkswagen......................     344     333     322     307     292
------------------------------------------------------------------------

    These estimates were aggregated based on projected production 
volumes into the fleet-wide averages for cars and trucks (Table 
III.B.1-3).\124\
---------------------------------------------------------------------------

    \124\ Due to rounding during calculations, the estimated fleet-
wide CO2-equivalent levels may vary by plus or minus 1 
gram.

       Table III.B.1-3--Estimated Fleet-wide CO2-Equivalent Levels
                 Corresponding to the Proposed Standards
------------------------------------------------------------------------
                                               Cars           Trucks
------------------------------------------------------------------------
               Model year                   CO2 (g/mi)      CO2 (g/mi)
------------------------------------------------------------------------
2012....................................             261             352
2013....................................             254             341
2014....................................             245             331
2015....................................             234             317
2016 and later..........................             224             303
------------------------------------------------------------------------

    As shown in Table III.B.1-3, fleet-wide CO2-equivalent 
emission levels for cars under the proposed approach are projected to 
decrease from 261 to 224 grams per mile between MY 2012 and MY 2016. 
Similarly, fleet-wide CO2-equivalent emission levels for 
trucks are projected to decrease from 352 to 303 grams per mile. These 
numbers do not include the effects of other flexibilities and credits 
in the program. The estimated achieved values can be found in Chapter 5 
of the Draft Regulatory Impact Analysis (DRIA).
    EPA has also estimated the average fleet-wide levels for the 
combined car and truck fleets. These levels are provided in Table 
III.B.1-4. As shown, the overall fleet average CO2 level is 
expected to be 250 g/mile in 2016.

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

    As noted above, EPA is proposing standards that would result in 
increasingly stringent levels of CO2 control from MY 2012 
though MY 2016--applying the CO2 footprint curves applicable 
in each model year to the vehicles expected to be sold in each model 
year produces fleet-wide annual reductions in CO2 emissions. 
As explained in Section III.D below and the relevant support documents, 
EPA believes that the proposed level of improvement achieves important 
CO2 emissions reductions through the application of feasible 
control technology at reasonable cost, considering the needed lead time 
for this program. EPA further believes that the proposed averaging, 
banking and trading provisions, as well as other credit-generating 
mechanisms, allow manufacturers further flexibilities which reduce the 
cost of the proposed CO2 standards and help to provide 
adequate lead time. EPA believes this approach is justified under 
section 202(a) of the Clean Air Act.
    EPA has analyzed the feasibility under the CAA of achieving the 
proposed CO2 standards, based on projections of what actions 
manufacturers are expected to take to reduce emissions. The results of 
the analysis are discussed in detail in Section III.D below and in the 
DRIA. EPA also presents the estimated costs and benefits of the 
proposed car and truck CO2 standards in Section III.H. In 
developing the proposal, EPA has evaluated the kinds of technologies 
that could be utilized by the automobile industry, as well as the 
associated costs for the industry and fuel savings for the consumer, 
the magnitude of the GHG reductions that may be achieved, and other 
factors relevant under the CAA.
    With respect to the lead time and cost of incorporating technology 
improvements that reduce GHG emissions, EPA and NHTSA place important 
weight on the fact that during MYs 2012-2016 manufacturers are expected 
to redesign and upgrade their light-duty vehicle products (and in some 
cases introduce entirely new vehicles not on the market today). Over 
these five model years there would be an opportunity for manufacturers 
to evaluate almost every one of their vehicle model platforms and add 
technology in a cost-effective way to control GHG emissions and improve 
fuel economy. This includes redesign of the air conditioner systems in 
ways that will further reduce GHG emissions. The time-frame and levels 
for the proposed standards, as well as the ability to average, bank and 
trade credits and carry a deficit forward for a limited time, are 
expected to provide manufacturers the time needed to incorporate 
technology that will achieve GHG reductions, and to do this as part of 
the normal vehicle redesign process. This is an important aspect of the 
proposal, as it would avoid the much higher costs that would occur if 
manufacturers needed to add or change technology at times other than 
these scheduled redesigns. This time period would also provide 
manufacturers the opportunity to plan for compliance using a multi-year 
time frame, again in accord with their normal business practice.
    Consistent with the requirement of CAA section 202(a)(1) that 
standards be applicable to vehicles ``for their useful life,'' EPA is 
proposing CO2 vehicle standards that would apply for the 
useful life of the vehicle. Under section 202(i) of the Act, which 
authorized the Tier 2 standards, EPA established a useful life period 
of 10 years or 120,000 miles, whichever first occurs, for all Tier 2 
light-duty vehicles and light-duty trucks.\125\ Tier 2 refers to EPA's 
standards for criteria pollutants such as NOX, HC, and CO. 
EPA is proposing new CO2 standards for the same group of 
vehicles, and therefore the Tier 2 useful life would apply for 
CO2 standards as well. The in-use emission standard will be 
10% higher than the certification standard, to address issues of 
production variability and test-to-test variability. The in-use 
standard is discussed in Section III.E.
---------------------------------------------------------------------------

    \125\ See 65 FR 6698 (February 10, 2000).
---------------------------------------------------------------------------

    EPA is proposing to measure CO2 for certification and 
compliance purposes using the same test procedures currently used by 
EPA for measuring fuel economy. These procedures are the Federal Test 
Procedure (FTP or ``city'' test) and the Highway Fuel Economy

[[Page 49516]]

Test (HFET or ``highway'' test).\126\ This corresponds with the data 
used to develop the footprint-based CO2 standards, since the 
data on control technology efficiency was also developed in reference 
to these test procedures. Although EPA recently updated the test 
procedures used for fuel economy labeling, to better reflect the actual 
in-use fuel economy achieved by vehicles, EPA is not proposing to use 
these test procedures for the CO2 standards proposed here, 
given the lack of data on control technology effectiveness under these 
procedures.\127\ As stated in Section I, EPA and NHTSA invite comments 
on potential amendments to the CAFE and GHG test procedures, including 
but not limited to air conditioner-related emissions, that could be 
implemented beginning in MY 2017.
---------------------------------------------------------------------------

    \126\ EPA established the FTP for emissions measurement in the 
early 1970s. In 1976, in response to the Energy Policy and 
Conservation Act (EPCA) statute, EPA extended the use of the FTP to 
fuel economy measurement and added the HFET.\126\ The provisions in 
the 1976 regulation, effective with the 1977 model year, established 
procedures to calculate fuel economy values both for labeling and 
for CAFE purposes.
    \127\ See 71 FR 77872, December 27, 2006.
---------------------------------------------------------------------------

    EPA proposes to include hydrocarbons (HC) and carbon monoxide (CO) 
in its CO2 emissions calculations on a CO2-
equivalent basis. It is well accepted that HC and CO are typically 
oxidized to CO2 in the atmosphere in a relatively short 
period of time and so are effectively part of the CO2 
emitted by a vehicle. In terms of standard stringency, accounting for 
the carbon content of tailpipe HC and CO emissions and expressing it as 
CO2-equivalent emissions would add less than one percent to 
the overall CO2-equivalent emissions level. This will also 
ensure consistency with CAFE calculations since HC and CO are included 
in the ``carbon balance'' methodology that EPA uses to determine fuel 
usage as part of calculating vehicle fuel economy levels.
2. What Are the CO2 Attribute-Based Standards?
    EPA proposes to use the same vehicle category definitions that are 
used in the CAFE program for the 2011 model year standards.\128\ The 
CAFE vehicle category definitions differ slightly from the EPA 
definitions for cars and light trucks used for the Tier 2 program, as 
well as other EPA vehicle programs. Specifically, NHTSA's 
reconsideration of the CAFE program statutory language has resulted in 
many two-wheel drive SUVs under 6000 pounds gross vehicle weight being 
reclassified as cars under the CAFE program. The proposed approach of 
using CAFE definitions allows EPA's proposed CO2 standards 
and the proposed CAFE standards to be harmonized across all vehicles. 
In other words, vehicles would be subject to either car standards or 
truck standards under both programs, and not car standards under one 
program and trucks standards under the other.
---------------------------------------------------------------------------

    \128\ See 49 CFR part 523.
---------------------------------------------------------------------------

    EPA is proposing separate car and truck standards, that is, 
vehicles defined as cars have one set of footprint-based curves for MY 
2012-2016 and vehicles defined as trucks have a different set for MY 
2012-2016. In general, for a given footprint the CO2 g/mi 
target for trucks is less stringent then for a car with the same 
footprint.
    EPA is not proposing a single fleet standard where all cars and 
trucks are measured against the same footprint curve for several 
reasons. First, some vehicles classified as trucks (such as pick-up 
trucks) have certain attributes not common on cars which attributes 
contribute to higher CO2 emissions--notably high load 
carrying capability and/or high towing capability. Due to these 
differences, it is reasonable to separate the light-duty vehicle fleet 
into two groups. Second, EPA would like to harmonize key program design 
elements of the GHG standards with NHTSA's CAFE program where it is 
reasonable to do so. NHTSA is required by statute to set separate 
standards for passenger cars and for non-passenger cars.
    Finally, most of the advantages of a single standard for all light 
duty vehicles are also present in the two-fleet standards proposed 
here. Because EPA is proposing to allow unlimited credit transfer 
between a manufacturer's car and truck fleets, the two fleets can 
essentially be viewed as a single fleet when manufacturers consider 
compliance strategies. Manufacturers can thus choose on which vehicles 
within their fleet to focus GHG reducing technology and then use credit 
transfers as needed to demonstrate compliance, just as they would if 
there was a single fleet standard. The one benefit of a single light-
duty fleet not captured by a two-fleet approach is that a single fleet 
prevents potential ``gaming'' of the car and truck definitions to try 
and design vehicles which are more similar to passenger cars but which 
may meet the regulatory definition of trucks. Although this is of 
concern to EPA, we do not believe at this time that concern is 
sufficient to outweigh the other reasons for proposing separate car and 
truck fleet standards. EPA requests comment on this approach.
    For model years 2012 and later, EPA is proposing a series of 
CO2 standards that are described mathematically by a family 
of piecewise linear functions (with respect to vehicle footprint). The 
form of the function is as follows:

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

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

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

                                                       Table III.B.2-1--Parameter Values for Cars
                                                             [For CO2 gram per mile targets]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Lower           Upper
                       Model year                                a               b               c               d          constraint      constraint
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012....................................................             242             313            4.72            48.8              41              56
2013....................................................             234             305            4.72            40.8              41              56
2014....................................................             227             297            4.72            33.2              41              56
2015....................................................             215             286            4.72            22.0              41              56
2016 and later..........................................             204             275            4.72            10.9              41              56
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49517]]


                                                      Table III.B.2-2--Parameter Values for Trucks
                                                             [For CO2 gram per mile targets]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Lower           Upper
                       Model year                                a               b               c               d          constraint      constraint
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012....................................................             298             399            4.04           132.6              41              66
2013....................................................             287             388            4.04           121.6              41              66
2014....................................................             276             377            4.04           110.3              41              66
2015....................................................             261             362            4.04            95.2              41              66
2016 and later..........................................             246             347            4.04            80.4              41              66
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The equations can be shown graphically for each vehicle category, 
as shown in Figures III.B.2-1 and III.B.2-2. These standards (or 
functions) decrease from 2012-2016 with a vertical shift. A more 
detailed description of the development of the attribute based standard 
can be found in Chapter 2 of the Draft Joint TSD. More background 
discussion on other alternative attributes and curves EPA explored can 
be found in the EPA DRIA. EPA recognizes that the CAA does not mandate 
that EPA use an attribute based standard, as compared to NHTSA's 
obligations under EPCA. The EPA believes that proposing a footprint-
based program will harmonize EPA's proposed program and the proposed 
CAFE program as a single national program, resulting in reduced 
compliance complexity for manufacturers. EPA's reasons for proposing to 
use an attribute based standard are discussed in more detail in the 
Joint TSD. Comments are requested on this proposal to use the 
attribute-based approach for regulating tailpipe CO2 
emissions.

BILLING CODE 4910-59-P

[[Page 49518]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.010


[[Page 49519]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.011

BILLING CODE 4910-59-C
3. Overview of How EPA's Proposed CO2 Standards Would Be 
Implemented for Individual Manufacturers
    This section provides a brief overview of how EPA proposes to 
implement the CO2 standards. Section III.E explains EPA's 
proposed approach for certification and compliance in detail. EPA is 
proposing two kinds of standards--fleet average standards determined by 
a manufacturer's fleet profile of various models, and in-use standards 
that would apply to the various models that make up the manufacturer's 
fleet. Although this is similar in concept to the current light-duty 
vehicle Tier 2 program, there are

[[Page 49520]]

important differences. In explaining EPA's proposal for the 
CO2 standards, it is useful to summarize how the Tier 2 
program works.
    Under Tier 2, manufacturers select a test vehicle prior to 
certification and test the vehicle and/or its emissions hardware to 
determine both its emissions performance when new and the emissions 
performance expected at the end of its useful life. Based on this 
testing, the vehicle is assigned to one of several specified bins of 
emissions levels, identified in the Tier 2 rule, and this bin level 
becomes the emissions standard for the test group the test vehicle 
represents. All of the vehicles in the group must meet the emissions 
level for that bin throughout their useful life. The emissions level 
assigned to the bin is also used in calculating the manufacturer's 
fleet average emissions performance.
    Since compliance with the Tier 2 fleet average depends on actual 
test group sales volumes and bin levels, it is not possible to 
determine compliance at the time the manufacturer applies for and 
receives a certificate of conformity for a test group. Instead, at 
certification, the manufacturer demonstrates that the vehicles in the 
test group are expected to comply throughout their useful life with the 
emissions bin assigned to that test group, and makes a good faith 
demonstration that its fleet is expected to comply with the Tier 2 
average when the model year is over. EPA issues a certificate for the 
vehicles covered by the test group based on this demonstration, and 
includes a condition in the certificate that if the manufacturer does 
not comply with the fleet average then production vehicles from that 
test group will be treated as not covered by the certificate to the 
extent needed to bring the manufacturer's fleet average into compliance 
with Tier 2.
    EPA proposes to retain the Tier 2 approach of requiring 
manufacturers to demonstrate in good faith at the time of certification 
that models in a test group will meet applicable standards throughout 
useful life. EPA also proposes to retain the practice of conditioning 
certificates upon attainment of the fleet average standard. However, 
there are several important differences between a Tier 2 type of 
program and the CO2 standards program EPA is proposing. 
These differences and resulting modifications to certification are 
summarized below and are described in detail in Section III.E.
    EPA is proposing to certify test groups as it does for Tier 2, with 
the CO2 emission results for the test vehicle as the initial 
or default standard for all of the models in the test group. However, 
manufacturers would later substitute test data for individual models in 
that test group, based on the model level fuel economy testing that 
typically occurs through the course of the model year. This model level 
data would then be used to assign a distinct certification level for 
that model, instead of the initial test group level. These model level 
results would then be used to calculate the fleet average after the end 
of production.\129\ The option to substitute model level test data for 
the test group data is at the manufacturer's discretion, except they 
are required as under the CAFE test protocols to test, at a minimum, 
enough models to represent 90 percent of their production. The test 
group level would continue to apply for any model that is not covered 
by model level testing. A related difference is that the fleet average 
calculation for Tier 2 is based on test group bin levels and test group 
sales whereas under this proposal the CO2 fleet level would 
be based on a combination of test group and model-level emissions and 
model-level production. For the new CO2 standards, EPA is 
proposing to use production rather than sales in calculating the fleet 
average in order to more closely conform with CAFE, which is a 
production-based program. EPA does not expect any significant 
environmental effect because there is little difference between 
production and sales, and this will reduce the complexity of the 
program for manufacturers.
---------------------------------------------------------------------------

    \129\ The final in-use vehicle standards for each model would 
also be based on the model-level fuel economy testing. As discussed 
in Section III.E.4, an in-use adjustment factor would be applied to 
the model level results to determine the in-use standard that would 
apply during the useful life of the vehicle.
---------------------------------------------------------------------------

4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    As explained above, a fleet average CO2 program for 
passenger cars and light trucks is proposed. EPA has implemented 
similar averaging programs for a range of motor vehicle types and 
pollutants, from the Tier 2 fleet average for NOX to 
motorcycle hydrocarbon (HC) plus oxides of nitrogen (NOX) 
emissions to NOX and particulate matter (PM) emissions from 
heavy-duty engines.\130\ The proposed program would operate much like 
EPA's existing averaging programs in that manufacturers would calculate 
production-weighted fleet average emissions at the end of the model 
year and compare their fleet average with a fleet average standard to 
determine compliance. As in other EPA averaging programs, the Agency is 
also proposing a comprehensive program for averaging, banking, and 
trading of credits which together will help manufacturers in planning 
and implementing the orderly phase-in of emissions control technology 
in their production, using their typical redesign schedules.
---------------------------------------------------------------------------

    \130\ For example, see the Tier 2 light-duty vehicle emission 
standards program (65 FR 6698, February 10, 2000), the 2010 and 
later model year motorcycle emissions program (69 FR 2398, January 
15, 2004), and the 2007 and later model year heavy-duty engine and 
vehicle standards program (66 FR 5001, January 18, 2001).
---------------------------------------------------------------------------

    Averaging, Banking, and Trading (ABT) of emissions credits has been 
an important part of many mobile source programs under CAA Title II, 
both for fuels programs as well as for engine and vehicle programs. ABT 
is important because it can help to address many issues of 
technological feasibility and lead-time, as well as considerations of 
cost. ABT is an integral part of the standard setting itself, and is 
not just an add-on to help reduce costs. In many cases, ABT resolves 
issues of lead-time or technical feasibility, allowing EPA to set a 
standard that is either numerically more stringent or goes into effect 
earlier than could have been justified otherwise. This provides 
important environmental benefits at the same time it increases 
flexibility and reduces costs for the regulated industry.
    This section discusses generation of credits by achieving a fleet 
average CO2 level that is lower than the manufacturer's 
CO2 fleet average standard. EPA is proposing a variety of 
additional ways credits may be generated by manufacturers. Section 
III.C describes these additional opportunities to generate credits in 
detail. EPA is proposing that credits could be earned through A/C 
system improvements beyond a specified baseline. Credits can also be 
generated by producing alternative fuel vehicles, by producing advanced 
technology vehicles including electric vehicles, plug-in hybrids, and 
fuel cell vehicles, and by using technologies that improve off-cycle 
emissions. In addition, EPA is proposing that early credits could be 
generated prior to the proposed program's MY 2012 start date. The 
credits would be used in calculating the fleet averages at the end of 
the model year, with the exception of early credits which would be 
tracked separately. These proposed credit generating opportunities are 
described below in Section III.C.
    As explained earlier, manufacturers would determine the fleet 
average standard that would apply to their car fleet and the standard 
for their truck fleet from the applicable attribute-based curve. A 
manufacturer's credit or debit

[[Page 49521]]

balance would be determined by comparing their fleet average with the 
manufacturer's CO2 standard for that model year. The 
standard would be calculated from footprint values on the attribute 
curve and actual production levels of vehicles at each footprint. A 
manufacturer would generate credits if its car or truck fleet achieves 
a fleet average CO2 level lower than its standard and would 
generate debits if its fleet average CO2 level is above that 
standard. At the end of the model year, each manufacturer would 
calculate a production-weighted fleet average for each averaging set, 
cars and trucks. A manufacturer's car or truck fleet that achieves a 
fleet average CO2 level lower than its standard would 
generate credits, and if its fleet average CO2 level is 
above that standard its fleet would generate debits.
    EPA is proposing to account for the difference in expected lifetime 
vehicle miles traveled (VMT) between cars and trucks in order to 
preserve CO2 reductions when credits are transferred between 
cars and trucks. As directed by EISA, NHTSA accomplishes this in the 
CAFE program by using an adjustment factor that is applied to credits 
when they are transferred between car and truck compliance categories. 
The CAFE adjustment factor accounts for two different influences that 
can cause the transfer of car and truck credits (expressed in tenths of 
a mpg), if left unadjusted, to potentially negate fuel reductions. 
First, mpg is not linear with fuel consumption, i.e., a 1 mpg 
improvement above a standard will imply a different amount of actual 
fuel consumed depending on the level of the standard. Second, NHTSA's 
conversion corrects for the fact that the typical lifetime miles for 
cars is less than that for trucks, meaning that credits earned for cars 
and trucks are not necessarily equal. NHTSA's adjustment factor 
essentially converts credits into vehicle lifetime gallons to ensure 
preservation of fuel savings and the transfer credits on an equal 
basis, and then converts back to the statutorily required credit units 
of tenths of a mile per gallon. To convert to gallons NHTSA's 
conversion must take into account the expected lifetime mileage for 
cars and trucks. Because EPA is proposing standards that are expressed 
on a CO2 gram per mile basis, which is linear with fuel 
consumption, EPA's credit calculations do not need to account for the 
first issue noted above. However, EPA is proposing to account for the 
second issue by expressing credits when they are generated in total 
lifetime megagrams (metric tons), rather than through the use of 
conversion factors that would apply at certain times. In this way 
credits could be freely exchanged between car and truck compliance 
categories without adjustment. Additional detail regarding this 
approach, including a discussion of the vehicle lifetime mileage 
estimates for cars and trucks can be found in Section III.E.5. A 
discussion of the estimated vehicle lifetime miles traveled can be 
found in Chapter 4 of the draft Joint Technical Support Document. EPA 
requests comment on the proposed approach.
    A manufacturer that generates credits in a given year and vehicle 
category could use those credits in essentially four ways, although 
with some limitations. These provisions are very similar to those of 
other EPA averaging, banking, and trading programs. These provisions 
have the potential to reduce costs and compliance burden, and support 
the feasibility of the standards being proposed in terms of lead time 
and orderly redesign by a manufacturer, thus promoting and not reducing 
the environmental benefits of the program.
    First, the manufacturer would have to offset any deficit that had 
accrued in that averaging set in a prior model year and had been 
carried over to the current model year. In such a case, the 
manufacturer would be obligated to use any current model year credits 
to offset that deficit. This is referred to in the CAFE program as 
credit carry-back. EPA's proposed deficit carry-forward, or credit 
carry-back provisions are described further, below.
    Second, after satisfying any needs to offset pre-existing deficits 
within a vehicle category, remaining credits could be banked, or saved 
for use in future years. EPA is proposing that credits generated in 
this program be available to the manufacturer for use in any of the 
five years after the year in which they were generated, consistent with 
the CAFE program under EISA. This is also referred to as a credit 
carry-forward provision. For other new emission control programs, EPA 
has sometimes initially restricted credit life to allow time for the 
Agency to assess whether the credit program is functioning as intended. 
When EPA first offered averaging and banking provisions in its light-
duty emissions control program (the National Low Emission Vehicle 
Program), credit life was restricted to three years. The same is true 
of EPA's early averaging and banking program for heavy-duty engines. As 
these programs matured and were subsequently revised, EPA became 
confident that the programs were functioning as intended and that the 
standards were sufficiently stringent to remove the restrictions on 
credit life.
    EPA is therefore acting consistently with our past practice in 
proposing to reasonably restrict credit life in this new program. The 
Agency believes, subject to consideration of public comment, that a 
credit life of five years represents an appropriate balance between 
promoting orderly redesign and upgrade of the emissions control 
technology in the manufacturer's fleet and the policy goal of 
preventing large numbers of credits accumulated early in the program 
from interfering with the incentive to develop and transition to other 
more advanced emissions control technologies. As discussed below in 
Section III.C, EPA is proposing that any early credits generated by a 
manufacturer, beginning as soon as MY 2009, would also be subject to 
the five-year credit carry-forward restriction based on the year in 
which they are generated. This would limit the effect of the early 
credits on the long-term emissions reductions anticipated to result 
from the proposed new standards.
    Third, EPA is proposing to allow manufacturers to transfer credits 
between the two averaging sets, passenger cars and trucks, within a 
manufacturer. For example, credits accrued by over-compliance with a 
manufacturer's car fleet average standard could be used to offset 
debits accrued due to that manufacturer's not meeting the truck fleet 
average standard in a given year. EPA believes that such cross-category 
use of credits by a manufacturer would provide important additional 
flexibility in the transition to emissions control technology without 
affecting overall emission reductions.
    Finally, accumulated credits could be traded to another vehicle 
manufacturer. As with intra-company credit use, such inter-company 
credit trading would provide flexibility in the transition to emissions 
control technology without affecting overall emission reductions. 
Trading credits to another vehicle manufacturer would be a 
straightforward process between the two manufacturers, but could also 
involve third parties that could serve as credit brokers. Brokers would 
not own the credits at any time. These sorts of exchanges are typically 
allowed under EPA's current emission credit programs, e.g., the Tier 2 
light-duty vehicle NOX fleet average standard and the heavy-
duty engine NOX fleet average standards, although 
manufacturers have seldom made such exchanges. EPA seeks comment on 
enhanced reporting requirements or other methods that could help EPA 
assess validity of

[[Page 49522]]

credits, especially those obtained from third-party credit brokers
    If a manufacturer had a deficit at the end of a model year--that 
is, its fleet average level failed to meet the required fleet average 
standard--EPA proposes that the manufacturer could carry that deficit 
forward (also referred to credit carry-back) for a total of three model 
years after the model year in which that deficit was generated. As 
noted above, such a deficit carry-forward could only occur after the 
manufacturer applied any banked credits or credits from another 
averaging set. If a deficit still remained after the manufacturer had 
applied all available credits, and the manufacturer did not obtain 
credits elsewhere, the deficit could be carried over for up to three 
model years. No deficit could be carried into the fourth model year 
after the model year in which the deficit occurred. Any deficit from 
the first model year that remained after the third model year would 
thus constitute a violation of the condition on the certificate, which 
would constitute a violation of the Clean Air Act and would be subject 
to enforcement action.
    In the Tier 2 rulemaking proposal, EPA proposed to allow deficits 
to be carried forward for one year. In their comments on that proposal, 
manufacturers argued persuasively that by the time they can tabulate 
their average emissions for a particular model year, the next model 
year is likely to be well underway and it is too late to make 
calibration, marketing, or production mix changes to adjust that year's 
credit generation. Based on those comments, in the Tier 2 final rule 
EPA finalized provisions that allowed the deficit to be carried forward 
for a total of three years. EPA continues to believe that three years 
is an appropriate amount of time that gives the manufacturers adequate 
time to respond to a deficit situation but does not create a lengthy 
period of prolonged non-compliance with the fleet average 
standards.\131\ Subsequent EPA emission control programs that 
incorporate ABT provisions (e.g., the Mobile Source Air Toxics rule) 
have provided this three-year deficit carry-forward provision for this 
reason.\132\
---------------------------------------------------------------------------

    \131\ See 65 FR 6745 (February 10, 2000).
    \132\ See 71 FR 8427 (February 26, 2007).
---------------------------------------------------------------------------

    The proposed averaging, banking, and trading provisions are 
generally consistent with those included in the CAFE program, with a 
few notable exceptions. As with EPA's proposed approach, CAFE allows 
five year carry-forward of credits and three year carry-back. Transfers 
of credits across a manufacturer's car and truck averaging sets are 
also allowed, but with limits established by EISA on the use of 
transferred credits. The amount of transferred credits that can be used 
in a year is limited, and transferred credits may not be used to meet 
the CAFE minimum domestic passenger car standard. CAFE allows credit 
trading, but again, traded credits cannot be used to meet the minimum 
domestic passenger car standard. EPA is not proposing these constraints 
on the use of transferred credits.
    Additional details regarding the averaging, banking, and trading 
provisions and how EPA proposes to implement these provisions can be 
found in Section III.E.
5. CO2 Optional Temporary Lead-time Allowance Alternative 
Standards
    EPA is proposing a limited and narrowly prescribed option, called 
the Temporary Lead-time Allowance Alternative Standards (TLAAS), to 
provide additional lead time for a certain subset of manufacturers. 
This option is designed to address two different situations where we 
project that more lead time is needed, based on the level of emissions 
control technology and emissions control performance currently 
exhibited by certain vehicles. One situation involves manufacturers who 
have traditionally paid CAFE fines instead of complying with the CAFE 
fleet average, and as a result at least part of their vehicle 
production currently has significantly higher CO2 and lower 
fuel economy levels than the industry average. More lead time is needed 
in the program's initial years to upgrade these vehicles to meet the 
aggressive CO2 emissions performance levels required by the 
proposal. The other situation involves manufacturers who have a limited 
line of vehicles and are unable to take advantage of averaging of 
emissions performance across a full line of production. For example, 
some smaller volume manufacturers focus on high performance vehicles 
with higher CO2 emissions, above the CO2 
emissions target for that vehicle footprint, but do not have other 
types of vehicles in their production mix with which to average. Often, 
these manufacturers also pay fines under the CAFE program rather than 
meeting the applicable CAFE standard. Because voluntary non-compliance 
is impermissible for the GHG standards proposed under the CAA, both of 
these types of manufacturers need additional lead time to upgrade 
vehicles and meet the proposed standards. EPA is proposing an optional, 
temporary alternative standard, which is only slightly less stringent, 
and limited to the first four model years (2012--2015) of the National 
Program, so that these manufacturers can have sufficient lead time to 
meet the tougher MY 2016 GHG standards, while preserving consumer 
choice of vehicles during this time.
    In MY 2016, the TLAAS option ends, and all manufacturers, 
regardless of size, and domestic sales volume, must comply with the 
same CO2 standards, while under the CAFE program companies 
would continue to be allowed to pay civil penalties in lieu of 
complying with the CAFE standards. However, because companies must meet 
both the CAFE standards and the EPA CO2 standards, the 
National Program will have the practical impact of providing a level 
playing field for all companies beginning in MY 2016--a situation which 
has never existed under the CAFE program. This option thereby results 
in more fuel savings and CO2 reductions than would be the 
case under the CAFE program.
    EPA projects that the environmental impact of the proposed TLAAS 
program will be very small. If all companies eligible to use the TLAAS 
use it to the maximum extent allowed, total GHG emissions from the 
proposal will increase by less than 0.4% over the lifetime of the MY 
2012-2016 vehicles. EPA believes the impact will be even smaller, as we 
do not expect all of the eligible companies to use this option, and we 
do not expect all companies who do use the program will use it to the 
maximum extent allowed, as we have included provisions which discourage 
companies from using the TLAAS any longer than it is needed.
    EPA has structured the TLAAS option to provide more lead time in 
these kinds of situations, but to limit the program so that it would 
only be used in situations where these kinds of lead time concerns 
arise. Based on historic data on sales, EPA is using a specific 
historic U.S. sales volume as the best way to identify the subset of 
production that falls into this situation. Under the TLAAS, these 
manufacturers would be allowed to produce up to but no more than 
100,000 vehicles that would be subject to a somewhat less stringent 
CO2 standard. This 100,000 volume is not an annual limit, 
but is an absolute limit for the total number of vehicles which can use 
the TLAAS program over the model years 2012-2015. Any additional 
production would be subject to the same standards as any other 
manufacturer. In addition, EPA is imposing a variety of restrictions on 
the use of the TLAAS program, discussed in more detail below, to ensure 
that only manufacturers who need more lead-time

[[Page 49523]]

for the kinds of reasons noted above are likely to use the program. 
Finally, the program is temporary and expires at the end of MY 2015. A 
more complete discussion of the program is provided below. EPA believes 
the proposed program reasonably addresses a real world lead time 
constraint, and does it in a way that balances the need for more lead 
time with the need to minimize any resulting loss in potential 
emissions reductions. EPA invites comment as to whether its proposal is 
the best way to balance these concerns.
    EPA proposes to establish a TLAAS for a specified subset of 
manufacturers. There are two types of companies who would make use of 
TLAAS--those manufacturers who have paid CAFE fines in recent years, 
and who need additional lead-time to incorporate the needed technology; 
and those companies who are not full-line manufacturers, who have a 
smaller range of models and vehicle types, who may need additional 
lead-time as well. This alternative standard would apply to 
manufacturers with total U.S. sales of less than 400,000 vehicles per 
year, using 2009 model year final sales numbers to determine 
eligibility for these alternative standards. EPA reviewed the sales 
volumes of manufacturers over the last few years, and determined that 
manufacturers below this level typically fit the characteristics 
discussed above, and manufacturers above this level did not. Thus, EPA 
chose this level because it functionally identifies the group of 
manufacturers described above, recognizing that there is nothing 
intrinsic in the sales volume itself that warrants this allowance. EPA 
was not able to identify any other objective criteria that would more 
appropriately identify the manufacturers and vehicle fleets described 
above.
    EPA is proposing that manufacturers qualifying for TLAAS would be 
allowed to meet slightly less stringent standards for a limited number 
of vehicles for model years 2012-2015. Specifically, an eligible 
manufacturer could have a total of up to 100,000 units of cars and 
trucks combined over model years 2012-2015, and during those model 
years those vehicles would be subject to a standard 1.25 times the 
standard that would otherwise apply to those vehicles under the primary 
program. In other words, the footprint curves upon which the individual 
manufacturer standards for the TLAAS fleets are based would be less 
stringent by a factor of 1.25 for up to 100,000 of an eligible 
manufacturer's vehicles for model years 2012-2015. As noted, this 
approach seeks to balance the need to provide additional lead-time 
without reducing the environmental benefits of the proposed program. 
EPA believes that 100,000 units over four model years achieves an 
appropriate balance as the emissions impact is quite small, but does 
provide companies with some flexibility during MY 2012-2015. For 
example, for a manufacturer producing 400,000 vehicles per year, this 
would be a total of up to 100,000 vehicles out of a total production of 
up to 1.6 million vehicles over the four year period, or about 6 
percent of total production.
    Manufacturers with no U.S. sales in model year 2009 would not 
qualify for the TLAAS program. Manufacturers meeting the cut-point of 
400,000 for MY 2009 but with U.S. directed production above 400,000 in 
any subsequent model years would remain eligible for the TLAAS program. 
Also, the total sales number applies at the corporate level, so if a 
corporation owns several vehicle brands the aggregate sales for the 
corporation would be used. These provisions would help prevent gaming 
of the provisions through corporate restructuring. Corporate ownership 
or control relationships would be based on determinations made under 
CAFE for model year 2009. In other words, corporations grouped together 
for purposes of meeting CAFE standards, would be grouped together for 
determining whether or not they are eligible under the 400,000 vehicle 
cut point.
    EPA derived the 100,000 maximum unit set aside number based on a 
gradual phase-out schedule shown in Table III.B.5-1, below. However, 
individual manufacturers' situations will vary significantly and so EPA 
believes a flexible approach that allows manufacturers to use the 
allowance as they see fit during these model years would be most 
appropriate. As another example, an eligible manufacturer could also 
choose to apply the TLAAS program to an average of 25,000 vehicles per 
year, over the four-year period. Therefore, EPA is proposing that a 
total of 100,000 vehicles of an eligible manufacturer, with any 
combination of cars or trucks, could be subject to the alternative 
standard over the four year period without restrictions.

                            Table III.B.5-1--TLAAS Example Vehicle Production Volumes
----------------------------------------------------------------------------------------------------------------
             Model year                      2012               2013               2014               2015
----------------------------------------------------------------------------------------------------------------
Sales Volume........................             40,000             30,000             20,000             10,000
----------------------------------------------------------------------------------------------------------------

    The TLAAS vehicles would be separate car and truck fleets for that 
model year and would be subject to the less stringent footprint-based 
standards of 1.25 times the primary fleet average that would otherwise 
apply. The manufacturer would determine what vehicles are assigned to 
these separate averaging sets for each model year. EPA is proposing 
that credits from the primary fleet average program can be transferred 
and used in the TLAAS program. Credits within the TLAAS program may 
also be transferred between the TLAAS car and truck averaging sets for 
use through 2015 when the TLAAS would end. However, credits generated 
under TLAAS would not be allowed to be transferred or traded to the 
primary program. Therefore, any unused credits under TLAAS would expire 
after model year 2015. EPA believes that this is necessary to limit the 
program to situations where it is needed and to prevent the allowance 
from being inappropriately transferred to the long-term primary 
program.
    EPA is concerned that some manufacturers would be able to place 
relatively clean vehicles in the TLAAS to maximize TLAAS credits if 
credit use was unrestricted. However, any credits generated from the 
primary program that are not needed for compliance in the primary 
program, should be used to offset the TLAAS vehicles. EPA is thus 
proposing to restrict the use of banking and trading between companies 
of credits in the primary program in years in which the TLAAS is being 
used. For example, manufacturers using the TLAAS in MY 2012 could not 
bank credits in the primary program during MY 2012 for use in MY 2013 
and later. No such restriction would be in place for years when the 
TLAAS is not being used. EPA also believes this provision is necessary 
to prevent credits from being earned simply by removing some high-
emitting vehicles from the primary fleet. Absent this restriction, 
manufacturers would be able to choose to use the TLAAS for these 
vehicles and also be

[[Page 49524]]

able to earn credits under the primary program that could be banked or 
traded under the primary program without restriction. EPA is proposing 
two additional restrictions regarding the use of the TLAAS by requiring 
that for any of the 2012-2015 model years for which an eligible 
manufacturer would like to use the TLAAS, the manufacturer must use two 
of the available flexibilities in the GHG program first in order to try 
and show compliance with the primary standard before accessing the 
TLAAS. Specifically, before using the TLAAS the manufacturer must: (1) 
use any banked emission credits from a previous model year; and, (2) 
use any available credits from the companies' car or truck fleet for 
the specific model year (i.e., use credit transfer from cars to trucks 
or from trucks to cars, that is, before using the TLAAS for either the 
car fleet or the truck fleet, make use of any available credit 
transfers first). EPA is requesting comments on all aspects of the 
proposed TLAAS program including comments on other provisions that 
might be needed to ensure that the TLAAS program is being used as 
intended and to ensure no gaming occurs.
    Finally, EPA recognizes that there will be a wide range of 
companies within the eligible manufacturers with sales less than 
400,000 vehicles in model year 2009. Some of these companies, while 
having relatively small U.S. sales volumes, are large global automotive 
firms, including companies such as Mercedes and Volkswagen. Other 
companies are significantly smaller niche firms, with sales volumes 
closer to 10,000 vehicles per year worldwide; an example of this type 
of firm is Aston Martin. EPA anticipates that there are a small number 
of such smaller volume manufacturers, which have claimed that they may 
face greater challenges in meeting the proposed standards due to their 
limited product lines across which to average. EPA requests comment on 
whether the proposed TLAAS program, as described above, provides 
sufficient lead-time for these smaller firms to incorporate the 
technology needed to comply with the proposed GHG standards.
6. Proposed Nitrous Oxide and Methane Standards
    In addition to fleet-average CO2 standards, EPA is 
proposing separate per-vehicle standards for nitrous oxide 
(N2O) and methane (CH4) emissions. Standards are 
being proposed that would cap vehicle N2O and CH4 
emissions at current levels. Our intention is to set emissions 
standards that act to cap emissions to ensure that future vehicles do 
not increase their N2O and CH4 emissions above 
levels that would be allowed under the proposal.
    EPA considered an approach of expressing each of these standards in 
common terms of CO2-equivalent emissions and combining them 
into a single standard along with CO2 and HFC emissions. 
California's ``Pavley'' program adopted such a CO2-
equivalent emissions standards approach to GHG emissions in their 
program.\133\ However, these pollutants are largely independent of one 
another in terms of how they are generated by the vehicle and how they 
are tested for during implementation. Potential control technologies 
and strategies for each pollutant also differ. Moreover, an approach 
that provided for averaging of these pollutants could undermine the 
stringency of the CO2 standards, as at this time we are 
proposing standards which ``cap'' N2O and CH4 
emissions, rather then proposing a level which is either at the 
industry fleet-wide average or which would result in reductions from 
these pollutants. It is possible that once EPA begins to receive more 
detailed information on the N2O and CH4 
performance of the new vehicle fleet as a result of this proposed rule 
(if it were to be finalized as proposed) that for a future action for 
model years 2017 and later EPA could consider a CO2-
equivalent standard which would not result in any increases in GHG 
emissions due to the current lack of detailed data on N2O 
and CH4 emissions performance. In addition, EPA seeks 
comment on whether a CO2-equivalent emissions standard 
should be considered for model years 2012 through 2016, and whether 
there are advantages or disadvantages to such an approach, including 
potential impacts on harmonization with CAFE standards.
---------------------------------------------------------------------------

    \133\ California Environmental Protection Agency Air Resources 
Board, Staff Report: Initial Statement of Reasons for Proposed 
Rulemaking Public Hearing To Consider Adoption Of Regulations To 
Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 
2004.
---------------------------------------------------------------------------

    Almost universally across current car and truck designs, both 
gasoline- and diesel-fueled, these emissions are relatively low, and 
our intent is to not require manufacturers to make technological 
improvements in order to reduce N2O and CH4 at 
this time. However, it is important that future vehicle technologies or 
fuels do not result in increases in these emissions, and this is the 
intent of the proposed ``cap'' standards.
    EPA requests comments on our approach to regulating N2O 
and CH4 emissions including the appropriateness of ``cap'' 
standards as opposed to ``technology-forcing'' standards, the technical 
bases for the proposed N2O and CH4 standards, the 
proposed test procedures, and timing. Specifically, EPA seeks comment 
on the appropriateness of the proposed levels of the N2O and 
CH4 standards to accomplish our stated intent. In addition, 
EPA seeks comment on any additional emissions data on N2O 
and CH4 from current technology vehicles.
a. Nitrous Oxide (N2O) Exhaust Emission Standard
    N2O is a global warming gas with a high global warming 
potential.\134\ It accounts for about 2.7% of the current greenhouse 
gas emissions from cars and light trucks. EPA is proposing a per-
vehicle N2O emission standard of 0.010 g/mi, measured over 
the traditional FTP vehicle laboratory test cycles. The standard would 
become effective in model year 2012 for all light-duty cars and trucks. 
Averaging between vehicles would not be allowed. The standard is 
designed to prevent increases in N2O emissions from current 
levels, i.e. a no-backsliding standard.
---------------------------------------------------------------------------

    \134\ N2O has a GWP of 310 according to the IPCC 
Second Assessment Report (SAR).
---------------------------------------------------------------------------

    N2O is emitted from gasoline and diesel vehicles mainly 
during specific catalyst temperature conditions conducive to 
N2O formation. Specifically, N2O can be generated 
during periods of emission hardware warm-up when rising catalyst 
temperatures pass through the temperature window when N2O 
formation potential is possible. For current Tier 2 compatible gasoline 
engines with conventional three-way catalyst technology, N2O 
is not generally produced in significant amounts because the time the 
catalyst spends at the critical temperatures during warm-up is short. 
This is largely due to the need to quickly reach the higher 
temperatures necessary for high catalyst efficiency to achieve emission 
compliance of criteria pollutants. N2O is a more significant 
concern with diesel vehicles, and potentially future gasoline lean-burn 
engines, equipped with advanced catalytic NOX emissions 
control systems. These systems can but need not be designed in a way 
that emphasizes efficient NOX control while allowing the 
formation of significant quantities of N2O. Excess oxygen 
present in the exhaust during lean-burn conditions in diesel or lean-
burn gasoline engines equipped with these advanced systems can favor 
N2O formation if catalyst temperatures are not carefully 
controlled. Without

[[Page 49525]]

specific attention to controlling N2O emissions in the 
development of such new NOX control systems, vehicles could 
have N2O emissions many times greater than are emitted by 
current gasoline vehicles.
    EPA is proposing an N2O emission standard that EPA 
believes would be met by current-technology gasoline vehicles at 
essentially no cost. As noted, N2O formation in current 
catalyst systems occurs, but the emission levels are low, because the 
time the catalyst spends at the critical temperatures during warm-up 
when N2O can form is short. At the same time, EPA believes 
that the proposed standard would ensure that the design of advanced 
NOX control systems, especially for future diesel and lean-
burn gasoline vehicles, would control N2O emission levels. 
While current NOX control approaches used on current Tier 2 
diesel vehicles do not tend to form N2O emissions, EPA 
believes that the proposed standards would discourage any new emission 
control designs that achieve criteria emissions compliance at the cost 
of increased N2O emissions. Thus, the proposed standard 
would cap N2O emission levels, with the expectation that 
current gasoline and diesel vehicle control approaches that comply with 
the Tier 2 vehicle emission standards for NOX would not 
increase their emission levels, and that the cap would ensure that 
future vehicle designs would appropriately control their emissions of 
N2O. The proposed N2O level is approximately two 
times the average N2O level of current gasoline passenger 
cars and light-duty trucks that meet the Tier 2 NOX 
standards.\135\ Manufacturers typically use design targets for 
NOX emission levels of about 50% of the standard, to account 
for in-use emissions deterioration and normal testing and production 
variability, and manufacturers are expected to utilize a similar 
approach for N2O emission compliance. EPA is not proposing a 
more stringent standard for current gasoline and diesel vehicles 
because the stringent Tier 2 program and the associated NOX 
fleet average requirement already result in significant N2O 
control, and does not expect current N2O levels to rise for 
these vehicles. EPA requests comment on this technical assessment of 
current and potential future N2O formation in cars and 
trucks.
---------------------------------------------------------------------------

    \135\ Memo to docket ``Deriving the standard from EPA's MOVES 
model emission factors, '' December 2007.
---------------------------------------------------------------------------

    While EPA believes that manufacturers will likely be able to 
acquire and install N2O analytical equipment, the agency 
also recognizes that some companies may face challenges. Given the 
short lead-time for this rule, EPA proposes that manufacturers be able 
to apply for a certificate of conformity with the N2O 
standard for model year 2012 based on a compliance statement based on 
good engineering judgment. For 2013 and later model years, 
manufacturers would need to submit measurements of N2O for 
compliance purposes.
    Diesel cars and light trucks with advanced emission control 
technology are in the early stages of development and 
commercialization. As this segment of the vehicle market develops, the 
proposed N2O standard would require manufacturers to 
incorporate control strategies that minimize N2O formation. 
Available approaches include using electronic controls to limit 
catalyst conditions that might favor N2O formation and 
consider different catalyst formulations. While some of these 
approaches may have modest associated costs, EPA believes that they 
will be small compared to the overall costs of the advanced 
NOX control technologies already required to meet Tier 2 
standards.
    Vehicle emissions regulations do not currently require testing for 
N2O, and most test facilities do not have equipment for its 
measurement. Manufacturers without this capability would need to 
acquire and install appropriate measurement equipment. However, EPA is 
proposing four N2O measurement methods, all of which are 
commercially available today. EPA expects that most manufacturers would 
use photo-acoustic measurement equipment, which the Agency estimates 
would result in a one-time cost of about $50,000-$60,000 for each test 
cell that would need to be upgraded.
    Overall, EPA believes that manufacturers of cars and light trucks, 
both gasoline and diesel, would meet the proposed standard without 
implementing any significantly new technologies, and there are not 
expected to be any significant costs associated with this proposed 
standard.
b. Methane (CH4) Exhaust Emission Standard
    CH4 (or methane) is greenhouse gas with a high global 
warming potential.\136\ It accounts for about 0.2% of the greenhouse 
gases from cars and light trucks.
---------------------------------------------------------------------------

    \136\ CH4 has a GWP of 21 according to the IPCC 
Second Assessment Report (SAR).
---------------------------------------------------------------------------

    EPA is proposing a CH4 emission standard of 0.030 g/mi 
as measured on the FTP, to apply beginning with model year 2012 for 
both cars and trucks. EPA believes that this level for the standard 
would be met by current gasoline and diesel vehicles, and would prevent 
large increases in future CH4 emissions in the event that 
alternative fueled vehicles with high methane emissions, like some past 
dedicated compressed natural gas (CNG) vehicles, become a significant 
part of the vehicle fleet. Currently EPA does not have separate 
CH4 standards because unlike other hydrocarbons it does not 
contribute significantly to ozone formation,\137\ However 
CH4 emissions levels in the gasoline and diesel car and 
light truck fleet have nevertheless generally been controlled by the 
Tier 2 non-methane organic gases (NMOG) emission standards. However, 
without an emission standard for CH4, future emission levels 
of CH4 cannot be guaranteed to remain at current levels as 
vehicle technologies and fuels evolve.
---------------------------------------------------------------------------

    \137\ But see Ford Motor Co. v. EPA, 604 F. 2d 685 (D.C. Cir. 
1979) (permissible for EPA to regulate CH4 under CAA 
section 202 (b)).
---------------------------------------------------------------------------

    The proposed standard would cap CH4 emission levels, 
with the expectation that current gasoline vehicles meeting the Tier 2 
emission standards would not increase their levels, and that it would 
ensure that emissions would be addressed if in the future there are 
increases in the use of natural gas or any other alternative fuel. The 
level of the standard would generally be achievable through normal 
emission control methods already required to meet Tier 2 program 
emission standards for NMOG and EPA is therefore not attributing any 
cost to this part of this proposal. Since CH4 is produced in 
gasoline and diesel engines similar to other hydrocarbon components, 
controls targeted at reducing overall NMOG levels generally also work 
at reducing CH4 emissions. Therefore, for gasoline and 
diesel vehicles, the Tier 2 NMOG standards will generally prevent 
increases in CH4 emissions levels from today. CH4 
from Tier 2 light-duty vehicles is relatively low compared to other 
GHGs largely due to the high effectiveness of previous National Low 
Emission Vehicle (NLEV) and current Tier 2 programs in controlling 
overall HC emissions.
    The level of the proposed standard is approximately two times the 
average Tier 2 gasoline passenger cars and light-duty trucks 
level.\138\ As with N2O, this proposed level recognizes that 
manufacturers typically set emission design targets at about 50% of the 
standard. Thus, EPA believes the proposed standard would be met by

[[Page 49526]]

current gasoline vehicles. Similarly, since current diesel vehicles 
generally have even lower CH4 emissions than gasoline 
vehicles, EPA believes that diesels would also meet the proposed 
standard. However, EPA also believes that to set a CH4 
emission standard more stringent than the proposed standard could 
effectively make the Tier 2 NMOG standard more stringent.
---------------------------------------------------------------------------

    \138\ Memo to docket ``Deriving the standard from EPA's MOVES 
model emission factors, '' December 2007.
---------------------------------------------------------------------------

    In recent model years, a small number of cars and light trucks were 
sold that were designed for dedicated use of compressed natural gas 
(CNG) that met Tier 2 emission standards. While emission control 
designs on these recent dedicated CNG-fueled vehicles demonstrate 
CH4 control as effective as gasoline or diesel equivalent 
vehicles, CNG-fueled vehicles have historically produced significantly 
higher CH4 emissions than gasoline or diesel vehicles. This 
is because their CNG fuel is essentially methane and any unburned fuel 
that escapes combustion and not oxidized by the catalyst is emitted as 
methane. However, even if these vehicles meet the Tier 2 NMOG standard 
and appear to have effective CH4 control by nature of the 
NMOG controls, Tier 2 standards do not require CH4 control. 
While the proposed CH4 cap standard should not require any 
different emission control designs beyond what is already required to 
meet Tier 2 NMOG standards on a dedicated CNG vehicle, the cap will 
ensure that systems maintain the current level of CH4 
control. EPA is not proposing more stringent CH4 standards 
because the same controls that are used to meet Tier 2 NMOG standards 
should result in effective CH4 control. Increased 
CH4 stringency beyond proposed levels could inadvertently 
result in increased Tier 2 NMOG stringency absent an emission control 
technology unique to CH4. Since CH4 is already 
measured under the current Tier 2 regulations (so that it may be 
subtracted to calculate non-methane hydrocarbons), the proposed 
standard would not result in additional testing costs. EPA requests 
comment on whether the proposed cap standard would result in any 
significant technological challenges for makers of CNG vehicles.
7. Small Entity Deferment
    EPA is proposing to defer setting GHG emissions standards for small 
entities meeting the Small Business Administration (SBA) criteria of a 
small business as described in 13 CFR 121.201. EPA would instead 
consider appropriate GHG standards for these entities as part of a 
future regulatory action. This includes small entities in three 
distinct categories of businesses for light-duty vehicles: small volume 
manufacturers, independent commercial importers (ICIs), and alternative 
fuel vehicle converters. EPA has identified about 13 entities that fit 
the Small Business Administration (SBA) criterion of a small business. 
EPA estimates there are 2 small volume manufacturers, 8 ICIs, and 3 
alternative fuel vehicle converters currently in the light-duty vehicle 
market. EPA estimates that these small entities comprise less than 0.1 
percent of the total light-duty vehicle sales in the U.S., and 
therefore the proposed deferment will have a negligible impact on the 
GHG emissions reductions from the proposed standards. Further detail is 
provided in Section III.I.3, below.
    To ensure that EPA is aware of which companies would be deferred, 
EPA is proposing that such entities submit a declaration to EPA 
containing a detailed written description of how that manufacturer 
qualifies as a small entity under the provisions of 13 CFR 121.201. 
Because such entities are not automatically exempted from other EPA 
regulations for light-duty vehicles and light-duty trucks, absent such 
a declaration, EPA would assume that the entity was subject to the 
greenhouse gas control requirements in this GHG proposal. The 
declaration would need to be submitted at time of vehicle emissions 
certification under the EPA Tier 2 program. Small entities are 
currently covered by a number of EPA motor vehicle emission 
regulations, and they routinely submit information and data on an 
annual basis as part of their compliance responsibilities. EPA expects 
that the additional paperwork burden associated with completing and 
submitting a small entity declaration to gain deferral from the 
proposed GHG standards would be negligible and easily done in the 
context of other routine submittals to EPA. However, EPA has accounted 
for this cost with a nominal estimate included in the Information 
Collection Request completed under the Paperwork Reduction Act. 
Additional information can be found in the Paperwork Reduction Act 
discussion in Section III.I.2.

C. Additional Credit Opportunities for CO2 Fleet Average 
Program

    The standards being proposed represent a significant multi-year 
challenge for manufacturers, especially in the early years of the 
program. Section III.B.4 described EPA proposals for how manufacturers 
could generate credits by achieving fleet average CO2 
emissions below the fleet average standard, and also how manufacturers 
could use credits to comply with standards. As described in Section 
III.B.4, credits could be carried forward five years, carried back 
three years, transferred between vehicle categories, and traded between 
manufacturers. The credits provisions proposed below would provide 
manufacturers with additional ways to earn credits starting in MY 2012. 
EPA is also proposing early credits provisions for the 2009-2011 model 
years, as described below in Section III.C.5.
    The provisions proposed below would provide additional flexibility, 
especially in the early years of the program. This flexibility helps to 
address issues of lead-time or technical feasibility for various 
manufacturers and in several cases provides an incentive for promotion 
of technology pathways that warrant further development, whether or not 
they are an important or central technology on which critical features 
of this program are premised. EPA is proposing a variety of credit 
opportunities because manufacturers are not likely to be in a position 
to use every credit provision. EPA expects that manufacturers are 
likely to select the credit opportunities that best fit their future 
plans. EPA believes it is critical that manufacturers have options to 
ease the transition to the final MY 2016 standards. At the same time, 
EPA believes these credit programs must be designed in a way to ensure 
that they achieve emission reductions that achieve real-world 
reductions over the full useful life of the vehicle (or, in the case of 
FFV credits and Advanced Technology credits, to incentivize the 
introduction of those vehicle technologies) and are verifiable. In 
addition, EPA wants to ensure these credit programs do not provide an 
opportunity for manufacturers to earn ``windfall'' credits. EPA seeks 
comments on how to best ensure these objectives are achieved in the 
design of the credit programs. EPA requests comment on all aspects of 
these proposed credits provisions.
1. Air Conditioning Related Credits
    EPA proposes that manufacturers be able to generate and use credits 
for improved air conditioner (A/C) systems in complying with the 
CO2 fleetwide average standards described above. EPA expects 
that most manufacturers will choose to utilize the A/C provisions as 
part of its compliance demonstration (and for this reason cost of 
compliance with A/C related emission reductions are assumed in the cost 
analysis). The A/C provisions are structured as credits, unlike the 
CO2 standards for which manufacturers will demonstrate

[[Page 49527]]

compliance using 2-cycle tests (see Sections III.B and III.E.). Those 
tests do not measure either A/C leakage or tailpipe CO2 
emissions attributable to A/C load (see Section III.C.1.b below 
describing proposed alternative test procedures for assessing tailpipe 
CO2 emission attributable to A/C engine load). Thus, it is a 
manufacturer's option to include A/C GHG emission reductions as an 
aspect of its compliance demonstration. Since this is an elective 
alternative, EPA is referring to the A/C part of the proposal as a 
credit.
    EPA estimates that direct A/C GHG emissions--emissions due to the 
leakage of the hydrofluorocarbon refrigerant in common use today--
account for 4.3% of CO2-equivalent GHGs from light-duty cars 
and trucks. This includes the direct leakage of refrigerant as well as 
the subsequent leakage associated with maintenance and servicing, and 
with disposal at the end of the vehicle's life. The emissions that are 
impacted by leakage reductions are the direct leakage and the 
maintenance and servicing. Together these are equivalent to 
CO2 emissions of approximately 13.6 g/mi per vehicle (this 
is 14.9 g/mi if end of life emissions are also included). EPA also 
estimates that indirect GHG emissions (additional CO2 
emitted due to the load of the A/C system on the engine) account for 
another 3.9% of light-duty GHGs.\139\ This is equivalent to 
CO2 emissions of approximately 14.2 g/mi per vehicle. The 
derivation of these figures can be found in the EPA DRIA.
---------------------------------------------------------------------------

    \139\ See Chapter 2, section 2.2.1.2 of the DRIA.
---------------------------------------------------------------------------

    EPA believes that it is important to address A/C direct and 
indirect emissions because the technologies that manufacturers will 
employ to reduce vehicle exhaust CO2 will have little or no 
impact on A/C related emissions. Without addressing A/C-related 
emissions, as vehicles become more efficient, the A/C related 
contribution will become a much larger portion of the overall vehicle 
GHG emissions.
    Over 95% of the new cars and light trucks in the United States are 
equipped with A/C systems and, as noted, there are two mechanisms by 
which A/C systems contribute to the emissions of greenhouse gases: 
through leakage of refrigerant into the atmosphere and through the 
consumption of fuel to provide power to the A/C system. With leakage, 
it is the high global warming potential (GWP) of the current automotive 
refrigerant--R134a, with a GWP of 1430--that results in the 
CO2-equivalent impact of 13.6 g/mi.\140\ Due to the high GWP 
of this HFC, a small leakage of the refrigerant has a much greater 
global warming impact than a similar amount of emissions of 
CO2 or other mobile source GHGs. Manufacturers can choose to 
reduce A/C leakage emissions by using leak-tight components. Also, 
manufacturers can largely eliminate the global warming impact of 
leakage emissions by adopting systems that use an alternative, low-GWP 
refrigerant.\141\ The A/C system also contributes to increased 
CO2 emissions through the additional work required to 
operate the compressor, fans, and blowers. This additional work 
typically is provided through the engine's crankshaft, and delivered 
via belt drive to the alternator (which provides electric energy for 
powering the fans and blowers) and A/C compressor (which pressurizes 
the refrigerant during A/C operation). The additional fuel used to 
supply the power through the crankshaft necessary to operate the A/C 
system is converted into CO2 by the engine during 
combustion. This incremental CO2 produced from A/C operation 
can thus be reduced by increasing the overall efficiency of the 
vehicle's A/C system, which in turn will reduce the additional load on 
the engine from A/C operation.\142\
---------------------------------------------------------------------------

    \140\ The global warming potentials (GWP) used in the NPRM 
analysis are consistent with Intergovernmental Panel on Climate 
Change (IPCC) Fourth Assessment Report (AR4). At this time, the IPCC 
Second Assessment Report (SAR) global warming potential values have 
been agreed upon as the official U.S. framework for addressing 
climate change. The IPCC SAR GWP values are used in the official 
U.S. greenhouse gas inventory submission to the climate change 
framework. When inventories are recalculated for the final rule, 
changes in GWP used may lead to adjustments.
    \141\ Refrigerant emissions during maintenance and at the end of 
the vehicle's life (as well as emissions during the initial charging 
of the system with refrigerant) are also addressed by the CAA Title 
VI stratospheric ozone program, as described below.
    \142\ We will not be addressing changes to the weight of the A/C 
system, since the issue of CO2 emissions from the fuel 
consumption of normal (non-A/C) operation, including basic vehicle 
weight, is inherently addressed with the primary CO2 
standards (See III.B above).
---------------------------------------------------------------------------

    Manufacturers can make very feasible improvements to their A/C 
systems to address A/C system leakage and efficiency. EPA proposes two 
separate credit approaches to address leakage reductions and efficiency 
improvements independently. A proposed leakage reduction credit would 
take into account the various technologies that could be used to reduce 
the GHG impact of refrigerant leakage, including the use of an 
alternative refrigerant with a lower GWP. A proposed efficiency 
improvement credit would account for the various types of hardware and 
control of that hardware available to increase the A/C system 
efficiency. Manufacturers would be required to attest the durability of 
the leakage reduction and the efficiency improvement technologies over 
the full useful life of the vehicle.
    EPA believes that both reducing A/C system leakage and increasing 
efficiency are highly cost-effective and technologically feasible. EPA 
expects most manufacturers will choose to use these A/C credit 
provisions, although some may not find it necessary to do so.
a. A/C Leakage Credits
    The refrigerant used in vehicle A/C systems can get into the 
atmosphere by many different means. These refrigerant emissions occur 
from the slow leakage over time that all closed high pressure systems 
will experience. Refrigerant loss occurs from permeation through hoses 
and leakage at connectors and other parts where the containment of the 
system is compromised. The rate of leakage can increase due to 
deterioration of parts and connections as well. In addition, there are 
emissions that occur during accidents and maintenance and servicing 
events. Finally, there are end-of-life emissions if, at the time of 
vehicle scrappage, refrigerant is not fully recovered.
    Because the process of refrigerant leakage has similar root causes 
as those that cause fuel evaporative emissions from the fuel system, 
some of the control technologies are similar (including hose materials 
and connections). There are however, some fundamental differences 
between the systems that require a different approach. The most notable 
difference is that A/C systems are completely closed systems, whereas 
the fuel system is not. Fuel systems are meant to be refilled as liquid 
fuel is consumed by the engine, while the A/C system ideally should 
never require ``recharging'' of the contained refrigerant. Thus it is 
critical that the A/C system leakages be kept to an absolute minimum. 
These emissions are typically too low to accurately measure in most 
current SHED chambers designed for fuel evaporative emissions 
measurement, especially for systems that are new or early in life. 
Therefore, if leakage emissions were to be measured directly, new 
measurement facilities would need to be built by the OEM manufacturers 
and very accurate new test procedures would need to be developed. 
Especially because there are indications that much of the industry is 
moving toward alternative refrigerants (post-2016 for most 
manufacturers), EPA is not proposing such a direct measurement approach 
to addressing refrigerant leakage.

[[Page 49528]]

    Instead, EPA proposes that manufacturers demonstrate improvements 
in their A/C system designs and components through a design-based 
method. Manufacturers implementing systems expected to result in 
reduced refrigerant leakage would be eligible for credits that could 
then be used to meet their CO2 emission compliance 
requirements. The proposed ``A/C Leakage Credit'' provisions would 
generally assign larger credits to system designs that are expected to 
result in greater leakage reduction. In addition, EPA proposes that 
proportionately larger A/C Leakage Credits be available to 
manufacturers that substitute a lower-GWP refrigerant for the current 
R134a refrigerant.
    Our proposed method for calculating A/C Leakage Credits is based 
closely on an industry-consensus leakage scoring method, described 
below. This leakage scoring method is correlated to experimentally-
measured leakage rates from a number of vehicles using the different 
available A/C components. Under the proposed approach, manufacturers 
would choose from a menu of A/C equipment and components used in their 
vehicles in order to establish leakage scores which would characterize 
their A/C system leakage performance. The leakage score can be compared 
to expected fleetwide leakage rates in order to quantify improvements 
for a given A/C system. Credits would be generated from leakage 
reduction improvements that exceeded average fleetwide leakage rates.
    EPA believes that the design-based approach would result in 
estimates of likely leakage emissions reductions that would be 
comparable to those that would eventually result from performance-based 
testing. At the same time, comments are encouraged on all developments 
that may lead to a robust, practical, performance-based test for 
measuring A/C refrigerant leakage emissions.
    The cooperative industry and government Improved Mobile Air 
Conditioning (IMAC) program \143\ has demonstrated that new-vehicle 
leakage emissions can be reduced by 50%. This program has shown that 
this level of improvement can be accomplished by reducing the number 
and improving the quality of the components, fittings, seals, and hoses 
of the A/C system. All of these technologies are already in commercial 
use and exist on some of today's systems.
---------------------------------------------------------------------------

    \143\ Team 1-Refrigerant Leakage Reduction: Final Report to 
Sponsors, SAE, 2007.
---------------------------------------------------------------------------

    EPA is proposing that a manufacturer wishing to earn A/C Leakage 
Credits would compare the components of its A/C system with a set of 
leakage-reduction technologies and actions that is based closely on 
that being developed through IMAC and the Society of Automotive 
Engineers (as SAE Surface Vehicle Standard J2727, August 2008 version). 
The J2727 approach is developed from laboratory testing of a variety of 
A/C related components, and EPA believes that the J2727 leakage scoring 
system generally represents a reasonable correlation with average real-
world leakage in new vehicles. Like the IMAC approach, our proposed 
credit approach would associate each component with a specific leakage 
rate in grams per year identical to the values in J2727. A manufacturer 
choosing to claim Leakage Credits would sum the leakage values for an 
A/C system for a total A/C leakage score. EPA is proposing a formula 
for converting the grams-per-year leakage score to a grams-per-mile 
CO2eq value, taking vehicle miles traveled (VMT) and the GWP 
of the refrigerant into account. This formula is:

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

Where:

MaxCredit is 12.6 and 15.7 g/mi CO2eq for cars and trucks 
respectively. These become 13.8 and 17.2 for cars and trucks if 
alternative refrigerants are used since they get additional credits 
for end-of-life emissions reductions.
LeakScore is the leakage score of the A/C system as measured 
according to methods similar to the J2727 procedure in units of g/
yr. The minimum score which is deemed feasible is fixed at 8.3 and 
10.4 g/yr for cars and trucks respectively.
AvgImpact is the average impact of A/C leakage, which is 16.6 and 
20.7 g/yr for cars and trucks respectively.
GWPRefrigerant is the global warming potential for direct radiative 
forcing of the refrigerant as defined by EPA (or IPCC).
All of the parameters and limits of the equation are derived in the 
EPA DRIA.

    For systems using the current refrigerant, EPA proposes that these 
emission rates could at most be feasibly reduced by half, based on the 
conclusions of the IMAC study, and consideration of emission over the 
full life of the vehicle. (This latter point is discussed further in 
the DRIA.)
    As discussed above, EPA recognizes that substituting an alternative 
refrigerant (one with a significantly lower global warming potential, 
GWP), would potentially be a very effective way to reduce the impact of 
all forms of refrigerant emissions, including maintenance, accidents, 
and vehicle scrappage. To address future GHG regulations in Europe and 
California, systems using alternative refrigerants--including 
HFO1234yf, with a GWP of 4--are under serious development and have been 
demonstrated in prototypes by A/C component suppliers. These 
alternative refrigerants have remaining cost, safety and feasibility 
hurdles for commercial applications.\144\ However, the European Union 
has enacted regulations phasing in alternative refrigerants with GWP 
less than 150 starting in 2010, and the State of California proposed 
providing credits for alternative refrigerant use in its GHG rule.
---------------------------------------------------------------------------

    \144\ Although see 71 FR 55140 (Sept. 21, 2006) (proposal 
pursuant to section 612 of the CAA finding CO2 and HFC 
152a as acceptable refrigerant substitutes as replacements for CFC-
12 in motor vehicle air conditioning systems, and stating (at 55142) 
that ``data [hellip] indicate that use of CO2 and HFC 
152a with risk mitigation technologies does not pose greater risks 
compared to other substitutes'').
---------------------------------------------------------------------------

    Within the timeframe of 2012-2016, EPA is not expecting the use of 
low-GWP refrigerants to be widespread. However, EPA believes that these 
developments are promising, and have included in our proposed A/C 
Leakage Credit system provisions to account for the effective 
refrigerant reductions that could be expected from refrigerant 
substitution. The quantity of A/C Leakage Credits that would be 
available would be a function of the GWP of the alternative 
refrigerant, with the largest credits being available for refrigerants 
approaching a GWP of zero.\145\ For a hypothetical alternative 
refrigerant with a GWP of 1, effectively eliminating leakage as a GHG 
concern, our proposed credit calculation method could result in maximum 
credits equal total average emissions, or credits of 13.4 and 17.8 g/mi 
CO2eq for cars and trucks, respectively. This option is also 
captured in the equation above.
---------------------------------------------------------------------------

    \145\ For example, the GWP for R152a is 120, the GWP of HFO-
1234yf is 4, and the GWP of CO2 as a refrigerant is 1.
---------------------------------------------------------------------------

    It is possible that alternative refrigerants could, without 
compensating action by the manufacturer, reduce the efficiency of the 
A/C system (see discussion of the A/C Efficiency Credit below.) 
However, EPA believes that manufacturers will have substantial 
incentives to design their systems to maintain the efficiency of the A/
C system, therefore EPA is not accounting for any potential efficiency 
degradation.
    EPA requests comment on all aspects of our proposed A/C Leakage 
Credit system.

[[Page 49529]]

b. A/C Efficiency Credits
    EPA is proposing that manufacturers that make improvements in their 
A/C systems to increase efficiency and thus reduce CO2 
emissions due to A/C system operation be eligible for A/C Efficiency 
Credits. As with A/C Leakage Credits, manufacturers could apply A/C 
Efficiency Credits toward compliance with their overall CO2 
standards.
    As mentioned above, EPA estimates that the CO2 emissions 
due to A/C related loads on the engine account for approximately 3.9% 
of total greenhouse gas emissions from passenger vehicles in the United 
States. Usage of A/C systems is inherently higher in hotter and more 
humid months and climates; however, vehicle owners may use their A/C 
systems all year round in all parts of the nation. For example, people 
commonly use A/C systems to cool and dehumidify the cabin air for 
passenger comfort on hot humid days, but they also use the systems to 
de-humidify cabin air to assist in defogging/de-icing the front 
windshield and side glass in cooler weather conditions for improved 
visibility. A more detailed discussion of seasonal and geographical A/C 
usage rates can be found in the DRIA.
    Most of the additional load on the engine from A/C system operation 
comes from the compressor, which pumps the refrigerant around the 
system loop. Significant additional load on the engine may also come 
from electric or hydraulic fans, which are used to move air across the 
condenser, and from the electric blower, which is used to move air 
across the evaporator and into the cabin. Manufacturers have several 
currently-existing technology options for improving efficiency, 
including more efficient compressors, fans, and motors, and systems 
controls that avoid over-chilling the air (and subsequently re-heating 
it to provide the desired air temperature with an associated loss of 
efficiency). For vehicles equipped with automatic climate-control 
systems, real-time adjustment of several aspects of the overall system 
(such as engaging the full capacity of the cooling system only when it 
is needed, and maximizing the use of recirculated air) can result in 
improved efficiency. Table III.C.1-1 below lists some of these 
technologies and their respective efficiency improvements.
    As with the A/C Leakage Credit program, EPA is interested in 
performance-based standards (or credits) based on measurement 
procedures whenever possible. While design-based assessments of 
expected emissions can be a reasonably robust way of quantifying 
emission improvements, these approaches have inherent shortcomings, as 
discussed for the case of A/C leakage above. Design-based approaches 
depend on the quality of the data from which they are calibrated, and 
it is possible that apparently proper equipment may function less 
effectively than expected. Therefore, while the proposal uses a design-
based menu approach to quantify improvements in A/C efficiency, it is 
also proposed to begin requiring manufacturers to confirm that 
technologies applying for Efficiency Credits are measurably improving 
system efficiency.
    EPA believes that there is a more critical need for a test 
procedure to quantify A/C Efficiency Credits than for Leakage Credits, 
for two reasons. First, the efficiency gains for various technologies 
are more difficult to quantify using a design-based program (like the 
SAEJ2727-based procedure used to generate Leakage Credits). Second, 
while leakage may disappear as a significant source of GHG emissions if 
a shift toward alternate refrigerants develops, no parallel factor 
exists in the case of efficiency improvements. EPA is thus proposing to 
phase-in a performance-based test procedure over time beginning in 
2014, as discussed below. In the interim, EPA proposes a design-based 
``menu'' approach for estimating efficiency improvements and, thus, 
quantifying A/C Efficiency Credits.
    For model years 2012 and 2013, EPA proposes that a manufacturer 
wishing to generate A/C Efficiency Credits for a group of its vehicles 
with similar A/C systems would compare several of its vehicle A/C-
related components and systems with a ``menu'' of efficiency-related 
technology improvements (see Table III.C.1-1 below). Based on the 
technologies the manufacturer chooses, an A/C Efficiency Credit value 
would be established. This design-based approach would recognize the 
relationships and synergies among efficiency-related technologies. 
Manufacturers could receive credit based on the technologies they chose 
to incorporate in their A/C systems and the associated credit value for 
each technology. The total A/C Efficiency Credit would be the total of 
these values, up to a maximum feasible credit of 5.7 g/mi 
CO2eq. This would be the maximum improvement from current 
average efficiencies for A/C systems (see the DRIA for a full 
discussion of our derivation of the proposed reductions and credit 
values for individual technologies and for the maximum total credit 
available). Although the total of the individual technology credit 
values may exceed 5.7 g/mi CO2eq, synergies among the 
technologies mean that the values are not additive, and thus A/C 
Efficiency credit could not exceed 5.7 g/mi CO2eq.
    The EPA requests comment on adjusting the A/C efficiency credit to 
account for potential decreases (or increases) in efficiency when using 
an alternative refrigerant by using the change in the coefficient of 
performance. The effects may include the impact of a secondary loop 
system (including the incremental effect on tailpipe CO2 
emissions that the added weight of such a system would incur).

    Table III.C.1-1 Efficiency-Improving A/C Technologies and Credits
------------------------------------------------------------------------
                                        Estimated
                                     reduction in A/C    A/C Efficiency
      Technology description          CO2 emissions    credit (g/mi CO2)
                                        (percent)
------------------------------------------------------------------------
Reduced reheat, with externally-                   30                1.7
 controlled, variable-displacement
 compressor.......................
Reduced reheat, with externally-                   20                1.1
 controlled, fixed-displacement or
 pneumatic variable-displacement
 compressor.......................
Default to recirculated air                        30                1.7
 whenever ambient temperature is
 greater than 75 [deg]F...........
Blower motor and cooling fan                       15                0.9
 controls which limit waste energy
 (e.g. pulse width modulated power
 controller)......................
Electronic expansion valve........                 20                1.1
Improved evaporators and                           20                1.1
 condensers (with system analysis
 on each component indicating a
 COP improvement greater than 10%,
 when compared to previous design)
Oil Separator.....................                 10                0.6
------------------------------------------------------------------------


[[Page 49530]]

    For model years 2014 and later, EPA proposes that manufacturers 
seeking to generate A/C Efficiency Credits would need to use a specific 
performance test to confirm that the design changes were also improving 
A/C efficiency. Manufacturers would need to perform an A/C 
CO2 Idle Test for each A/C system (family) for which it 
desired to generate Efficiency Credits. Manufacturers would need to 
demonstrate at least a 30% improvement over current average efficiency 
levels to qualify for credits. Upon qualifying on the Idle Test, the 
manufacturer would be eligible to use the menu approach above to 
quantify the credits it would earn.
    The proposed A/C CO2 Idle Test procedure, which EPA has 
designed specifically to measure A/C CO2 emissions, would be 
performed while the vehicle engine is at idle. This proposed laboratory 
idle test would be similar to the idle carbon monoxide (CO) test that 
was once a part of EPA vehicle certification. The test would determine 
the additional CO2 generated at idle when the A/C system is 
operated. The A/C CO2 Idle Test would be run with and 
without the A/C system cooling the interior cabin while the vehicle's 
engine is operating at idle and with the system under complete control 
of the engine and climate control system
    The proposed A/C CO2 Idle Test is similar to that 
proposed in April 2009 for the Mandatory GHG Reporting Rule, with 
several improvements. These improvements include tighter restrictions 
on test cell temperatures and humidity levels in order to more closely 
control the loads from operation of the A/C system. EPA also made 
additional refinements to the required in-vehicle blower fan settings 
for manually controlled systems to more closely represent ``real 
world'' usage patterns. These details can be found in the DRIA and the 
regulations.
    The design of the A/C CO2 Idle Test represents a 
balancing of the need for performance tests whenever possible to ensure 
the most accurate quantification of efficiency improvements, with 
practical concerns for testing burden and facility requirements. EPA 
believes that the proposed Idle Test adds to the robust quantification 
of A/C credits that will result in real-world efficiency improvements 
and reductions in A/C-related CO2 emissions. EPA is 
proposing that the Idle Test be required in order to qualify for A/C 
Efficiency Credits beginning in 2014 to allow sufficient time for 
manufacturers to make the necessary facilities improvements and to 
establish a comfort level with the test.
    EPA also considered a more comprehensive testing approach to 
quantifying A/C CO2 emissions that could be somewhat more 
technically robust, but would require more test time and test facility 
improvements for many manufacturers. This approach would be to adapt an 
existing test procedure, the Supplemental Federal Test Procedure (SFTP) 
for A/C operation, called the SC03, in specific ways for it to function 
as a tool to evaluate A/C CO2 emissions. The potential test 
method is described in some detail here, and EPA encourages comment on 
how this type of test might or might not accomplish the goals of robust 
performance-based testing and reasonable test burdens.
    EPA designed the SC03 test to measure criteria pollutants under 
severe air conditioning conditions not represented in the FTP and 
Highway Fuel Economy Tests. EPA did not specifically design the SC03 to 
measure incremental reductions in CO2 emissions from more 
efficient A/C technologies. For example, due to the severity of the 
SC03 test environmental conditions and the relatively short duration of 
the SC03 cycle, it is difficult for the A/C system to achieve a 
stabilized interior cabin condition that reflects incremental 
improvements. Many potential efficiency improvements in the A/C 
components and controls (i.e., automatic recirculation and heat 
exchanger fan control) are specifically measured only during stabilized 
conditions, and therefore become difficult or impossible to measure and 
quantify during this test. In addition, SC03 testing is also somewhat 
constrained and costly due to limited number of test facilities 
currently capable of performing testing under the required 
environmental conditions.
    One value of using the SC03 as the basis for a new test to quantify 
A/C-related efficiency improvements would be the significant degree of 
control of test cell ambient conditions. The load placed on an A/C 
system, and thus the incremental CO2 emissions, are highly 
dependent on the ambient conditions in the test cell, especially 
temperature and humidity, as well as simulated solar load. Thus, as 
with the proposed Idle Test, a new SC03-based test would need to 
accurately and reliably control these conditions. (This contrasts with 
FTP testing for criteria pollutants, which does not require precise 
control of cell conditions because test results are generally much less 
sensitive to changes in cell temperature or humidity).
    However, for the purpose of quantifying A/C system efficiency 
improvements, EPA believes a test cell temperature less severe than the 
95[deg]F required by the SC03 would be appropriate. A cell temperature 
of 85[deg]F would better align the initial cooling phase (``pull-
down'') as well as the stabilized phase of A/C operation with real-
world driving conditions.
    Another value of an SC03-based test would be the opportunity to 
create operating conditions for vehicle A/C systems that in some ways 
would better simulate ``real world'' operation than either the proposed 
Idle Test or the current SC03. The SC03 test cycle, roughly 10 minutes 
in length, has a similar average speed, maximum speed, and percentage 
of time at idle as the FTP. However, since the SC03 test cycle was 
designed principally to measure criteria pollutants under maximum A/C 
load conditions, it is not long enough to allow temperatures in the 
passenger cabin to consistently stabilize. EPA believes that once the 
pull-down phase has occurred and cabin temperatures have dropped 
dramatically to a suitable interior comfort level, additional test 
cycle time would be needed to measure how efficiently the A/C system 
operates under stabilized conditions.
    To capture the A/C operation during stabilized operation, EPA would 
consider adding two phases to the SC03 test of roughly 10 minutes each. 
Each additional phase would simply be repeats of the SC03 drive cycle, 
with two exceptions. During the second phase, the A/C system would now 
be operating at cabin temperature at or approaching a stabilized 
condition. During the third phase, the A/C system would be turned off. 
The purpose of the third phase would be to establish the base 
CO2 emissions with no A/C loads on the engine, which would 
provide a baseline for the incremental CO2 due to A/C use. 
EPA would likely weight the CO2 g/mi results for the first 
and second phases of the test as follows: 50% for phase 1, and 50% for 
phase 2. From this average CO2 the methodology would 
subtract the CO2 result from phase 3, yielding an 
incremental CO2 (in g/mi) due to A/C use.
    EPA expects to continue working with industry, the California Air 
Resources Board, and other stakeholders to move toward increasingly 
robust performance tests for A/C and may include such changes in this 
final rule. EPA requests comment on all aspects of our proposed A/C 
Efficiency Credits program.
c. Interaction With Title VI Refrigerant Regulations
    Title VI of the Clean Air Act deals with the protection of 
stratospheric ozone. Section 608 establishes a comprehensive program to 
limit emissions of certain ozone-depleting

[[Page 49531]]

substances (ODS). The rules promulgated under section 608 regulate the 
use and disposal of such substances during the service, repair or 
disposal of appliances and industrial process refrigeration. In 
addition, section 608 and the regulations promulgated under it, 
prohibit knowingly venting or releasing ODS during the course of 
maintaining, servicing, repairing or disposing of an appliance or 
industrial process refrigeration equipment. Section 609 governs the 
servicing of motor vehicle air conditioners (MVACs). The regulations 
promulgated under section 609 (40 CFR part 82, subpart B) establish 
standards and requirements regarding the servicing of MVACs. These 
regulations include establishing standards for equipment that recovers 
and recycles or only recovers refrigerant (CFC-12, HFC 134a, and for 
blends only recovers) from MVACs; requiring technician training and 
certification by an EPA-approved organization; establishing 
recordkeeping requirements; imposing sales restrictions; and 
prohibiting the venting of refrigerants. Section 612 requires EPA to 
review substitutes for class I and class II ozone depleting substances 
and to consider whether such substitutes will cause an adverse effect 
to human health or the environment as compared with other substitutes 
that are currently or potentially available. EPA promulgated 
regulations for this program in 1992 and those regulations are located 
at 40 CFR part 82, subpart G. When reviewing substitutes, in addition 
to finding them acceptable or unacceptable, EPA may also find them 
acceptable so long as the user meets certain use conditions. For 
example, all motor vehicle air conditioning system must have unique 
fittings and a uniquely colored label for the refrigerant being used in 
the system.
    EPA views this proposed rule as complementing these Title VI 
programs, and not conflicting with them. To the extent that 
manufacturers choose to reduce refrigerant leakage in order to earn A/C 
Leakage Credits, this would dovetail with the Title VI section 609 
standards which apply to maintenance events, and to end-of-vehicle life 
disposal. In fact, as noted, a benefit of the proposed A/C credit 
provisions is that there should be fewer and less impactive maintenance 
events for MVACs, since there will be less leakage. In addition, the 
credit provisions would not conflict (or overlap) with the Title VI 
section 609 standards. EPA also believes the menu of leak control 
technologies proposed today would complement the section 612 
requirements, because these control technologies would help ensure that 
R134a (or other refrigerants) would be used in a manner that further 
minimizes potential adverse effects on human health and the 
environment.
2. Flex Fuel and Alternative Fuel Vehicle Credits
    As described in this section, EPA is proposing credits for 
flexible-fuel vehicles (FFVs) and alternative fuel vehicles starting in 
the 2012 model year. FFVs are vehicles that can run both on an 
alternative fuel and conventional fuel. Most FFVs are E-85 vehicles, 
which can run on a mixture of up to 85 percent ethanol and gasoline. 
Dedicated alternative fuel vehicles are vehicles that run exclusively 
on an alternative fuel (e.g., compressed natural gas). EPCA includes an 
incentive under the CAFE program for production of dual-fueled vehicles 
or FFVs, and dedicated alternative fuel vehicles.\146\ EPCA's 
provisions were amended by the EISA to extend the period of 
availability of the FFV credits, but to begin phasing them out by 
annually reducing the amount of FFV credits that can be used in 
demonstrating compliance with the CAFE standards.\147\ EPCA does not 
premise the availability of the FFV credits on actual use of 
alternative fuel. Under EPCA, after MY 2019 no FFV credits will be 
available for CAFE compliance.\148\ Under EPCA, for dedicated 
alternative fuel vehicles, there are no limits or phase-out. EPA is 
proposing that FFV and Alternative Fuel Vehicle Credits be calculated 
as a part of the calculation of a manufacturer's overall fleet average 
fuel economy and fleet average carbon-related exhaust emissions (Sec.  
600.510-12).
---------------------------------------------------------------------------

    \146\ 49 U.S.C 32905.
    \147\ See 49 U.S.C 32906. The mechanism by which EPCA provides 
an incentive for production of FFVs is by specifying that their fuel 
economy is determined using a special calculation procedure that 
results in those vehicles being assigned a higher fuel economy level 
than would otherwise occur. 49 U.S.C. section 32905(b). This is 
typically referred to as an FFV credit.
    \148\ 49 U.S.C 32906.
---------------------------------------------------------------------------

    EPA is not proposing to include electric vehicles (EVs) or plug-in 
hybrid electric vehicles (PHEVs) in these flex fuel and alternative 
fuel provisions. These vehicles would be covered by the proposed 
advanced technology vehicle credits provisions described in Section 
III.C.3, so including them here would lead to a double counting of 
credits.
a. Model Year 2012--2015 Credits
    i. FFVs
    For the GHG program, EPA is proposing to allow FFV credits 
corresponding to the amounts allowed by the amended EPCA only during 
the period from MYs 2012 to 2015. (As discussed below in Section 
III.E., EPA is proposing that CAFE-based FFV credits would not be 
permitted as part of the early credits program.) Several manufacturers 
have already taken the availability of FFV credits into account in 
their near-term future planning for CAFE and this reliance indicates 
that these credits need to be considered in considering adequacy of 
lead time for the CO2 standards. EPA thus believes that 
allowing these credits, in the near term, would help provide adequate 
lead time for manufacturers to implement the new multi-year standards, 
but that for the longer term there is adequate lead time without the 
use of such credits. This will also tend to harmonize the GHG and the 
CAFE program during these interim years. As discussed below, EPA is 
proposing for MY 2016 and later that manufacturers would not receive 
FFV credits unless they reliably estimate the extent the alternative 
fuel is actually being used by vehicles in order to count the 
alternative fuel use in the vehicle's CO2 emissions level 
determination.
    As with the CAFE program, EPA proposes to base credits on the 
assumption that the vehicles would operate 50% of the time on the 
alternative fuel and 50% of the time on conventional fuel, resulting in 
CO2 emissions that are based on an arithmetic average of 
alternative fuel and conventional fuel CO2 emissions.\149\ 
The measured CO2 emissions on the alternative fuel would be 
multiplied by a 0.15 volumetric conversion factor which is included in 
the CAFE calculation as provided by EPCA. Through this mechanism a 
gallon of alternative fuel is deemed to contain 0.15 gallons of fuel. 
EPA is proposing to take the same approach for 2012-2015 model years. 
For example, for a flexible-fuel vehicle that emitted 330 g/mi 
CO2 operating on E-85 and 350 g/mi CO2 operating 
on gasoline, the resulting CO2 level to be used in the 
manufacturer's fleet average calculation would be:
---------------------------------------------------------------------------

    \149\ 49 U.S.C 32905 (b).
    [GRAPHIC] [TIFF OMITTED] TP28SE09.012
    
    EPA understands that by using the CAFE approach--including the 0.15 
factor--the CO2 emissions value for the vehicle is 
calculated to be significantly lower than it actually would be 
otherwise, even if the vehicle were assumed to operate on the 
alternative fuel at all times. This represents a ``credit'' being 
provided to FFVs.

[[Page 49532]]

    EPA notes also that the above equation and example are based on an 
FFV that is an E-85 vehicle. EPCA, as amended by EISA, also establishes 
the use of this approach, including the 0.15 factor, for all 
alternative fuels, not just E-85.\150\ The 0.15 factor is used for B-20 
(20 percent biofuel and 80 percent diesel) FFVs. EPCA also establishes 
this approach, including the 0.15 factor, for gaseous-fueled FFVs such 
as a vehicle able to operate on gasoline and CNG.\151\ (For natural gas 
FFVs, EPCA establishes a factor of 0.823 gallons of fuel for every 100 
cubic feet a natural gas used to calculate a gallons equivalent.) \152\ 
The EISA statute's use of the 0.15 factor in this way provides a 
similar regulatory treatment across the various types of alternative 
fuel vehicles. EPA also proposes to use the 0.15 factor for all FFVs in 
keeping with the goal of not disrupting manufacturers' near-term 
compliance planning. EPA, in any case, expects the vast majority of 
FFVs to be E-85 vehicles, as is the case today.
---------------------------------------------------------------------------

    \150\ 49 U.S.C 32905 (c).
    \151\ 49 U.S.C 32905 (d).
    \152\ 49 U.S.C section 32905 (c).
---------------------------------------------------------------------------

    The FFV credit limits for CAFE are 1.2 mpg for model years 2012-
2014 and 1.0 mpg for model year 2015.\153\ In CO2 terms, 
these CAFE limits translate to declining CO2 credit limits 
over the four model years, as the CAFE standards increase in stringency 
(as the CAFE standard increases numerically, the limit becomes a 
smaller fraction of the standard). EPA proposes credit limits shown in 
Table III.C.2-1 based on the proposed average CO2 standards 
for cars and trucks. These have been calculated by comparing the 
average proposed CAFE standards with and without the FFV credits, 
converted to CO2. EPA requests comments on this proposed 
approach.
---------------------------------------------------------------------------

    \153\ 49 U.S.C section 32906 (a).

        Table III.C.2-1--FFV CO2 Standard Credit Limits (g/mile)
------------------------------------------------------------------------
                    Model year                         Cars      Trucks
------------------------------------------------------------------------
2012..............................................        9.8       17.9
2013..............................................        9.3       17.1
2014..............................................        8.9       16.3
2015..............................................        6.9       12.6
------------------------------------------------------------------------

    EPA also requests comments on basing the calculated CO2 
credit limit on the individual manufacturer standards calculated from 
the footprint curves. For example, if a manufacturer's 2012 car 
standard was 260 g/mile, the credit limit in CO2 terms would 
be 9.5 g/mile and if it were 270 g/mile the limit would be 10.2 g/mile. 
This approach would be somewhat more complex and would mean that the 
FFV CO2 credit limits would vary by manufacturer as their 
footprint based standards vary. However, it would more closely track 
CAFE FFV credit limits.
    ii. Dedicated Alternative Fuel Vehicles
    EPA proposes to calculate CO2 emissions from dedicated 
alternative fuel vehicles for MY 2012--2015 by measuring the 
CO2 emissions over the test procedure and multiplying the 
results by the 0.15 conversion factor described above. For example, for 
a dedicated alternative fuel vehicle that would achieve 330 g/mi 
CO2 while operating on alcohol (ethanol or methanol), the 
effective CO2 emissions of the vehicle for use in 
determining the vehicle's CO2) emissions would be calculated 
as follows:

CO2 = 330 x 0.15 = 49.5 g/mi
b. Model Years 2016 and Later
    i. FFVs
    For 2016 and later model years, EPA proposes to treat FFVs 
similarly to conventional fueled vehicles in that FFV emissions would 
be based on actual CO2 results from emission testing on the 
alternative fuel. The manufacturer would also be required to 
demonstrate that the alternative fuel is actually being used in the 
vehicles. The manufacturer would need to establish the ratio of 
operation that is on the alternative fuel compared to the conventional 
fuel. The ratio would be used to weight the CO2 emissions 
performance over the 2-cycle test on the two fuels. The 0.15 conversion 
factor would no longer be included in the CO2 emissions 
calculation. For example, for a flexible-fuel vehicle that emitted 300 
g/mi CO2 operating on E-85 ten percent of the time and 350 
g/mi CO2 operating on gasoline ninety percent of the time, 
the CO2 emissions for the vehicles to be used in the 
manufacturer's fleet average would be calculated as follows:

CO2 = (300 x 0.10) + (350 x 0.90)= 345 g/mi
    The most complex part of this approach is to establish what data 
are needed for a manufacturer to accurately demonstrate use of the 
alternative fuel. One option EPA is considering is establishing a 
rebuttable presumption using a ``top-down'' approach based on national 
E-85 fuel use to assign credits to FFVs sold by manufacturers under 
this program. For example, national E-85 volumes and national FFV sales 
could be used to prorate E-85 use by manufacturer sales volumes and 
FFVs already in-use. EPA would conduct an analysis of vehicle miles 
travelled (VMT) by year for all FFVs using its emissions inventory 
MOVES model. Using the VMT ratios and the overall E-85 sales, E-85 
usage could be assigned to each vehicle. This method would account for 
the VMT of new FFVs and FFVs already in the existing fleet using VMT 
data in the model. The model could then be used to determine the ratio 
of E-85 and gasoline for new vehicles being sold. Fluctuations in E-85 
sales and FFV sales would be taken into account to adjust the credits 
annually. EPA believes this is a reasonable way to apportion E-85 use 
across the fleet.
    If manufacturers decided not to use EPA's assigned credits based on 
the top-down analysis, they would have a second option of presenting 
their own data for consideration as the basis for credits. 
Manufacturers have suggested demonstrations using vehicle on-board data 
gathering through the use of on-board sensors and computers. 
California's program allows FFV credits based on FFV use and envisioned 
manufacturers collecting fuel use data from vehicles in fleets with on-
site refueling. Any approach must reasonably ensure that no 
CO2 emissions reductions anticipated under the program are 
lost.
    EPA proposes that manufacturers would need to present a statistical 
analysis of alternative fuel usage data collected on actual vehicle 
operation. EPA is not attempting to specify how the data is collected 
or the amount of data needed. However, the analysis must be based on 
sound statistical methodology. Uncertainty in the analysis must be 
accounted for in a way that provides reasonable certainty that the 
program does not result in loss of emissions reductions. EPA requests 
comment on how this demonstration could reasonably be made.
    EPA recognizes that under EPCA FFV credits are entirely phased-out 
of the CAFE program by MY 2020, and apply in the prior years with 
certain limitations, but without a requirement that the manufacturers 
demonstrate actual use of the alternative fuel. Under this proposal EPA 
would treat FFV credits the same as under EPCA for model years 2012-
2015, but would apply a different approach starting with model year 
2016. Unlike EPCA, CAA section 202(a) does not mandate that EPA treat 
FFVs in a specific way. Instead EPA is required to exercise its own 
judgment and determine an appropriate approach that best promotes the 
goals of this CAA section. Under these circumstances, EPA proposes to 
treat FFVs for model years 2012-2015 the same as under EPCA, for the 
lead time reasons described above. Starting

[[Page 49533]]

with model year 2016, EPA believes the appropriate approach is to 
ensure that emissions reduction credits are based upon a demonstration 
that emissions reductions have been achieved, to ensure the credits are 
for real reductions instead of reductions that have not likely 
occurred. This will promote the environmental goals of this proposal. 
At the same time, the ability to generate credits upon a demonstration 
of usage of the alternative fuel will provide an actual incentive to 
see that such fuels are used. Under the EPCA credit provision, there is 
an incentive to produce FFVs but no actual incentive to ensure that the 
alternative fuels are used. GHG and energy security benefits are only 
achieved if the alternative fuel is actually used, and EPA's approach 
will now provide such an incentive. This approach will promote greater 
use of renewable fuels, as compared to a situation where there is a 
credit but no usage requirement. This is also consistent with the 
agency's overall commitment to the expanded use of renewable fuels. 
Therefore EPA is not proposing to phase-out the FFV program for MYs 
2016 and later but instead to base the program on real-world reductions 
(i.e., actual vehicle CO2 emissions levels based on actual 
use of the two fuels, without the 0.15 conversion factor specified 
under EISA). Based on existing certification data, E-85 FFV 
CO2 emissions are typically about 5 percent lower on E-85 
than CO2 emissions on 100 percent gasoline. However, 
currently there is little incentive to optimize CO2 
performance for vehicles when running on E-85. EPA believes the above 
approach would provide such an incentive to manufacturers and that E-85 
vehicles could be optimized through engine redesign and calibration to 
provide additional CO2 reductions. EPA requests comments on 
the above.
    ii. Dedicated Alternative Fuel Vehicles
    EPA proposes that for model years 2016 and later dedicated 
alternative fuel vehicles, CO2 would be measured over the 2-
cycle test in order to be included in a manufacturer's fleet average 
CO2 calculations. As noted above, this is different than 
CAFE methodology which provides a methodology for calculating a 
petroleum-based mpg equivalent for alternative fuel vehicles so they 
can be included in CAFE. However, because CO2 can be 
measured directly from alternative fuel vehicles over the test 
procedure, EPA believes this is the simplest and best approach since it 
is consistent with all other vehicle testing under the proposed 
CO2 program.
3. Advanced Technology Vehicle Credits for Electric Vehicles, Plug-in 
Hybrids, and Fuel Cells
    EPA is proposing additional credit opportunities to encourage the 
early commercialization of advanced vehicle powertrains, including 
electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and 
fuel cell vehicles. These technologies have the potential for more 
significant reductions of GHG emissions than any technology currently 
in commercial use, and EPA believes that encouraging early introduction 
of such technologies will help to enable their wider use in the future, 
promoting the technology-based emission reduction goals of section 
202(a)(1) of the Clean Air Act.
    EPA proposes that these advanced technology credits would take the 
form of a multiplier that would be applied to the number of vehicles 
sold such that they would count as more than one vehicle in the 
manufacturer's fleet average. These advanced technology vehicles would 
then count more heavily when calculating fleet average CO2 
levels. The multiplier would not be applied when calculating the 
manufacturer's foot-print-based standard, only when calculating the 
manufacturer's fleet average levels. EPA proposes to use a multiplier 
in the range of 1.2 to 2.0 for all EVs, PHEVs, and fuel cell vehicles 
produced from MY 2012 through MY 2016. EPA proposes that starting in MY 
2017, the multiplier would no longer be used. As described in Section 
III.C.5, EPA is also proposing to allow early advanced technology 
vehicle credits to be generated for model years 2009-2011. EPA requests 
comment on the level of the multiplier and whether it should be the 
same value for each of these three technologies. Further, if EPA 
determines that a multiplier of 2.0, or another level near the higher 
end of this range, is appropriate for the final rule, EPA requests 
comment on whether the multiplier should be phased down over time, such 
as: 2.0 for MY 2009 through MY 2012, 1.8 in MY 2013, 1.6 in MY 2014, 
1.4 in MY 2015, and 1.2 in MY 2016 (i.e., the multiplier could phase-
down by 0.2 per year). In addition, EPA requests comment on whether or 
not it would be appropriate to differentiate between EVs and PHEVs for 
advanced technology credits. Under such an approach, PHEVs could be 
provided a lesser multiplier compare to EVs. Also, the PHEV multiplier 
could be prorated based on the equivalent electric range (i.e., the 
extent to which the PHEV operates on average as an EV) of the vehicle 
in order to incentivize battery technology development. This approach 
would give more credits to ``stronger'' PHEV technology.
    EPA has provided this type of credit previously, in the Tier 2 
program. This approach provides an incentive for manufacturers to prove 
out ultra-clean technology during the early years of the program. In 
Tier 2, early credits for Tier 2 vehicles certified to the very 
cleanest bins (equivalent to California's standards for super ultra low 
emissions vehicles (SULEVs) and zero emissions vehicles (ZEVs)) had a 
multiplier of 1.5 or 2.0.\154\ The multiplier range of 1.2 to 2.0 being 
proposed for GHGs is consistent with the Tier 2 approach. EPA believes 
it is appropriate to provide incentives to manufacturers to produce 
vehicles with very low emissions levels and that these incentives may 
help pave the way for greater and/or more cost effective emission 
reductions from future vehicles. EPA would like to finalize an approach 
which appropriately balances the benefits of encouraging advanced 
technologies with the overall environmental reductions of the proposed 
standards as a whole.
---------------------------------------------------------------------------

    \154\ See 65 FR 6746, February 10, 2000.
---------------------------------------------------------------------------

    As with other vehicles, CO2 for these vehicles would be 
determined as part of vehicle certification, based on emissions over 
the 2-cycle test procedures, to be included in the fleet average 
CO2 levels.
    For electric vehicles, EPA proposes that manufacturers would 
include them in the average with CO2 emissions of zero 
grams/mile both for early credits, and for the MY 2012-2016 time frame. 
Similarly, EPA proposes to include as zero grams/mile of CO2 
the electric portion of PHEVs (i.e., when PHEVs are operating as 
electric vehicles) and fuel cell vehicles. EPA recognizes that for each 
EV that is sold, in reality the total emissions off-set relative to the 
typical gasoline or diesel powered vehicle is not zero, as there is a 
corresponding increase in upstream CO2 emissions due to an 
increase in the requirements for electric utility generation. However, 
for the time frame of this proposed rule, EPA is also interested in 
promoting very advanced technologies such as EVs which offer the future 
promise of significant reductions in GHG emissions, in particular when 
coupled with a broader context which would include reductions from the 
electricity generation. For the California Paley 1 program, California 
assigned EVs a CO2 performance value of 130 g/mile, which 
was intended to represent the average CO2 emissions required 
to charge an EV using representative CO2 values for the 
California electric utility grid. For this

[[Page 49534]]

proposal, EPA is assigning an EV a value of zero g/mile, which should 
be viewed as an interim solution for how to account for the emission 
reduction potential of this type of vehicle, and may not be the 
appropriate long-term approach. EPA requests comment on this proposal 
and whether alternative approaches to address EV emissions should be 
considered, including approaches for considering the lifecycle 
emissions from such advanced vehicle technologies.
    The criteria and definitions for what vehicles qualify for the 
multiplier are provided in Section III.E. As described in Section 
III.E, EPA is proposing definitions for EVs, PHEVs, and fuel cell 
vehicles to ensure that only credible advanced technology vehicles are 
provided credits.
    EPA requests comments on the proposed approach for advanced 
technology vehicle credits.
4. Off-Cycle Technology Credits
    EPA is proposing an optional credit opportunity intended to apply 
to new and innovative technologies that reduce vehicle CO2 
emissions, but for which the CO2 reduction benefits are not 
captured over the 2-cycle test procedure used to determine compliance 
with the fleet average standards (i.e., ``off-cycle''). Eligible 
innovative technologies would be those that are relatively newly 
introduced in one or more vehicle models, but that are not yet 
implemented in widespread use in the light-duty fleet. EPA will not 
approve credits for technologies that are not innovative or novel 
approaches to reducing greenhouse gas emissions. Further, any credits 
for these off-cycle technologies must be based on real-world GHG 
reductions not captured on the current 2-cycle tests and verifiable 
test methods, and represent average U.S. driving conditions.
    Similar to the technologies used to reduce A/C system indirect 
CO2 emissions such as compressor efficiency improvements, 
eligible technologies would not be active during the 2-cycle test and 
therefore the associated improvements in CO2 emissions would 
not be captured. EPA will not consider technologies to be eligible for 
these credits if the technology has a significant impact on 
CO2 emissions over the FTP and HFET tests. Because these 
technologies are not nearly so well developed and understood, EPA is 
not prepared to require their utilization to meet the CO2 
standards. However, EPA is aware of some emerging and innovative 
technologies and concepts in various stages of development with 
CO2 reduction potential that might not be adequately 
captured on the FTP or HFET, and that some of these technologies might 
merit some additional CO2 credit for the manufacturer. 
Examples include solar panels on hybrids or electric vehicles, adaptive 
cruise control, and active aerodynamics. EPA believes it would be 
appropriate to provide an incentive to encourage the introduction of 
these types of technologies and that a credit mechanism is an effective 
way to do this. This optional credit opportunity would be available 
through the 2016 model year.
    EPA is proposing that manufacturers quantify CO2 
reductions associated with the use of the off-cycle technologies such 
that the credits could be applied on a g/mile equivalent basis, as is 
proposed for A/C system improvements. Credits would have to be based on 
real additional reductions of CO2 emissions and would need 
to be quantifiable and verifiable with a repeatable methodology. Such 
submissions of data should be submitted to EPA subject to public 
scrutiny. EPA proposes that the technologies upon which the credits are 
based would be subject to full useful life compliance provisions, as 
with other emissions controls. Unless the manufacturer can demonstrate 
that the technology would not be subject to in-use deterioration over 
the useful life of the vehicle, the manufacturer would have to account 
for deterioration in the estimation of the credits in order to ensure 
that the credits are based on real in-use emissions reductions over the 
life of the vehicle.
    As discussed below, EPA is proposing a two-tiered process for 
demonstrating the CO2 reductions of an innovative and novel 
technology with benefits not captured by the FTP and HFET test 
procedures. First, a manufacturer would determine whether the benefit 
of the technology could be captured using the 5-cycle methodology 
currently used to determine fuel economy label values. EPA established 
the 5-cycle test methods to better represent real-world factors 
impacting fuel economy, including higher speeds and more aggressive 
driving, colder temperature operation, and the use of air conditioning. 
If this determination is affirmative, the manufacturer would follow the 
protocol laid out below and in the proposed regulations. If the 
manufacturer finds that the technology is such that the benefit is not 
adequately captured using the 5-cycle approach, then the manufacturer 
would have to develop a robust methodology, subject to EPA approval, to 
demonstrate the benefit and determine the appropriate CO2 
gram per mile credit.
a. Technology Demonstration Using EPA 5-Cycle Methodology
    As noted above, the CO2 reduction benefit of some 
innovative technologies could be demonstrated using the 5-cycle 
approach currently used for EPA's fuel economy labeling program. The 5-
cycle methodology was finalized in EPA's 2006 fuel economy labeling 
rule,\155\ which provides a more accurate fuel economy label estimate 
to consumers starting with 2008 model year vehicles. In addition to the 
FTP and HFET test procedures, the 5-cycle approach folds in the test 
results from three additional test procedures to determine fuel 
economy. The additional test cycles include cold temperature operation, 
high temperature, high humidity and solar loading, and aggressive and 
high-speed driving; thus these tests could be used to demonstrate the 
benefit of a technology that reduces CO2 over these types of 
driving and environmental conditions. Using the test results from these 
additional test cycles collectively with the 2-cycle data provides a 
more precise estimate of the average fuel economy and CO2 
emissions of a vehicle for both the city and highway independently. A 
significant benefit of using the 5-cycle methodology to measure and 
quantify the CO2 reductions is that the test cycles are 
properly weighted for the expected average U.S. operation, meaning that 
the test results could be used without further adjustments.
---------------------------------------------------------------------------

    \155\ Fuel Economy Labeling of Motor Vehicles: Revisions to 
Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 
77872, December 27, 2006).
---------------------------------------------------------------------------

    The use of these supplemental cycles may provide a method by which 
technologies not demonstrated on the baseline 2-cycles can be 
quantified. The cold temperature FTP can capture new technologies that 
improve the CO2 performance of vehicles during colder 
weather operation. These improvements may be related to warm-up of the 
engine or other operation during the colder temperature. An example of 
such a new, innovative technology is a waste heat capture device that 
provides heat to the cabin interior, enabling additional engine-off 
operation during colder weather not previously enabled due to heating 
and defrosting requirements. The additional engine-off time would 
result in additional CO2 reductions that otherwise would not 
have been realized without the heat capture technology.
    While A/C credits for efficiency improvements will largely be 
captured in the A/C credits proposal through the credit menu of known 
efficiency improving components and controls,

[[Page 49535]]

certain new technologies may be able to use the high temperatures, 
humidity, and solar load of the SC03 test cycle to accurately measure 
their impact. An example of a new technology may be a refrigerant 
storage device that accumulates pressurized refrigerant during driving 
operation or uses recovered vehicle kinetic energy during deceleration 
to pressurize the refrigerant. Much like the waste heat capture device 
used in cold weather, this device would also allow additional engine-
off operation while maintaining appropriate vehicle interior occupant 
comfort levels. SC03 test data measuring the relative impact of 
innovative A/C-related technologies could be applied to the 5-cycle 
equation to quantify the CO2 reductions of the technology. 
Another example is glazed windows. This reflects sunlight away from the 
cabin so that the energy required to stabilize the cabin air to a 
comfortable level is decreased. The impact of these windows may be 
measureable on an SC03 test (with and without the window option).
    The US06 cycle may be used to capture innovative technologies 
designed to reduce CO2 emissions during higher speed and 
more aggressive acceleration conditions, but not reflected on the 2-
cycle tests. An example of this is an active aerodynamic technology. 
This technology recognizes the benefits of reduced aerodynamic drag at 
higher speeds and makes changes to the vehicle at those speeds. The 
changes may include active front or grill air deflection devices 
designed to redirect frontal airflow. Certain active suspension devices 
designed primarily to reduce aerodynamic drag by lowering the vehicle 
at higher speeds may also be measured on the US06 cycle. To properly 
measure these technologies on the US06, the vehicle would require 
unique load coefficients with and without the technologies. The 
different load coefficient (properly weighted for the US06 cycle) could 
effectively result in reduced vehicle loads at the higher speeds when 
the technologies are active. Similar to the previously discussed 
cycles, the results from the US06 test with and without the technology 
could then use the 5-cycle methodology to quantify CO2 
reductions.
    If the 5-cycle procedures can be used to demonstrate the innovative 
technology, then the process would be relatively simple. The 
manufacturer would simply test vehicles with and without the technology 
installed or operating and compare results. All 5-cycles would be 
tested with the technology enabled and disabled, and the test results 
would be used to calculate a combined city/highway CO2 value 
with the technology and without the technology. These values would be 
compared to determine the amount of the credit; the combined city/
highway CO2 value with the technology operating would be 
subtracted from the combined city/highway CO2 value without 
the technology operating to determine the gram per mile CO2 
credit. It is likely that multiple tests of each of the five test 
procedures would need to be performed in order to achieve the necessary 
strong degree of statistical significance of the credit determination 
results. This would have to be done for each model type for which a 
credit was being sought, unless the manufacturer could demonstrate that 
the impact of the technology was independent of the vehicle 
configuration on which it was installed. In this case, EPA may consider 
allowing the test to be performed on an engine family basis or other 
grouping. At the end of the model year, the manufacturer would 
determine the number of vehicles produced subject to each credit amount 
and report that to EPA in the final model year report. The gram per 
mile credit value determined with the 5-cycle comparison testing would 
be multiplied by the total production of vehicles subject to that value 
to determine the total number of credits.
b. Alternative Off-Cycle Credit Methodologies
    In cases where the benefit of a technological approach to reducing 
CO2 emissions can not be adequately represented using 
existing test cycles, EPA will work with and advise manufacturers in 
developing test procedures and analytical approaches to estimate the 
effectiveness of the technology for the purpose of generating credits. 
Clearly the first step should be a thorough assessment of whether the 
5-cycle approach can be used, but if the manufacturer finds that the 5-
cycle process is fundamentally inadequate for the specific technology 
being considered by the manufacturer, then an alternative approach may 
be developed and submitted to EPA for approval. The demonstration 
program should be robust, verifiable, and capable of demonstrating the 
real-world emissions benefit of the technology with strong statistical 
significance.
    The CO2 benefit of some technologies may be able to be 
demonstrated with a modeling approach, using engineering principles. An 
example would be where a roof solar panel is used to charge the on-
board vehicle battery. The amount of potential electrical power that 
the panel could supply could be modeled for average U.S. conditions and 
the units of electrical power translated to equivalent fuel energy or 
annualized CO2 emission rate reduction from the captured 
solar energy. The CO2 reductions from other technologies may 
be more challenging to quantify, especially if they are interactive 
with the driver, geographic location, environmental condition, or other 
aspect related to operation on actual roads. In these cases, 
manufacturers might have to design extensive on-road test programs. Any 
such on-road testing programs would need to be statistically robust and 
based on average U.S. driving conditions, factoring in differences in 
geography, climate, and driving behavior across the U.S.
    Whether the approach involves on-road testing, modeling, or some 
other analytical approach, the manufacturer would be required to 
present a proposed methodology to EPA. EPA would approve the 
methodology and credits only if certain criteria were met. Baseline 
emissions and control emissions would need to be clearly demonstrated 
over a wide range of real world driving conditions and over a 
sufficient number of vehicles to address issues of uncertainty with the 
data. Data would need to be on a vehicle model-specific basis unless a 
manufacturer demonstrated model specific data was not necessary. 
Approval of the approach to determining a CO2 benefit would 
not imply approval of the results of the program or methodology; when 
the testing, modeling, or analyses are complete the results would 
likewise be subject to EPA review and approval. EPA believes that 
manufacturers could work together to develop testing, modeling, or 
analytical methods for certain technologies, similar to the SAE 
approach used for A/C refrigerant leakage credits.
    EPA requests comments on the proposed approach for off-cycle 
emissions credits, including comments on how best to structure the 
program. EPA particularly requests comments on how the case-by-case 
approach to assessing off-cycle innovative technology credits could 
best be designed, including ways to ensure the verification of real-
world emissions benefits and to ensure transparency in the process of 
reviewing manufacturer's proposed test methods.
5. Early Credit Options
    EPA is proposing to allow manufacturers to generate early credits 
in model years 2009-2011. As described below, credits could be 
generated through early additional fleet average CO2 
reductions, early A/C system improvements, early advanced

[[Page 49536]]

technology vehicle credits, and early off-cycle credits. As with other 
credits, early credits would be subject to a five year carry-forward 
limit based on the model year in which they are generated. Early 
credits could also be transferred between vehicle categories (e.g., 
between the car and truck fleet) or traded among manufacturers without 
limits. The agencies note that CAFE credits earned in MYs prior to MY 
2011 will still be available to manufacturers for use in the CAFE 
program in accordance with applicable regulations.
    EPA is not proposing certification, compliance, or in-use 
requirements for vehicles generating early credits. MY 2009 would be 
complete and MY 2010 would be well underway by the time the rule is 
promulgated. This would make certification, compliance, and in-use 
requirements unworkable. As discussed below, manufacturers would be 
required to submit an early credits report to EPA for approval no later 
than the time they submit their final CAFE report for MY 2011. This 
report would need to include details on all early credits the 
manufacturer generates, why the credits are bona fide, how they are 
quantified, and how they can be verified.
    As a general principle, EPA believes these early credit programs 
must be designed in a way to ensure that they are capturing real-world 
reductions. In addition, EPA wants to ensure these credit programs do 
not provide an opportunity for manufacturers to earn ``windfall'' 
credits that do not result in actual, surplus CO2 emission 
reductions. EPA seeks comments on how to best ensure these objectives 
are achieved in the design of the early credit program options.
a. Credits Based on Early Fleet Average CO2 Reductions
    EPA is proposing opportunities for early credit generation in MYs 
2009-2011 through over-compliance with a fleet average CO2 
baseline established by EPA. EPA is proposing four pathways for doing 
so. Manufacturers would select one of the four paths for credit 
generation for the entire three year period and could not switch 
between pathways for different model years. For two pathways, the 
baseline would be set by EPA to be equivalent to the California 
standards for the relevant model year. Generally, manufacturers that 
over-comply with those CARB standards would earn credits. Two 
additional pathways, described below, would include credits based on 
over-compliance with CAFE standards in States that have not adopted the 
California standards.
    Pathway 1 would be to earn credits by over-complying with the 
California equivalent baseline over the manufacturer's fleet of 
vehicles sold nationwide. Pathway 2 would be for manufacturers to 
generate credits against the baseline only for the fleet of vehicles 
sold in California and the CAA section 177 States.\156\ This approach 
would include any CAA 177 States as of the date of promulgation of the 
Final Rule in this proceeding. Manufacturers would be required to 
include both cars and trucks in the program. Under Pathways 1 and 2, 
EPA proposes that manufacturers would be required to cover any deficits 
incurred against the baseline levels established by EPA during the 
three year period 2009-2011 before credits could be carried forward 
into the 2012 model year. For example, a deficit in 2011 would have to 
be subtracted from the sum of credits earned in 2009 and 2010 before 
any credits could be applied to 2012 (or later) model year fleets. EPA 
is proposing this provision to help ensure the early credits generated 
under this program are consistent with the credits available under the 
California program during these model years.
---------------------------------------------------------------------------

    \156\ CAA 177 States refers to States that have adopted the 
California GHG standards. At present, there are thirteen CAA 177 
States including New York, Massachusetts, Maryland, Vermont, Maine, 
Connecticut, Arizona, New Jersey, New Mexico, Oregon, Pennsylvania, 
Rhode Island, Washington, and Washington, DC.
---------------------------------------------------------------------------

    Table III.C.5-1 provides the California equivalent baselines EPA 
proposes to use as the basis for CO2 credit generation under 
the California-based pathways. These are the California GHG standards 
for the model years shown, with a 2.0 g/mile adjustment to account for 
the exclusion of N2O and CH4, which are included 
in the California GHG standards, but not included in the credits 
program. Manufacturers would generate CO2 credits by 
achieving fleet average CO2 levels below these baselines. As 
shown in the table, the California-based early credit pathways are 
based on the California vehicle categories. Also, the California-based 
baseline levels are not footprint-based, but universal levels that all 
manufacturers would use. Manufacturers would need to achieve fleet 
levels below those shown in the table in order to earn credits.

        Table III.C.5-1--California Equivalent Baselines CO2 Emissions Levels for Early Credit Generation
----------------------------------------------------------------------------------------------------------------
                                                                                         Light trucks with a LVW
                                                                   Passenger cars and     of 3,751 or more and a
                          Model year                              light trucks with an   GVWR of up to 8,500 lbs
                                                                   LVW of 0-3,750 lbs        plus medium-duty
                                                                                            passenger vehicles
----------------------------------------------------------------------------------------------------------------
2009..........................................................                      321                      437
2010..........................................................                      299                      418
2011..........................................................                      265                      388
----------------------------------------------------------------------------------------------------------------

    EPA proposes that manufacturers using Pathways 1 or 2 above would 
use year end car and truck sales in each category. Although production 
data is used for the program starting in 2012, EPA is proposing to use 
sales data for the early credits program in order to apportion vehicles 
by State. This is described further below. Manufacturers would 
calculate actual fleet average emissions over the appropriate vehicle 
fleet, either for vehicles sold nationwide for Pathway 1, or California 
plus 177 States sales for Pathway 2. Early CO2 credits would 
be based on the difference between the baseline shown in the table 
above and the actual fleet average emissions level achieved. Any early 
A/C credits generated by the manufacturer, described below in Section 
III.C.5.b, would be included in the fleet average level determination. 
In model year 2009, the California CO2 standards for cars 
(321 g/mi CO2) are only slightly more stringent than the 
2009 CAFE car standard of 27.5 mpg, which is approximately equivalent 
to 323 g/mi CO2, and the California light-truck standard 
(437 g/mi CO2) is less stringent than the equivalent CAFE 
standard, recognizing that there are some differences between the way 
the California program and the CAFE

[[Page 49537]]

program categorize vehicles. Under the proposed option, manufacturers 
would have to show that they over comply over the entire three model 
year time period, not just the 2009 model year, to generate early 
credits under either Pathways 1, 2 or 3. A manufacturer cannot use 
credits generated in model year 2009 unless they offset any debits from 
model years 2010 and 2011. EPA expects that the requirement to over 
comply over the entire time period covering these three model years 
should mean that the credits that are generated are real and are in 
excess of what would have otherwise occurred. However, because of the 
circumstances involving the 2009 model year, in particular for 
companies with significant truck sales, there is some concern that 
under Pathways 1, 2, and 3, there is a potential for a large number of 
credits generated in 2009 against the California standard, in 
particular for a number of companies who have significantly over-
achieved on CAFE in recent model years. EPA wants to avoid a situation 
where, contrary to expectation, some part of the early credits 
generated by a manufacturer are in fact not excess, where companies 
could trade such credits to other manufacturers, risking a delay in the 
addition of new technology across the industry from the 2012 and later 
EPA CO2 standards. For this reason, EPA requests comment on 
the merits of prohibiting the trading of model year 2009 generated 
early credits between firms.
    In addition, for Pathways 1 and 2, EPA proposes that manufacturers 
may also include alternative compliance credits earned per the 
California alternative compliance program.\157\ These alternative 
compliance credits are based on the demonstrated use of alternative 
fuels in flex fuel vehicles. As with the California program, the 
credits would be available beginning in MY 2010. Therefore, these early 
alternative compliance credits would be available under EPA's program 
for the 2010 and 2011 model years. FFVs would otherwise be included in 
the early credit fleet average based on their emissions on the 
conventional fuel. This would not apply to EVs and PHEVs. The emissions 
of EVs and PHEVs would be determined as described in Section III.E. 
Manufacturers could choose to either include their EVs and PHEVs in one 
of the four pathways described in this section or under the early 
advanced technology emissions credits described below, but not both due 
to issues of credit double counting.
---------------------------------------------------------------------------

    \157\ See Section 6.6.E, California Environmental Protection 
Agency Air Resources Board, Staff Report: Initial Statement of 
Reasons For Proposed Rulemaking, Public Hearing to Consider Adoption 
of Regulations to Control Greenhouse Gas Emissions From Motor 
Vehicles, August 6, 2004.
---------------------------------------------------------------------------

    EPA is also proposing two additional early credit pathways 
manufacturers could select. Pathways 3 and 4 incorporate credits based 
on over-compliance with CAFE standards for vehicles sold outside of 
California and CAA 177 States in MY 2009-2011. Pathway 3 would allow 
manufacturers to earn credits as under Pathway 2, plus earn CAFE-based 
credits in other States. Credits would not be generated for cars sold 
in California and CAA 177 States unless vehicle fleets in those States 
are performing better than the standards which otherwise would apply in 
those States, i.e. the baselines shown in Table III.C.5-1 above.
    Pathway 4 would be for manufacturers choosing to forego California-
based early credits entirely and earn only CAFE-based credits outside 
of California and CAA 177 States. EPA proposes that manufacturers would 
not be able to include FFV credits under the CAFE-based early credit 
pathways since those credits do not automatically reflect actual 
reductions in CO2 emissions.
    The proposed baselines for CAFE-based early pathways are provided 
in Table III.C.5-2 below. They are based on the CAFE standards for the 
2009-2011 model years. For CAFE standards in 2009-2011 model years that 
are footprint-based, the baseline would vary by manufacturer. 
Footprint-based standards are in effect for the 2011 model year CAFE 
standards.\158\ Additionally, for Reform CAFE truck standards, 
footprint standards are optional for the 2009-2010 model years. Where 
CAFE footprint-based standards are in effect, manufacturers would 
calculate a baseline using the footprints and sales of vehicles outside 
of California and CAA 177 States. The actual fleet CO2 
performance calculation would also only include the vehicles sold 
outside of California and CAA 177 States, and as mentioned above, may 
not include FFV credits.
---------------------------------------------------------------------------

    \158\ 74 FR 14196, March 30, 2009.

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

    For the CAFE-based pathways, EPA proposes to use the NHTSA car and 
truck definitions that are in place for the model year in which credits 
are being generated. EPA understands that the NHTSA definitions change 
starting in the 2011 model year, and would therefore change part way 
through the early credits program. EPA further recognizes that MDPVs 
are not part of the CAFE program until the 2011 model year, and 
therefore would not be part of the early credits calculations for 2009-
2010 under the CAFE-based pathways.
    Pathways 2 through 4 involve splitting the vehicle fleet into two 
groups, vehicles sold in California and CAA 177 States and vehicles 
sold outside of these States. This approach would require a clear 
accounting of location of vehicle sales by the manufacturer. EPA 
believes it will be reasonable for manufacturers to accurately track 
sales by State, based on its experience with the National Low Emissions 
Vehicle (NLEV) Program. NLEV required manufacturers to meet separate 
fleet average standards for vehicles sold in two different regions of 
the country.\159\ As with NLEV, the determination would be based on 
where the completed vehicles are delivered as a point of first sale, 
which in most cases would be the dealer.\160\
---------------------------------------------------------------------------

    \159\ 62 FR 31211, June 6, 1997.
    \160\ 62 FR 31212, June 6, 1997.
---------------------------------------------------------------------------

    As noted above, EPA proposes that manufacturers choosing to 
generate early credits would select one of the four pathways for the 
entire early credits program and would not be able to switch among 
them. EPA proposes that manufacturers would submit their early credits 
report when they submit their final CAFE report for MY 2011 (which is 
required to be submitted no

[[Page 49538]]

later than 90 days after the end of the model year). Manufacturers 
would have until then to decide which pathway to select. This would 
give manufacturers enough time to determine which pathway works best 
for them. This timing may be necessary in cases where manufacturers 
earn credits in MY 2011 and need time to assess data and prepare an 
early credits submittal for final EPA approval.
    The table below provides a summary of the four fleet average-based 
CO2 early credit pathways EPA is proposing. As noted above, 
EPA is concerned with potential ``windfall'' credits and is seeking 
comments on how to best ensure the objective of achieving surplus, 
real-world reductions is achieved in the design of the credit programs. 
In addition, EPA requests comments on the merits of each of these 
pathways. Specifically, EPA requests comment on whether or not any of 
the pathways could be eliminated to simplify the program without 
diminishing its overall flexibility. For example, Pathway 2 may not be 
particularly useful to manufacturers if the California/177 State and 
overall national fleets are projected to be similar during these model 
years. EPA also requests comment on proposed program implementation 
structure and provisions.

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

b. Early A/C Credits
    EPA proposes that manufacturers could earn early A/C credits in MYs 
2009-2011 using the same A/C system design-based EPA provisions being 
proposed for MYs commencing in 2012, as described in Section III.C.1, 
above. Manufacturers would be able to earn early A/C CO2-
equivalent credits by demonstrating improved A/C system performance, 
for both direct and indirect emissions. To earn credits for vehicles 
sold in California and CAA 177 States, the vehicles would need to be 
included in one of the California-based early credit pathways described 
above in III.C.5.a. EPA is proposing this constraint in order to avoid 
credit double counting with the California program in place in those 
States, which also allows A/C system credits in this time frame. 
Manufacturers would fold the A/C credits into the fleet average 
CO2 calculations under the California-based pathway. For 
example, the MY 2009 California-based program car baseline would be 321 
g/mile (see Table III.C.5-1). If a manufacturer under Pathway 1 had a 
MY 2009 car fleet average CO2 level of 320 g/mile and then 
earned an additional 9 g/mile CO2-equivalent A/C credit, the 
manufacturers would earn a total of 10 g/mile of credit. Vehicles sold 
outside of California and 177 States would be eligible for the early A/
C credits whether or not the manufacturers participate in other aspects 
of the early credits program.
c. Early Advanced Technology Vehicle Credits
    EPA is proposing to allow early advanced technology vehicle credits 
for sales of EVs, PHEVs, and fuel cell vehicles. To avoid double-
counting, manufacturers would not be allowed to generate advanced 
technology credits for vehicles they choose to include in Pathways 1 
through 4 described in III.C.5.a, above. EPA proposes to use a similar 
methodology to that proposed for MYs 2012 and later, as described in 
Section III.C.3, above. EPA proposes to use a multiplier in the range 
of 1.2 to 2.0 for all eligible vehicles (i.e., EVs, PHEVs, and fuel 
cells). Manufacturers, however, would track the number of these 
vehicles sold in the model years 2009--2011, and the emissions level of 
the vehicles, rather than a CO2 credit. When a manufacturer 
chooses to use the vehicle credits to comply with 2012 or later 
standards, the vehicle counts including the multiplier would be folded 
into the CO2 fleet average. For example, if a manufacturer 
sells 1,000 EVs in MY 2011, and if the final multiplier level were 2.0, 
the manufacturer would apply the multiplier of 2.0 and then be able to 
include 2,000 vehicles at 0 g/mile in their MY 2012 fleet to decrease 
the fleet average for that model year. As with other early credits, 
these early advanced technology vehicle credits would be tracked by 
model year (2009, 2010, or 2011) and would be subject to 5 year carry-
forward restrictions. Again,

[[Page 49539]]

manufacturers would not be allowed to include the EVs, PHEVs, or fuel 
cell vehicles in the early credit pathways discussed above in Section 
III.C.5.a, otherwise the vehicles would be double counted. As discussed 
in Section III.C.3, EPA is requesting comment on a multiplier in the 
range of 1.2 to 2.0, including a potential phase-down in the multiplier 
by model year 2016, if a multiplier near the higher end of this range 
is determined for the final rule. This request for comment also extends 
to the potential for early advance technology vehicle credits. EPA is 
also requesting comment on the appropriate gram/mile metric for EVs and 
fuel cellvehicles, as well as for the EV-only contribution for a PHEV.
d. Early Off-Cycle Credits
    EPA's proposed off-cycle innovative technology credit provisions 
are provided in Section III.C.4. EPA requests comment on beginning 
these credits in the 2009-2011 time frame, provided manufacturers are 
able to make the necessary demonstrations outlined in Section III.C.4, 
above.

D. Feasibility of the Proposed CO2 Standards

    This proposal is based on the need to obtain significant GHG 
emissions reductions from the transportation sector, and the 
recognition that there are cost-effective technologies to achieve such 
reductions in the 2012-2016 time frame. As in many prior mobile source 
rulemakings, the decision on what standard to set is largely based on 
the effectiveness of the emissions control technology, the cost and 
other impacts of implementing the technology, and the lead time needed 
for manufacturers to employ the control technology. The standards 
derived from assessing these issues are also evaluated in terms of the 
need for reductions of greenhouse gases, the degree of reductions 
achieved by the standards, and the impacts of the standards in terms of 
costs, quantified benefits, and other impacts of the standards. The 
availability of technology to achieve reductions and the cost and other 
aspects of this technology are therefore a central focus of this 
rulemaking.
    EPA is taking the same basic approach in this rulemaking, although 
the technological problems and solutions involved in this rulemaking 
differ in some ways from prior mobile source rulemakings. Here, the 
focus of the emissions control technology is on reducing CO2 
and other greenhouse gases. Vehicles combust fuel to perform two basic 
functions: (1) Transport the vehicle, its passengers and its contents, 
and (2) operate various accessories during the operation of the vehicle 
such as the air conditioner. Technology can reduce CO2 
emissions by either making more efficient use of the energy that is 
produced through combustion of the fuel or reducing the energy needed 
to perform either of these functions.
    This focus on efficiency calls for looking at the vehicle as an 
entire system. In addition to fuel delivery, combustion, and 
aftertreatment technology, any aspect of the vehicle that affects the 
need to produce energy must also be considered. For example, the 
efficiency of the transmission system, which takes the energy produced 
by the engine and transmits it to the wheels, and the resistance of the 
tires to rolling both have major impacts on the amount of fuel that is 
combusted while operating the vehicle. The braking system, the 
aerodynamics of the vehicle, and the efficiency of accessories, such as 
the air conditioner, all affect how much fuel is combusted.
    In evaluating vehicle efficiency, we have excluded fundamental 
changes in vehicles' size and utility. For example, we did not evaluate 
converting minivans and SUVs to station wagons, converting vehicles 
with four wheel drive to two wheel drive, or reducing headroom in order 
to lower the roofline and reduce aerodynamic drag. We have limited our 
assessment of technical feasibility and resultant vehicle cost to 
technologies which maintain vehicle utility as much as possible. 
Manufacturers may decide to alter the utility of the vehicles which 
they sell in response to this rule. Assessing the societal cost of such 
changes is very difficult as it involves assessing consumer preference 
for a wide range of vehicle features.
    This need to focus on the efficient use of energy by the vehicle as 
a system leads to a broad focus on a wide variety of technologies that 
affect almost all the systems in the design of a vehicle. As discussed 
below, there are many technologies that are currently available which 
can reduce vehicle energy consumption. These technologies are already 
being commercially utilized to a limited degree in the current light-
duty fleet. These technologies include hybrid technologies that use 
higher efficiency electric motors as the power source in combination 
with or instead of internal combustion engines. While already 
commercialized, hybrid technology continues to be developed and offers 
the potential for even greater efficiency improvements. Finally, there 
are other advanced technologies under development, such as lean burn 
gasoline engines, which offer the potential of improved energy 
generation through improvements in the basic combustion process. In 
addition, the available technologies are not limited to powertrain 
improvements but also include mass reduction, electrical system 
efficiencies, and aerodynamic improvements.
    The large number of possible technologies to consider and the 
breadth of vehicle systems that are affected mean that consideration of 
the manufacturer's design and production process plays a major role in 
developing the proposed standards. Vehicle manufacturers typically 
develop many different models by basing them on a limited number of 
vehicle platforms. The platform typically consists of a common vehicle 
architecture and structural components. This allows for efficient use 
of design and manufacturing resources. Given the very large investment 
put into designing and producing each vehicle model, manufacturers 
typically plan on a major redesign for the models approximately every 5 
years. At the redesign stage, the manufacturer will upgrade or add all 
of the technology and make most other changes supporting the 
manufacturer's plans for the next several years, including plans 
related to emissions, fuel economy, and safety regulations.
    This redesign often involves a package of changes designed to work 
together to meet the various requirements and plans for the model for 
several model years after the redesign. This often involves significant 
engineering, development, manufacturing, and marketing resources to 
create a new product with multiple new features. In order to leverage 
this significant upfront investment, manufacturers plan vehicle 
redesigns with several model years of production in mind. Vehicle 
models are not completely static between redesigns as limited changes 
are often incorporated for each model year. This interim process is 
called a refresh of the vehicle and generally does not allow for major 
technology changes although more minor ones can be done (e.g., small 
aerodynamic improvements, valve timing improvements, etc). More major 
technology upgrades that affect multiple systems of the vehicle thus 
occur at the vehicle redesign stage and not in the time period between 
redesigns.
    As discussed below, there are a wide variety of CO2 
reducing technologies involving several different systems in the 
vehicle that are available for consideration. Many can involve major 
changes to the vehicle, such as changes to the engine block and 
cylinder heads, redesign of the transmission and its

[[Page 49540]]

packaging in the vehicle, changes in vehicle shape to improve 
aerodynamic efficiency and the application of aluminum in body panels 
to reduce mass. Logically, the incorporation of emissions control 
technologies would be during the periodic redesign process. This 
approach would allow manufacturers to develop appropriate packages of 
technology upgrades that combine technologies in ways that work 
together and fit with the overall goals of the redesign. It also allows 
the manufacturer to fit the process of upgrading emissions control 
technology into its multi-year planning process, and it avoids the 
large increase in resources and costs that would occur if technology 
had to be added outside of the redesign process.
    This proposed rule affects five years of vehicle production, model 
years 2012-2016. Given the now-typical five year redesign cycle, nearly 
all of a manufacturer's vehicles will be redesigned over this period. 
However, this assumes that a manufacturer has sufficient lead time to 
redesign the first model year affected by this proposed rule with the 
requirements of this proposed rule in mind. In fact, the lead time 
available for model year 2012 is relatively short. The time between a 
likely final rule and the start of 2013 model year production is likely 
to be just over two years. At the same time, manufacturer product plans 
indicate that they are planning on introducing many of the technologies 
EPA projects could be used to show compliance with the proposed 
CO2 standards in both 2012 and 2013. In order to account for 
the relatively short lead time available prior to the 2012 and 2013 
model years, albeit mitigated by their existing plans, EPA has factored 
this reality into how the availability is modeled for much of the 
technology being considered for model years 2012-2016 as a whole. If 
the technology to control greenhouse gas emissions is efficiently 
folded into this redesign process, then EPA projects that 85 percent of 
each manufacturer's sales will be able to be redesigned with many of 
the CO2 emission reducing technologies by the 2016 model 
year, and as discussed below, to reduce emissions of HFCs from the air 
conditioner.
    In determining the level of this first ever GHG emissions standard 
under the CAA for light-duty vehicles, EPA proposes to use an approach 
that accounts for and builds on this redesign process. This provides 
the opportunity for several control technologies to be incorporated 
into the vehicle during redesign, achieving significant emissions 
reductions from the model at one time. This is in contrast to what 
would be a much more costly approach of trying to achieve small 
increments of reductions over multiple years by adding technology to 
the vehicle piece by piece outside of the redesign process.
    As described below, the vast majority of technology required by 
this proposal is commercially available and already being employed to a 
limited extent across the fleet. The vast majority of the emission 
reductions which would result from this proposed rule would result from 
the increased use of these technologies. EPA also believes that this 
proposed rule would encourage the development and limited use of more 
advanced technologies, such as PHEVs and EVs.
    In developing the proposed standard, EPA built on the technical 
work performed by the State of California during its development of its 
statewide GHG program. EPA began by evaluating a nationwide CAA 
standard for MY 2016 that would require the levels of technology 
upgrade, across the country, which California standards would require 
for the subset of vehicles sold in California under Pavley 1. In 
essence, EPA evaluated the stringency of the California Pavley 1 
program but for a national standard. As mentioned above, and as 
described in detail in Section II.C of this preamble and Chapter 3 of 
the Joint TSD, one of the important technical documents included in EPA 
and NHTSA's assessment of vehicle technology effectiveness and costs 
was the 2004 NESCCAF report which was the technical foundation for 
California's Pavley 1 standard. However, in order to evaluate the 
impact of standards with similar stringency on a national basis to the 
California program EPA chose not to evaluate the specific California 
standards for several reasons. First, California's standards are 
universal standards (one for cars and one for trucks), while EPA is 
proposing attribute-based standards using vehicle footprint. Second, 
California's definitions of what vehicles are classified as cars and 
which are classified as trucks are different from those used by NHTSA 
for CAFE purposes and different from EPA's proposed classifications in 
this notice (which harmonizes with the CAFE definitions). In addition, 
there has been progress in the refinement of the estimation of the 
effectiveness and cost estimation for technologies which can be applied 
to cars and trucks since the California analysis in 2004 which could 
lead to different relative stringencies between cars and trucks than 
what California determined for its Pavley 1 program. There have also 
been improvements in the fuel economy and CO2 performance of 
the actual new vehicle fleet since California's 2004 analysis which EPA 
wanted to reflect in our current assessment. For these reasons, EPA 
developed an assessment of an equivalent national new vehicle fleet-
wide CO2 performance standards for model year 2016 which 
would result in the new vehicle fleet in the State of California having 
CO2 performance equal to the performance from the California 
Pavley 1 standards. This assessment is documented in Chapter 3.1 of the 
DRIA. The results of this assessment predicts that a national light-
duty vehicle fleet which adopts technology that achieves performance of 
250 g/mile CO2 for model year 2016 would result in vehicles 
sold in California that would achieve the CO2 performance 
equivalent to the Pavley 1 standards.
    EPA then analyzed a level of 250 g/mi CO2 in 2016 using 
the OMEGA model, and the car and truck footprint curves relative 
stringency discussed in Section II to determine what technology would 
be needed to achieve a fleet wide average of 250 g/mi CO2. 
As discussed later in this section we believe this level of technology 
application to the light-duty vehicle fleet can be achieved in this 
time frame, that such standards will produce significant reductions in 
GHG emissions, and that the costs for both the industry and the costs 
to the consumer are reasonable. EPA also developed standards for the 
model years 2012 through 2015 that lead up to the 2016 level.
    EPA's independent technical assessment of the technical feasibility 
of the proposed MY2012-2016 standards is described below. EPA has also 
evaluated a set of alternative standards for these model years, one 
that is more stringent than the proposed standards and one that is less 
stringent. The technical feasibility of these alternative standards is 
discussed at the end of this section.
    Evaluating the feasibility of these standards primarily includes 
identifying available technologies and assessing their effectiveness, 
cost, and impact on relevant aspects of vehicle performance and 
utility. The wide number of technologies which are available and likely 
to be used in combination requires a more sophisticated assessment of 
their combined cost and effectiveness. An important factor is also the 
degree that these technologies are already being used in the current 
vehicle fleet and thus, unavailable for use to improve energy 
efficiency beyond current levels. Finally, the challenge for 
manufacturers to design the technology

[[Page 49541]]

into their products, and the appropriate lead time needed to employ the 
technology over the product line of the industry must be considered.
    Applying these technologies efficiently to the wide range of 
vehicles produced by various manufacturers is a challenging task. In 
order to assist in this task, EPA has developed a computerized model 
called the Optimization Model for reducing Emissions of Greenhouse 
gases from Automobiles (OMEGA) model. Broadly, the model starts with a 
description of the future vehicle fleet, including manufacturer, sales, 
base CO2 emissions, footprint and the extent to which 
emission control technologies are already employed. For the purpose of 
this analysis, over 200 vehicle platforms were used to capture the 
important differences in vehicle and engine design and utility of 
future vehicle sales of roughly 16 million units in the 2016 timeframe. 
The model is then provided with a list of technologies which are 
applicable to various types of vehicles, along with their cost and 
effectiveness and the percentage of vehicle sales which can receive 
each technology during the redesign cycle of interest. The model 
combines this information with economic parameters, such as fuel prices 
and a discount rate, to project how various manufacturers would apply 
the available technology in order to meet various levels of emission 
control. The result is a description of which technologies are added to 
each vehicle platform, along with the resulting cost. While OMEGA can 
apply technologies which reduce CO2 emissions and HFC 
refrigerant emissions associated with air conditioner use, this task is 
currently handled outside of the OMEGA model. The model can be set to 
account for various types of compliance flexibilities, such as FFV 
credits.
    EPA invites comment on all aspects of this feasibility assessment. 
Both the OMEGA model and its inputs have been placed in the docket to 
this proposed rule and available for review.
    The remainder of this section describes the technical feasibility 
analysis in greater detail. Section III.D.1 describes the development 
of our projection of the MY 2012-2016 fleet in the absence of this 
proposed rule. Section III.D.2 describes our estimates of the 
effectiveness and cost of the control technologies available for 
application in the 2012-2016 timeframe. Section III.D.3 combines these 
technologies into packages likely to be applied at the same time by a 
manufacturer. In this section, the overall effectiveness of the 
technology packages vis-[agrave]-vis their effectiveness when combined 
individually is described. Section III.D.4 describes the process which 
manufacturers typically use to apply new technology to their vehicles. 
Section III.D.5 describes EPA's OMEGA model and its approach to 
estimating how manufacturers would add technology to their vehicles in 
order to comply with CO2 emission standards. Section III.D.6 
presents the results of the OMEGA modeling, namely the level of 
technology added to manufacturers' vehicles and its cost. Section 
III.D.7 discusses the feasibility of the alternative 4-percent-per-year 
and 6-percent-per-year standards. Further detail on all of these issues 
can be found in EPA and NHTSA's draft Joint Technical Support Document 
as well as EPA's draft Regulatory Impact Analysis.
1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating Further 
CO2 Reductions?
    In order to calculate the impacts of this proposed regulation, it 
is necessary to project the GHG emissions characteristics of the future 
vehicle fleet absent this proposed regulation. This is called the 
``reference'' fleet. EPA developed this reference fleet by determining 
the characteristics of a specific model year (in this case, 2008) of 
vehicles, called the baseline fleet, and then projecting what changes 
if any would be made to these vehicles to comply with the MY2011 CAFE 
standards. Thus, the MY 2008 fleet is our ``baseline fleet,'' and the 
projection of the baseline to MY 2011-2016 is called the ``reference 
fleet.''
    EPA used 2008 model year vehicles as the basis for its baseline 
fleet. 2008 model year is the most recent model year for which data is 
publicly available. Sources of data for the baseline include the EPA 
vehicle certification data, Ward's Automotive Group data, 
Motortrend.com, Edmunds.com, manufacturer product plans, and other 
sources to a lesser extent (such as articles about specific vehicles) 
revealed from Internet search engine research. EPA then projects this 
fleet out to the 2016 MY, taking into account factors such as changes 
in overall sales volume. Section II.B describes the development of the 
EPA reference fleet, and further details can be found in Section II.B 
of this preamble and Chapter 1 of the Draft Joint TSD.
    The light-duty vehicle market is currently in a state of flux due 
to the volatility in fuel prices over the past several years and the 
current economic downturn. These factors have changed the relative 
sales of the various types of light-duty vehicles marketed, as well as 
total sales volumes. EPA and NHTSA desire to account for these changes 
to the degree possible in our forecast of the make-up of the future 
vehicle fleet. EPA wants to include improvements in fuel economy 
associated with the existing CAFE program. It is possible that 
manufacturers could increase fuel economy beyond the level of the 2011 
MY CAFE standards for marketing purposes. However, it is difficult to 
separate fuel economy improvements in those years for marketing 
purposes from those designed to facilitate compliance with anticipated 
CAFE or CO2 emission standards. Thus, EPA limits fuel 
economy improvements in the reference fleet to those projected to 
result from the existing CAFE standards. The addition of technology to 
the baseline fleet so that it complies with the MY 2011 CAFE standards 
is described later in Section III.D.4, as this uses the same 
methodology used to project compliance with the proposed CO2 
emission standards. In summary, the reference fleet represents vehicle 
characteristics and sales in the 2012 and later model years absent this 
proposed rule. Technology is then added to these vehicles in order to 
reduce CO2 emissions to achieve compliance with the proposed 
CO2 standards. EPA did not factor in any changes to vehicle 
characteristics or sales in projecting manufacturers' compliance with 
this proposal.
    After the reference fleet is created, the next step aggregates 
vehicle sales by a combination of manufacturer, vehicle platform, and 
engine design. As discussed in Section III.D.4 below, manufacturers 
implement major design changes at vehicle redesign and tend to 
implement these changes across a vehicle platform. Because the cost of 
modifying the engine depends on the valve train design (such as SOHC, 
DOHC, etc.), the number of cylinders and in some cases head design, the 
vehicle sales are broken down beyond the platform level to reflect 
relevant engine differences. The vehicle groupings are shown in Table 
III.D.1-1.

[[Page 49542]]



                 Table III.D.1-1--Vehicle Groupings \a\
------------------------------------------------------------------------
                                  Vehicle        Vehicle        Vehicle
      Vehicle description           type       description        type
------------------------------------------------------------------------
Large SUV (Car) V8+ OHV........         13  Subcompact Auto            1
                                             I4.
Large SUV (Car) V6 4v..........         16  Large Pickup V8+          19
                                             DOHC.
Large SUV (Car) V6 OHV.........         12  Large Pickup V8+          14
                                             SOHC 3v.
Large SUV (Car) V6 2v SOHC.....          9  Large Pickup V8+          13
                                             OHV.
Large SUV (Car) I4 and I5......          7  Large Pickup V8+          10
                                             SOHC.
Midsize SUV (Car) V6 2v SOHC...          8  Large Pickup V6           18
                                             DOHC.
Midsize SUV (Car) V6 S/DOHC 4v.          5  Large Pickup V6           12
                                             OHV.
Midsize SUV (Car) I4...........          7  Large Pickup V6           11
                                             SOHC 2v.
Small SUV (Car) V6 OHV.........         12  Large Pickup I4 S/         7
                                             DOHC.
Small SUV (Car) V6 S/DOHC......          4  Small Pickup V6           12
                                             OHV.
Small SUV (Car) I4.............          3  Small Pickup V6            8
                                             2v SOHC.
Large Auto V8+ OHV.............         13  Small Pickup I4..          7
Large Auto V8+ SOHC............         10  Large SUV V8+             17
                                             DOHC.
Large Auto V8+ DOHC, 4v SOHC...          6  Large SUV V8+             14
                                             SOHC 3v.
Large Auto V6 OHV..............         12  Large SUV V8+ OHV         13
Large Auto V6 SOHC 2/3v........          5  Large SUV V8+             10
                                             SOHC.
Midsize Auto V8+ OHV...........         13  Large SUV V6 S/           16
                                             DOHC 4v.
Midsize Auto V8+ SOHC..........         10  Large SUV V6 OHV.         12
Midsize Auto V7+ DOHC, 4v SOHC.          6  Large SUV V6 SOHC          9
                                             2v.
Midsize Auto V6 OHV............         12  Large SUV I4/....          7
Midsize Auto V6 2v SOHC........          8  Midsize SUV V6            12
                                             OHV.
Midsize Auto V6 S/DOHC 4v......          5  Midsize SUV V6 2v          8
                                             SOHC.
Midsize Auto I4................          3  Midsize SUV V6 S/          5
                                             DOHC 4v.
Compact Auto V7+ S/DOHC........          6  Midsize SUV I4 S/          7
                                             DOHC.
Compact Auto V6 OHV............         12  Small SUV V6 OHV.         12
Compact Auto V6 S/DOHC 4v......          4  Minivan V6 S/DOHC         16
Compact Auto I5................          7  Minivan V6 OHV...         12
Compact Auto I4................          2  Minivan I4.......          7
Subcompact Auto V8+ OHV........         13  Cargo Van V8+ OHV         13
Subcompact Auto V8+ S/DOHC.....          6  Cargo Van V8+             10
                                             SOHC.
Subcompact Auto V6 2v SOHC.....          8  Cargo Van V6 OHV.         12
Subcompact Auto I5/V6 S/DOHC 4v          4  .................  .........
------------------------------------------------------------------------
\a\ I4 = 4 cylinder engine, I5 = 5 cylinder engine, V6, V7, and V8 = 6,
  7, and 8 cylinder engines, respectively, DOHC = Double overhead cam,
  SOHC = Single overhead cam, OHV = Overhead valve, v = number of valves
  per cylinder, ``/'' = and, ``+'' = or larger.

    As mentioned above, the second factor which needs to be considered 
in developing a reference fleet against which to evaluate the impacts 
of this proposed rule is the impact of the 2011 MY CAFE standards, 
which were published earlier this year. Since the vehicles which 
comprise the above reference fleet are those sold in the 2008 MY, when 
coupled with our sales projections, they do not necessarily meet the 
2011 MY CAFE standards.
    The levels of the 2011 MY CAFE standards are straightforward to 
apply to future sales fleets, as is the potential fine-paying 
flexibility afforded by the CAFE program (i.e., $55 per mpg of 
shortfall). However, projecting some of the compliance flexibilities 
afforded by EISA and the CAFE program are less clear. Two of these 
compliance flexibilities are relevant to EPA's analysis: (1) The credit 
for FFVs, and (2) the limit on the transferring of credits between car 
and truck fleets. The FFV credit is limited to 1.2 mpg in 2011 and EISA 
gradually reduces this credit, to 1.0 mpg in 2015 and eventually to 
zero in 2020. In contrast, the limit on car truck transfer is limited 
to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 
2015 and then to 2.0 mpg beginning in 2020. The question here is 
whether to hold the 2011 MY CAFE provisions constant in the future or 
incorporate the changes in the FFV credit and car-truck credit trading 
limits contained in EISA.
    EPA decided to hold the 2011 MY limits on FFV credit and car-truck 
credit trading constant in projecting the fuel economy and 
CO2 emission levels of vehicles in our reference case. This 
approach treats the changes in the FFV credit and car-truck credit 
trading provisions consistently with the other EISA-mandated changes in 
the CAFE standards themselves. All EISA provisions relevant to 2011 MY 
vehicles are reflected in our reference case fleet, while all post-2011 
MY provisions are not. Practically, relative to the alternative, this 
increases both the cost and benefit of the proposed standards. In our 
analysis of this proposed rule, any quantified benefits from the 
presence of FFVs in the fleet are not considered. Thus, the only impact 
of the FFV credit is to reduce onroad fuel economy. By assuming that 
the FFV credit stays at 1.2 mpg in the future absent this rule, the 
assumed level of onroad fuel economy that would occur absent this 
proposal is reduced. As this proposal eliminates the FFV credit 
starting in 2016, the net result is to increase the projected level of 
fuel savings from our proposed standards. Similarly, the higher level 
of FFV credit reduces projected compliance cost for manufacturers to 
meet the 2011 MY standards in our reference case. This increases the 
projected cost of meeting the proposed 2012 and later standards.
    As just implied, EPA needs to project the technology (and resultant 
costs) required for the 2008 MY vehicles to comply with the 2011 MY 
CAFE standards in those cases where they do not automatically do so. 
The technology and costs are projected using the same methodology that 
projects compliance with the proposed 2012 and later CO2 
standards. The description of this process is described in the 
following four sections.
    A more detailed description of the methodology used to develop 
these sales projections can be found in the Draft Joint TSD. Detailed 
sales projections by model year and manufacturer can also be found in 
the TSD. EPA requests comments on both

[[Page 49543]]

the methodology used to develop the reference fleet, as well as the 
characteristics of the reference fleet.
2. What Are the Effectiveness and Costs of CO2-Reducing 
Technologies?
    EPA and NHTSA worked together to jointly develop information on the 
effectiveness and cost of the CO2-reducing technologies, and 
fuel economy-improving technologies, other than A/C related control 
technologies. This joint work is reflected in Chapter 3 of the Draft 
Joint TSD and in Section II of this preamble. A summary of the 
effectiveness and cost of A/C related technology is contained here. For 
more detailed information on the effectiveness and cost of A/C related 
technology, please refer to Section III.C of this preamble and Chapter 
2 of EPA's DRIA.
    A/C improvements are an integral part of EPA's technology analysis 
and have been included in this section along with the other technology 
options. While discussed in Section III.C as a credit opportunity, air 
conditioning-related improvements are included in Table III.D.2-
1.because A/C improvements are a very cost-effective technology at 
reducing CO2 (or CO2-equivalent) emissions. EPA 
expects most manufacturers will choose to use AC improvement credit 
opportunities as a strategy for meeting compliance with the 
CO2 standards. Note that the costs shown in Table III.D.2-1 
do not include maintenance savings that would be expected from the new 
AC systems. Further, EPA does not include AC-related maintenance 
savings in our cost and benefit analysis presented in Section III.H. 
EPA discusses the likely maintenance savings in Chapter 2 of the DRIA 
and requests comment on that discussion because we may include 
maintenance savings in the final rule and would like to have the best 
information available in order to do so. The EPA approximates that the 
level of the credits earned will increase from 2012 to 2016 as more 
vehicles in the fleet are redesigned. The penetrations and average 
levels of credit are summarized in Table III.D.2-2, though the 
derivation of these numbers (and the breakdown of car vs. truck 
credits) is described in the DRIA. As demonstrated in the IMAC study 
(and described in Section III.C as well as the DRIA), these levels are 
feasible and achievable with technologies that are available and cost-
effective today.
    These improvements are categorized as either leakage reduction, 
including use of alternative refrigerants, or system efficiency 
improvements. Unlike the majority of the technologies described in this 
section, A/C improvements will not be demonstrated in the test cycles 
used to quantify CO2 reductions in this proposal. As 
described earlier, for this analysis A/C-related CO2 
reductions are handled outside of OMEGA model and therefore their 
CO2 reduction potential is expressed in grams per mile 
rather than a percentage used by the OMEGA model. See Section III.C for 
the method by which potential reductions are calculated or measured. 
Further discussion of the technological basis for these improvements is 
included in Chapter 2 of the DRIA.

  Table III.D.2-1--Total CO2 Reduction Potential and 2016 Cost for A/C
              Related Technologies for All Vehicle Classes
                         [Costs in 2007 dollars]
------------------------------------------------------------------------
                                    CO2 reduction         Incremental
                                      potential         compliance costs
------------------------------------------------------------------------
A/C refrigerant leakage         7.5 g/mi \161\.......                $17
 reduction.
A/C efficiency improvements...  5.7 g/mi.............                 53
------------------------------------------------------------------------


 Table III.D.2-2 A/C Related Tech- nology Penetration and Credit Levels
                          Expected To Be Earned
------------------------------------------------------------------------
                                            Technology        Average
                                            penetration    credit  over
                                             (Percent)     entire  fleet
------------------------------------------------------------------------
2012....................................              25             3.1
2013....................................              40             5.0
2014....................................              60             7.5
2015....................................              80            10.0
2016....................................              85            10.6
------------------------------------------------------------------------

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

    \161\ This represents 50% improvement in leakage and thus 50% of 
the A/C leakage impact potential compared to a maximum of 15 g/mi 
credit that can be achieved through the incorporation of a low very 
GWP refrigerant.
---------------------------------------------------------------------------

    Therefore, the approach taken here is to group technologies into 
packages of increasing cost and effectiveness. EPA determined that 19 
different vehicle types provided adequate representation to accurately 
model the entire fleet. This was the result of analyzing the existing 
light duty fleet with respect to vehicle size and powertrain 
configurations. All vehicles, including cars and trucks, were first 
distributed based on their relative size, starting from compact cars 
and working upward to large trucks. Next, each vehicle was evaluated 
for powertrain, specifically the engine size, I4, V6, and V8, and 
finally by the number of valves per cylinder. Note that each of these 
19 vehicle types was mapped into one of the five classes of vehicles 
mentioned in Section III.D.2. While the five classes provide adequate 
representation for the cost basis associated with most technology 
application, they do not adequately account for all existing vehicle 
attributes such as base vehicle powertrain configuration and mass 
reduction. As an example, costs and effectiveness estimates for engine 
friction reduction for the small car class were used to represent cost 
and effectiveness for three vehicle types: Subcompact cars, compact 
cars, and small multi-purpose vehicles (MPV) equipped with a 4-cylinder 
engine, however the mass reduction associated for each of these vehicle 
types was based on the vehicle type sales-weighted average. In another 
example, a vehicle type for V8 single overhead cam 3-valve engines was 
created to properly account for the incremental cost in moving to a 
dual overhead cam 4-valve

[[Page 49544]]

configuration. Note also that these 19 vehicle types span the range of 
vehicle footprints--smaller footprints for smaller vehicles and larger 
footprints for larger vehicles--which serve as the basis for the 
standards proposed in this rule. A complete list of vehicles and their 
associated vehicle types is shown above in Table III.D.1-1.
    Within each of the 19 vehicle types multiple technology packages 
were created in increasing technology content and, hence, increasing 
effectiveness. Important to note is that the effort in creating the 
packages attempted to maintain a constant utility for each package as 
compared to the baseline package. As such, each package is meant to 
provide equivalent driver-perceived performance to the baseline 
package. The initial packages represent what a manufacturer will most 
likely implement on all vehicles, including low rolling resistance 
tires, low friction lubricants, engine friction reduction, aggressive 
shift logic, early torque converter lock-up, improved electrical 
accessories, and low drag brakes.\162\ Subsequent packages include 
advanced gasoline engine and transmission technologies such as turbo/
downsizing, GDI, and dual-clutch transmission. The most technologically 
advanced packages within a segment included HEV, PHEV and EV designs. 
The end result being a list of several packages for each of 19 
different vehicle types from which a manufacturer could choose in order 
to modify its fleet such that compliance could be achieved.
---------------------------------------------------------------------------

    \162\ When making reference to low friction lubricants, the 
technology being referred to is the engine changes and possible 
durability testing that would be done to accommodate the low 
friction lubricants, not the lubricants themselves.
---------------------------------------------------------------------------

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

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

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

[[Page 49545]]



    Table III.D.3-2--CO2 Reducing Technology Vehicle Packages for a Large Car Effectiveness and Costs in 2016
                                             [Costs in 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                            Transmission                                    CO2        Package
         Engine  technology                  technology         Additional  technology   reduction       cost
----------------------------------------------------------------------------------------------------------------
3.3L V6.............................  4 speed automatic......  None...................          Baseline
                                                                                       -------------------------
3.0L V6 + GDI + CCP.................  6 speed automatic......  3% Mass Reduction......        17.9%       $1,022
3.0L V6 + GDI + CCP + Deac..........  6 speed automatic......  5% Mass Reduction......         20.6        1,280
3.0L V6 + GDI + CCP + Deac..........  6 speed DCT............  10% Mass Reduction              34.2        2,108
                                                                Start-Stop.
2.2L I4 + GDI + Turbo + DCP.........  6 speed DCT............  10% Mass Reduction              34.3        2,245
                                                                Start-Stop.
----------------------------------------------------------------------------------------------------------------

4. Manufacturers' Application of Technology
    Vehicle manufacturers often introduce major product changes 
together, as a package. In this manner the manufacturers can optimize 
their available resources, including engineering, development, 
manufacturing and marketing activities to create a product with 
multiple new features. In addition, manufacturers recognize that a 
vehicle will need to remain competitive over its intended life, meet 
future regulatory requirements, and contribute to a manufacturer's CAFE 
requirements. Furthermore, automotive manufacturers are largely focused 
on creating vehicle platforms to limit the development of entirely new 
vehicles and to realize economies of scale with regard to variable 
cost. In very limited cases, manufacturers may implement an individual 
technology outside of a vehicle's redesign cycle. In following with 
these industry practices, EPA has created a set of vehicle technology 
packages that represent the entire light duty fleet.
    EPA has historically allowed manufacturers of new vehicles or 
nonroad equipment to phase in available emission control technology 
over a number of years. Examples of this are EPA's Tier 2 program for 
cars and light trucks and its 2007 and later PM and NOX 
emission standards for heavy-duty vehicles. In both of these rules, the 
major modifications expected from the rules were the addition of 
exhaust aftertreatment control technologies. Some changes to the engine 
were expected as well, but these were not expected to affect engine 
size, packaging or performance. The CO2 reduction 
technologies described above potentially involve much more significant 
changes to car and light truck designs. Many of the engine technologies 
involve changes to the engine block and heads. The transmission 
technologies could change the size and shape of the transmission and 
thus, packaging. Improvements to aerodynamic drag could involve body 
design and therefore, the dies used to produce body panels. Changes of 
this sort potentially involve new capital investment and the 
obsolescence of existing investment.
    At the same time, vehicle designs are not static, but change in 
major ways periodically. The manufacturers' product plans indicate that 
vehicles are usually redesigned every 5 years on average. Vehicles also 
tend to receive a more modest ``refresh'' between major redesigns, as 
discussed above. Because manufacturers are already changing their 
tooling, equipment and designs at these times, further changes to 
vehicle design at these times involve a minimum of stranded capital 
equipment. Thus, the timing of any major technological changes is 
projected to coincide with changes that manufacturers would already 
tend to be making to their vehicles. This approach effectively avoids 
the need to quantify any costs associated with discarding equipment, 
tooling, emission and safety certification, etc. when CO2-
reducing equipment is incorporated into a vehicle.
    This proposed rule affects five years of vehicle production, model 
years 2012-2016. Given the now-typical five-year redesign cycle, nearly 
all of a manufacturer's vehicles will be redesigned over this period. 
However, this assumes that a manufacturer has sufficient lead time to 
redesign the first model year affected by this proposed rule with the 
requirements of this proposed rule in mind. In fact, the lead time 
available for model year 2012 is relatively short. The time between a 
likely final rule and the start of 2013 model year production is likely 
to be just over two years. At the same time, the manufacturer product 
plans indicate that they are planning on introducing many of the 
technologies projected to be required by this proposed rule in both 
2012 and 2013. In order to account for the relatively short lead time 
available prior to the 2012 and 2013 model years, albeit mitigated by 
their existing plans, EPA projects that only 85 percent of each 
manufacturer's sales will be able to be redesigned with major 
CO2 emission-reducing technologies by the 2016 model year. 
Less intrusive technologies can be introduced into essentially all a 
manufacturer's sales. This resulted in three levels of technology 
penetration caps, by manufacturer. Common technologies (e.g., low 
friction lubes, aerodynamic improvements) had a penetration cap of 
100%. More advanced powertrain technologies (e.g., stoichiometric GDI, 
turbocharging) had a penetration cap of 85%. The most advanced 
technologies considered in this analysis (e.g., diesel engines, as well 
as IMA, powersplit and 2-mode hybrids) had a 15% penetration cap.
5. How Is EPA Projecting That a Manufacturer Would Decide Between 
Options To Improve CO2 Performance To Meet a Fleet Average 
Standard?
    There are many ways for a manufacturer to reduce CO2-
emissions from its vehicles. A manufacturer can choose from a myriad of 
CO2 reducing technologies and can apply one or more of these 
technologies to some or all of its vehicles. Thus, for a variety of 
levels of CO2 emission control, there are an almost infinite 
number of technology combinations which produce the desired 
CO2 reduction. EPA has created a new vehicle model, the 
Optimization Model for Emissions of Greenhouse gases from Automobiles 
(OMEGA) in order to make a reasonable estimate of how manufacturers 
will add technologies to vehicles in order to meet a fleet-wide 
CO2 emissions level. EPA has described OMEGA's specific 
methodologies and algorithms in a memo to the docket for this 
rulemaking (Docket EPA-HQ-OAR-2009-0472).
    The OMEGA model utilizes four basic sets of input data. The first 
is a description of the vehicle fleet. The key pieces of data required 
for each vehicle are its manufacturer, CO2 emission level, 
fuel type, projected sales and footprint. The model also requires that

[[Page 49546]]

each vehicle be assigned to one of the 19 vehicle types, which tells 
the model which set of technologies can be applied to that vehicle. 
(For a description of how the 19 vehicle types were created, reference 
Section III.D.3.) In addition, the degree to which each vehicle already 
reflects the effectiveness and cost of each available technology must 
also be input. This avoids the situation, for example, where the model 
might try to add a basic engine improvement to a current hybrid 
vehicle. Except for this type of information, the development of the 
required data regarding the reference fleet was described in Section 
III.D.1 above and in Chapter 1 of the Draft Joint TSD.
    The second type of input data used by the model is a description of 
the technologies available to manufacturers, primarily their cost and 
effectiveness. Note that the five vehicle classes are not explicitly 
used by the model, rather the costs and effectiveness associated with 
each vehicle package is based on the associated class. This information 
was described in Sections III.D.2 and III.D.3 above as well as Chapter 
3 of the Draft Joint TSD. In all cases, the order of the technologies 
or technology packages for a particular vehicle type is determined by 
the model user prior to running the model. Several criteria can be used 
to develop a reasonable ordering of technologies or packages. These are 
described in the Draft Joint TSD.
    The third type of input data describes vehicle operational data, 
such as annual scrap rates and mileage accumulation rates, and economic 
data, such as fuel prices and discount rates. These estimates are 
described in Section II.F above, Section III.H below and Chapter 4 of 
the Draft Joint TSD.
    The fourth type of data describes the CO2 emission 
standards being modeled. These include the CO2 emission 
equivalents of the 2011 MY CAFE standards and the proposed 
CO2 standards for 2016. As described in more detail below, 
the application of A/C technology is evaluated in a separate analysis 
from those technologies which impact CO2 emissions over the 
2-cycle test procedure. Thus, for the percent of vehicles that are 
projected to achieve A/C related reductions, the CO2 credit 
associated with the projected use of improved A/C systems is used to 
adjust the proposed CO2 standard which would be applicable 
to each manufacturer to develop a target for CO2 emissions 
over the 2-cycle test which is assessed in our OMEGA modeling.
    As mentioned above for the market data input file utilized by 
OMEGA, which characterizes the vehicle fleet, our modeling must and 
does account for the fact that many 2008 MY vehicles are already 
equipped with one or more of the technologies discussed in Section 
III.D.2 above. Because of the choice to apply technologies in packages, 
and 2008 vehicles are equipped with individual technologies in a wide 
variety of combinations, accounting for the presence of specific 
technologies in terms of their proportion of package cost and 
CO2 effectiveness requires careful, detailed analysis. The 
first step in this analysis is to develop a list of individual 
technologies which are either contained in each technology package, or 
would supplant the addition of the relevant portion of each technology 
package. An example would be a 2008 MY vehicle equipped with variable 
valve timing and a 6-speed automatic transmission. The cost and 
effectiveness of variable valve timing would be considered to be 
already present for any technology packages which included the addition 
of variable valve timing or technologies which went beyond this 
technology in terms of engine related CO2 control 
efficiency. An example of a technology which supplants several 
technologies would be a 2008 MY vehicle which was equipped with a 
diesel engine. The effectiveness of this technology would be considered 
to be present for technology packages which included improvements to a 
gasoline engine, since the resultant gasoline engines have a lower 
CO2 control efficiency than the diesel engine. However, if 
these packages which included improvements also included improvements 
unrelated to the engine, like transmission improvements, only the 
engine related portion of the package already present on the vehicle 
would be considered. The transmission related portion of the package's 
cost and effectiveness would be allowed to be applied in order to 
comply with future CO2 emission standards.
    The second step in this process is to determine the total cost and 
CO2 effectiveness of the technologies already present and 
relevant to each available package. Determining the total cost usually 
simply involves adding up the costs of the individual technologies 
present. In order to determine the total effectiveness of the 
technologies already present on each vehicle, the lumped parameter 
model described above is used. Because the specific technologies 
present on each 2008 vehicle are known, the applicable synergies and 
dis-synergies can be fully accounted for.
    The third step in this process is to divide the total cost and 
CO2 effectiveness values determined in step 2 by the total 
cost and CO2 effectiveness of the relevant technology 
packages. These fractions are capped at a value of 1.0 or less, since a 
value of 1.0 causes the OMEGA model to not change either the cost or 
CO2 emissions of a vehicle when that technology package is 
added.
    As described in Section III.D.3 above, technology packages are 
applied to groups of vehicles which generally represent a single 
vehicle platform and which are equipped with a single engine size 
(e.g., compact cars with four cylinder engine produced by Ford). These 
groupings are described in Table III.D.1-1. Thus, the fourth step is to 
combine the fractions of the cost and effectiveness of each technology 
package already present on the individual 2008 vehicles models for each 
vehicle grouping. For cost, percentages of each package already present 
are combined using a simple sales-weighting procedure, since the cost 
of each package is the same for each vehicle in a grouping. For 
effectiveness, the individual percentages are combined by weighting 
them by both sales and base CO2 emission level. This 
appropriately weights vehicle models with either higher sales or 
CO2 emissions within a grouping. Once again, this process 
prevents the model from adding technology which is already present on 
vehicles, and thus ensures that the model does not double count 
technology effectiveness and cost associated with complying with the 
2011 MY CAFE standards and the proposed CO2 standards.
    Conceptually, the OMEGA model begins by determining the specific 
CO2 emission standard applicable for each manufacturer and 
its vehicle class (i.e., car or truck). Since the proposed rule allows 
for averaging across a manufacturer's cars and trucks, the model 
determines the CO2 emission standard applicable to each 
manufacturer's car and truck sales from the two sets of coefficients 
describing the piecewise linear standard functions for cars and trucks 
in the inputs, and creates a combined car-truck standard. This combined 
standard considers the difference in lifetime VMT of cars and trucks, 
as indicated in the proposed regulations which would govern credit 
trading between these two vehicle classes. For both the 2011 CAFE and 
2016 CO2 standards, these standards are a function of each 
manufacturer's sales of cars and trucks and their footprint values. 
When evaluating the 2011 MY CAFE standards, the car-truck trading was 
limited to 1.2 mpg. When evaluating the proposed CO2 
standards, the OMEGA model was run only for MY 2016. OMEGA is designed 
to evaluate technology addition over a complete

[[Page 49547]]

redesign cycle and 2016 represents the final year of a redesign cycle 
starting with the first year of the proposed CO2 standards, 
2012. Estimates of the technology and cost for the interim model years 
are developed from the model projections made for 2016. This process is 
discussed in Chapter 6 of EPA's DRIA to this proposed rule. When 
evaluating the 2016 standards using the OMEGA model, the proposed 
CO2 standard which manufacturers would otherwise have to 
meet to account for the anticipated level of A/C credits generated was 
adjusted. On an industry wide basis, the projection shows that 
manufacturers would generate 11 g/mi of A/C credit in 2016. Thus, the 
2016 CO2 target for the fleet evaluated using OMEGA was 261 
g/mi instead of 250 g/mi.
    The cost of the improved A/C systems required to generate the 11 g/
mi credit was estimated separately. This is consistent with our 
proposed A/C credit procedures, which would grant manufacturers A/C 
credits based on their total use of improved A/C systems, and not on 
the increased use of such systems relative to some base model year 
fleet. Some manufacturers may already be using improved A/C technology. 
However, this represents a small fraction of current vehicle sales. To 
the degree that such systems are already being used, EPA is over-
estimating both the cost and benefit of the addition of improved A/C 
technology relative to the true reference fleet to a small degree.
    The model then works with one manufacturer at a time to add 
technologies until that manufacturer meets its applicable standard. The 
OMEGA model can utilize several approaches to determining the order in 
which vehicles receive technologies. For this analysis, EPA used a 
``manufacturer-based net cost-effectiveness factor'' to rank the 
technology packages in the order in which a manufacturer would likely 
apply them. Conceptually, this approach estimates the cost of adding 
the technology from the manufacturer's perspective and divides it by 
the mass of CO2 the technology will reduce. One component of 
the cost of adding a technology is its production cost, as discussed 
above. However, it is expected that new vehicle purchasers value 
improved fuel economy since it reduces the cost of operating the 
vehicle. Typical vehicle purchasers are assumed to value the fuel 
savings accrued over the period of time which they will own the 
vehicle, which is estimated to be roughly five years. It is also 
assumed that consumers discount these savings at the same rate as that 
used in the rest of the analysis (3 or 7 percent). Any residual value 
of the additional technology which might remain when the vehicle is 
sold is not considered. The CO2 emission reduction is the 
change in CO2 emissions multiplied by the percentage of 
vehicles surviving after each year of use multiplied by the annual 
miles travelled by age, again discounted to the year of vehicle 
purchase.
    Given this definition, the higher priority technologies are those 
with the lowest manufacturer-based net cost-effectiveness value 
(relatively low technology cost or high fuel savings leads to lower 
values). Because the order of technology application is set for each 
vehicle, the model uses the manufacturer-based net cost-effectiveness 
primarily to decide which vehicle receives the next technology 
addition. Initially, technology package 1 is the only one 
available to any particular vehicle. However, as soon as a vehicle 
receives technology package 1, the model considers the 
manufacturer-based net cost-effectiveness of technology package 
2 for that vehicle and so on. In general terms, the equation 
describing the calculation of manufacturer-based cost effectiveness is 
as follows:
[GRAPHIC] [TIFF OMITTED] TP28SE09.013

Where:

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

    EPA describes the technology ranking methodology and manufacturer-
based cost effectiveness metric in greater detail in a technical memo 
to the Docket for this proposed rule (Docket EPA-HQ-OAR-2009-0472).
    When calculating the fuel savings, the full retail price of fuel, 
including taxes is used. While taxes are not generally included when 
calculating the cost or benefits of a regulation, the net cost 
component of the manufacturer-based net cost-effectiveness equation is 
not a measure of the social cost of this proposal, but a measure of the 
private cost, (i.e., a measure of the vehicle purchaser's willingness 
to pay more for a vehicle with higher fuel efficiency). Since vehicle 
operators pay the full price of fuel, including taxes, they value fuel 
costs or savings at this level, and the manufacturers will consider 
this when choosing among the technology options.
    This definition of manufacturer-based net cost-effectiveness 
ignores any change in the residual value of the vehicle due to the 
additional technology when the vehicle is five years old. As discussed 
in Chapter 1of the DRIA, based on historic used car pricing, applicable 
sales taxes, and insurance, vehicles are worth roughly 23% of their 
original cost after five years, discounted to year of vehicle purchase 
at 7% per annum. It is reasonable to estimate that the added technology 
to improve CO2 level and fuel economy would retain this same 
percentage of value when the vehicle is five years old. However, it is 
less clear whether first purchasers, and thus, manufacturers would 
consider this residual value when ranking technologies and making 
vehicle purchases, respectively. For this proposal, this factor was not 
included in our determination of manufacturer-based net cost-
effectiveness in the analyses performed in support of this proposed 
rule. Comments are requested on the benefit of including an increase

[[Page 49548]]

in the vehicle's residual value after five years in the calculation of 
effective cost.
    The values of manufacturer-based net cost-effectiveness for 
specific technologies will vary from vehicle to vehicle, often 
substantially. This occurs for three reasons. First, both the cost and 
fuel-saving component cost, ownership fuel-savings, and lifetime 
CO2 effectiveness of a specific technology all vary by the 
type of vehicle or engine to which it is being applied (e.g., small car 
versus large truck, or 4-cylinder versus 8-cylinder engine). Second, 
the effectiveness of a specific technology often depends on the 
presence of other technologies already being used on the vehicle (i.e., 
the dis-synergies. Third, the absolute fuel savings and CO2 
reduction of a percentage an incremental reduction in fuel consumption 
depends on the CO2 level of the vehicle prior to adding the 
technology. Chapter 1 of the DRIA of this proposed rule contains 
further detail on the values of manufacturer-based net cost-
effectiveness for the various technology packages.
    EPA requests comment on the use of manufacturer-based net cost-
effectiveness to rank CO2 emission reduction technologies in 
the context of evaluating alternative fleet average standards for this 
rule. EPA believes this manufacturer-based net cost-effectiveness 
metric is appropriate for ranking technology in this proposed program 
because it considers effectiveness values that may vary widely among 
technology packages when determining the order of technology addition. 
Comments are requested on this option and on any others thought to be 
appropriate.
6. Why Are the Proposed CO2 Standards Feasible?
    The finding that the proposed standards would be technically 
feasible is based primarily on two factors. One is the level of 
technology needed to meet the proposed standards. The other is the cost 
of this technology. The focus is on the proposed standards for 2016, as 
this is the most stringent standard and requires the most extensive use 
of technology.
    With respect to the level of technology required to meet the 
standards, EPA established technology penetration caps. As described in 
Section III.D.4, EPA used two constraints to limit the model's 
application of technology by manufacturer. The first was the 
application of common fuel economy enablers such as low rolling 
resistance tires and transmission logic changes. These were allowed to 
be used on all vehicles and hence had no penetration cap. The second 
constraint was applied to most other technologies and limited their 
application to 85% with the exception of the most advanced technologies 
(e.g., powersplit and 2-mode hybrids) whose application was limited to 
15%.
    EPA used the OMEGA model to project the technology (and resultant 
cost) required for manufacturers to meet the current 2011 MY CAFE 
standards and the proposed 2016 MY CO2 emission standards. 
Both sets of standards were evaluated using the OMEGA model. The 2011 
MY CAFE standards were applied to cars and trucks separately with the 
transfer of credits from one category to the other allowed up to an 
increase in fuel economy of 1.0 mpg. Chrysler, Ford and General Motors 
are assumed to utilize FFV credits up to the maximum of 1.2 mpg for 
both their car and truck sales. Nissan is assumed to utilize FFV 
credits up to the maximum of 1.2 mpg for only their truck sales. The 
use of any banked credits from previous model years was not considered. 
The modification of the reference fleet to comply with the 2011 CAFE 
standards through the application of technology by the OMEGA model is 
the final step in creating the final reference fleet. This final 
reference fleet forms the basis for comparison for the model year 2016 
standards.
    Table III.D.6-1 shows the usage level of selected technologies in 
the 2008 vehicles coupled with 2016 sales prior to projecting their 
compliance with the 2011 MY CAFE standards. These technologies include 
converting port fuel-injected gasoline engines to direct injection 
(GDI), adding the ability to deactivate certain engine cylinders during 
low load operation (Deac), adding a turbocharger and downsizing the 
engine (Turbo), increasing the number of transmission speeds to 6 or, 
converting automatic transmissions to dual-clutch automated manual 
transmissions (Dual-Clutch Trans), adding 42 volt start-stop capability 
(Start-Stop), and converting a vehicle to a intermediate or strong 
hybrid design. This last category includes three current hybrid 
designs: integrated motor assist (IMA), power-split (PS) and 2-mode 
hybrids.

                              Table III.D.6-1--Penetration of Technology in 2008 Vehicles With 2016 Sales: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       6 Speed or  Dual clutch
                                                      GDI       GDI+ deac    GDI+ turbo     Diesel      CV trans      trans      Start-stop     Hybrid
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................          6.7          0.0          0.0          0.0         98.8          0.8          0.0          0.1
Chrysler........................................          0.0          0.0          0.0          0.0         27.9          0.0          0.0          0.0
Daimler.........................................          6.2          0.0          0.0          6.2         74.7         11.4          0.0          0.0
Ford............................................          0.6          0.0          0.0          0.0         28.1          0.0          0.0          0.0
General Motors..................................          3.3          0.0          0.0          0.0         13.7          0.0          0.1          0.1
Honda...........................................          1.2          0.0          0.0          0.0          4.2          0.0          0.0          2.1
Hyundai.........................................          0.0          0.0          0.0          0.0          4.9          0.0          0.0          0.0
Kia.............................................          0.0          0.0          0.0          0.0          0.9          0.0          0.0          0.0
Mazda...........................................         11.8          0.0          0.0          0.0         37.1          0.0          0.0          0.0
Mitsubishi......................................          0.0          0.0          0.0          0.0         76.1          0.0          0.0          0.1
Nissan..........................................         17.7          0.0          0.0          0.0         33.3          0.0          0.0          0.0
Porsche.........................................          0.0          0.0          0.0          0.0          3.9          0.0          0.0          0.0
Subaru..........................................          0.0          0.0          0.0          0.0         29.0          0.0          0.0          0.0
Suzuki..........................................          0.0          0.0          0.0          0.0        100.0          0.0          0.0          0.0
Tata............................................          0.0          0.0          0.0          0.0          0.0          0.0          0.0          0.0
Toyota..........................................          7.5          0.0          0.0          0.0         30.6          0.0          0.0         12.8
Volkswagen......................................         52.2          0.0          0.0          0.1         82.8         10.9          0.0          0.0
Overall.........................................          6.4          0.0          0.0          0.1         27.1          0.6          0.0          2.8
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49549]]

    As can be seen, all of these technologies except for the direct 
injection gasoline engines with either cylinder deactivation or 
turbocharging and downsizing, were already being used on some 2008 MY 
vehicles. High speed transmissions were the most prevalent, with some 
manufacturers (e.g., BMW, Suzuki) using them on essentially all of 
their vehicles. Both Daimler and VW equip many of their vehicles with 
automated manual transmissions, while VW makes extensive use of direct 
injection gasoline engine technology. Toyota has converted a 
significant percentage of its 2008 vehicles to strong hybrid design.
    Table III.D.6-2 shows the usage level of the same technologies in 
the reference case fleet after projecting their compliance with the 
2011 MY CAFE standards. Except for mass reduction, the figures shown 
represent the percentages of each manufacturer's sales which are 
projected to be equipped with the indicated technology. For mass 
reduction, the overall mass reduction projected for that manufacturer's 
sales is shown. The last row in Table III.D.6-2 shows the increase in 
projected technology penetration due to compliance with the 2011 MY 
CAFE standards. The results of DOT's Volpe Modeling were used to 
project that all manufacturers would comply with the 2011 MY standards 
in 2016 without the need to pay fines, with one exception. This 
exception was Porsche in the case of their car fleet. When projecting 
Porsche's compliance with the 2011 MY CAFE standard for cars, the car 
fleet was assumed to achieve a CO2 emission level of 293.2 
g/mi instead of the required 285.2 g/mi level (30.3 mpg instead of 31.2 
mpg).

                         Table III.D.6-2--Penetration of Technology Under 2011 MY CAFE Standards in 2016 Sales: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 Mass
                                                      GDI       GDI+ deac    GDI+ turbo   6 Speed or  Dual clutch   Start-stop     Hybrid     reduction
                                                                                           CV trans      trans                                (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................          7.3         11.1          0.0         86.3         11.1         11.1          0.1          0.5
Chrysler........................................          0.0          0.0          0.0         27.9          0.0          0.0          0.0          0.0
Daimler.........................................         16.4         10.3         14.3         45.8         36.0         24.6          0.0          0.9
Ford............................................          0.6          0.0          0.0         28.1          0.0          0.0          0.0          0.0
General Motors..................................          3.3          0.0          0.0         13.7          0.0          0.1          0.1          0.0
Honda...........................................          1.2          0.0          0.0          4.2          0.0          0.0          2.1          0.0
Hyundai.........................................          0.0          0.0          0.0          4.9          0.0          0.0          0.0          0.0
Kia.............................................          0.0          0.0          0.0          0.9          0.0          0.0          0.0          0.0
Mazda...........................................         11.8          0.0          0.0         37.1          0.0          0.0          0.0          0.0
Mitsubishi......................................          0.0          2.2          0.0         76.0          2.2          2.2          0.1          0.0
Nissan..........................................         17.7          0.0          0.0         33.3          0.0          0.0          0.0          0.0
Porsche.........................................          0.0         25.0         23.2          0.0         48.2         37.1          0.0          1.2
Subaru..........................................          0.0          0.0          0.0         29.0          0.0          0.0          0.0          0.0
Suzuki..........................................          4.5          0.0          0.0        100.0          0.0          0.0          0.0          0.0
Tata............................................         14.5         60.9          0.0         14.5         60.9         60.9          0.0          2.6
Toyota..........................................          7.5          0.0          0.0         30.6          0.0          0.0         12.8          0.0
Volkswagen......................................         51.2          6.9         11.8         60.8         29.6         18.7          0.0          0.3
Overall.........................................          6.7          1.2          0.8         25.4          2.6          2.0          2.8          0.1
Increase over 2008 MY...........................          0.3          1.2          0.8         -1.7          2.0          2.0          0.0          0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen, the 2011 MY CAFE standards, when evaluated on an 
industry wide basis, require only a modest increase in the use of these 
technologies. Higher speed automatic transmission use actually 
decreases due to conversion of these units to more efficient designs 
such as automated manual transmissions and hybrids. However, the impact 
of the 2011 MY CAFE standards is much greater on selected 
manufacturers, particularly BMW, Daimler, Porsche, Tata (Jaguar/Land 
Rover) and VW. All of these manufacturers are projected to increase 
their use of advanced direct injection gasoline engine technology, 
advanced transmission technology, and start-stop technology. It should 
be noted that these manufacturers have traditionally paid fines under 
the CAFE program. However, with higher fuel prices and the lead-time 
available by 2016, these manufacturers would likely find it in their 
best interest to improve their fuel economy levels instead of 
continuing to pay fines (again with the exception of Porsche cars). 
While not shown, no gasoline engines were projected to be converted to 
diesel technology.
    This 2008 baseline fleet, modified to meet 2011 standards, becomes 
our ``reference'' case. This is the fleet by which the control program 
(or 2016 rule) will be compared. Thus, it is also the fleet that would 
be assumed to exist in the absence of this rule. No air conditioning 
improvements are assumed for model year 2011 vehicles. The average 
CO2 emission levels of this reference fleet vary slightly 
from 2012-2016 due to small changes in the vehicle sales by market 
segments and manufacturer. CO2 emissions from cars range 
from 282-284 g/mi, while those from trucks range from 382-384 g/mi. 
CO2 emissions from the combined fleet range from 316-320. 
These estimates are described in greater detail in Section 5.3.2.2 of 
the DRIA.
    Conceptually, both EPA and NHTSA perform the same projection in 
order to develop their respective reference fleets. However, because 
the two agencies use two different models to modify the baseline fleet 
to meet the 2011 CAFE standards, the technology added will be slightly 
different. The differences, however, are small since most manufacturers 
do not require a lot of additional technology to meet the 2011 
standards.
    EPA then used the OMEGA model once again to project the level of 
technology needed to meet the proposed 2016 CO2 emission 
standards. Using the results of the OMEGA model, every manufacturer was 
projected to be able to meet the proposed 2016 standards with the 
technology described above except for four: BMW, VW, Porsche and Tata 
due to the OMEGA cap on technology penetration by manufacturer. For 
these manufacturers, the results presented below are those with the 
fully allowable

[[Page 49550]]

application of technology and not for the technology projected to 
enable compliance with the proposed standards. Described below are a 
number of potential feasible solutions for how these companies can 
achieve compliance. The overall level of technology needed to meet the 
proposed 2016 standards is shown in Table III.D.6-3. As discussed 
above, all manufacturers are projected to improve the air conditioning 
systems on 85% of their 2016 sales.

                               Table III.D.6-3--Penetration of Technology for Proposed 2016 CO2 Standards: Cars and Trucks
                                                                   [Percent of sales]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           6 Speed    Dual clutch                                Mass
                                                      GDI       GDI+ deac    GDI+ turbo   auto trans     trans      Start-stop     Hybrid     reduction
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................            4           35           47           15           71           71           14            5
Chrysler........................................           51           28            3           37           51           51            0            6
Daimler.........................................            3           44           39           11           73           72           13            5
Ford............................................           29           39           13           19           67           67            0            6
General Motors..................................           34           26            7           13           55           55            0            5
Honda...........................................           24            1            2           10           22           22            2            2
Hyundai.........................................           28            3           14            3           43           43            0            3
Kia.............................................           37            0            5            7           35           35            0            3
Mazda...........................................           54            2           16           31           43           43            0            4
Mitsubishi......................................           65            2            7           22           66           66            0            6
Nissan..........................................           29           26            5           34           57           56            1            5
Porsche.........................................            7           36           49           10           70           70           15            4
Subaru..........................................           46            4           14            0           64           51            0            4
Suzuki..........................................           66            5            8            9           69           69            0            4
Tata............................................            4           81            0           14           70           70           15            6
Toyota..........................................           37            2            0           30           33           16           13            2
Volkswagen......................................            9           26           58           12           72           70           15            4
Overall.........................................           30           18           10           19           49           45            4            4
Increase over 2011 CAFE.........................           24           17            9           -7           46           43            1            4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As can be seen, the overall average reduction in vehicle weight is 
projected to be 4%. This reduction varies across the two vehicle 
classes and vehicle base weight. For cars below 2,950 pounds curb 
weight, the average reduction is 2.3% (62 pounds), while the average 
was 4.4% (154 pounds) for cars above 2,950 curb weight. For trucks 
below 3,850 pounds curb weight, the average reduction is 3.5% (119 
pounds), while it was 4.5% (215 pounds) for trucks above 3,850 curb 
weight. Splitting trucks at a higher weight, for trucks below 5,000 
pounds curb weight, the average reduction is 3.3% (140 pounds), while 
it was 6.7% (352 pounds) for trucks above 5,000 curb weight.
    The levels of requisite technologies differ significantly across 
the various manufacturers. Therefore, several analyses were performed 
to ascertain the cause. Because the baseline case fleet consists of 
2008 MY vehicle designs, these analyses were focused on these vehicles, 
their technology and their CO2 emission levels.
    Comparing CO2 emissions across manufacturers is not a 
simple task. In addition to widely varying vehicle styles, designs, and 
sizes, manufacturers have implemented fuel efficient technologies to 
varying degrees, as indicated in Table III.D.6-1. The projected levels 
of requisite technology to enable compliance with the proposed 2016 
standards shown in Table III.D.6-3 account for two of the major factors 
which can affect CO2 emissions: (1) Level of technology 
already being utilized and (2) vehicle size, as represented by 
footprint.
    For example, the fuel economy of a manufacturer's 2008 vehicles may 
be relatively high because of the use of advanced technology. This is 
the case with Toyota's high sales of their Prius hybrid. However, the 
presence of this technology in a 2008 vehicle eliminates the ability to 
significantly reduce CO2 further through the use of this 
technology. In the extreme, if a manufacturer were to hybridize a high 
level of its sales in 2016, it doesn't matter whether this technology 
was present in 2008 or whether it would be added in order to comply 
with the standards. The final level of hybrid technology would be the 
same. Thus, the level at which technology is present in 2008 vehicles 
does not explain the difference in requisite technology levels shown in 
Table III.D.6-3.
    Similarly, the proposed CO2 emission standards adjust 
the required CO2 level according to a vehicle's footprint, 
requiring lower absolute emission levels from smaller vehicles. Thus, 
just because a manufacturer produces larger vehicles than another 
manufacturer does not explain the differences seen in Table III.D.6-3.
    In order to remove these two factors from our comparison, the EPA 
lumped parameter model described above was used to estimate the degree 
to which technology present on each 2008 MY vehicle in our reference 
fleet was improving fuel efficiency. The effect of this technology was 
removed and each vehicle's CO2 emissions were estimated as 
if it utilized no additional fuel efficiency technology beyond the 
baseline. The differences in vehicle size were accounted for by 
determining the difference between the sales-weighted average of each 
manufacturer's ``no technology'' CO2 levels to their 
required CO2 emission level under the proposed 2016 
standards. The industry-wide difference was subtracted from each 
manufacturer's value to highlight which manufacturers had lower and 
higher than average ``no technology'' emissions. The results are shown 
in Figure III.D.6-1.
BILLING CODE 4910-59-P

[[Page 49551]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.014


[[Page 49552]]


    As can be seen in Table III.D.6-3 the manufacturers projected to 
require the greatest levels of technology also show the highest offsets 
relative to the industry. The greatest offset shown in Figure III.D.6-1 
is for Tata's trucks (Land Rover). These vehicles are estimated to have 
100 g/mi greater CO2 emissions than the average 2008 MY 
truck after accounting for differences in the use of fuel saving 
technology and footprint. The lowest adjustment is for Subaru's trucks, 
which have 50 g/mi CO2 lower emissions than the average 
truck.
    While this comparison confirms the differences in the technology 
penetrations shown in Table III.D.6-3, it does not yet explain why 
these differences exist. Two well known factors affecting vehicle fuel 
efficiency are vehicle weight and performance. The footprint-based form 
of the proposed CO2 standard accounts for most of the 
difference in vehicle weight seen in the 2008 MY fleet. However, even 
at the same footprint, vehicles can have varying weights. Higher 
performing vehicles also tend to have higher CO2 emissions 
over the two-cycle test procedure. So manufacturers with higher average 
performance levels will tend to have higher average CO2 
emissions for any given footprint.
    The impact of these two factors on each manufacturer's ``no 
technology'' CO2 emissions was estimated. First, the ``no 
technology'' CO2 emissions levels were statistically 
analyzed to determine the average impact of weight and the ratio of 
horsepower to weight on CO2 emissions. Both factors were 
found to be statistically significant at the 95 percent confidence 
level. Together, they explained over 80 percent of the variability in 
vehicles' CO2 emissions for cars and over 70 percent for 
trucks. These relationships were then used to adjust each vehicle's 
``no technology'' CO2 emissions to the average weight for 
its footprint value and to the average horsepower to weight ratio of 
either the car or truck fleet. The comparison was repeated as shown in 
Figure III.D.6-1. The results are shown in Figure III.D.6-2.

[[Page 49553]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.015

BILLING CODE 4910-59-C
    First, note that the scale in Figure III.D.6-2 is much smaller by a 
factor of 3 than that in Figure III.D.6-1. In other words, accounting 
for differences in vehicle weight (at constant footprint) and 
performance dramatically reduces the differences in various 
manufacturers' CO2 emissions. Most of the manufacturers with 
high offsets in Figure III.D.6-1 now show low or negative offsets. For 
example, BMW's and VW's trucks show very low CO2 emissions. 
Tata's emissions are very close to the industry average. Daimler's 
vehicles are no more than 10 g/mi above the average for the industry. 
This analysis indicates that the primary reasons for the differences in 
technology penetrations shown for the various manufacturers in Table 
III.D.6-3 are weight and performance. EPA has not determined why some 
manufacturers' vehicle weight is relatively high for its footprint 
value, or whether this weight provides additional utility for the 
consumer. Performance is more

[[Page 49554]]

straightforward. Some consumers desire high performance and some 
manufacturers orient their sales towards these consumers. However, the 
cost in terms of CO2 emissions is clear. Producing 
relatively heavy or high performance vehicles increases CO2 
emissions and will require greater levels of technology in order to 
meet the proposed CO2 standards.
    As can be seen from Table III.D.6-3 above, widespread use of 
several technologies is projected due to the proposed standards. The 
vast majority of engines are projected to be converted to direct 
injection, with some of these engines including cylinder deactivation 
or turbocharging and downsizing. More than 60 percent of all 
transmissions are projected to be either high speed automatic 
transmissions or dual-clutch automated manual transmissions. More than 
one third of the fleet is projected to be equipped with 42 volt start-
stop capability. This technology was not utilized in 2008 vehicles, but 
as discussed above, promises significant fuel efficiency improvement at 
a moderate cost.
    EPA foresees no significant technical or engineering issues with 
the projected deployment of these technologies across the fleet, with 
their incorporation being folded into the vehicle redesign process. All 
of these technologies are commercially available now. The automotive 
industry has already begun to convert its port fuel-injected gasoline 
engines to direct injection. Cylinder deactivation and turbocharging 
technologies are already commercially available. As indicated in Table 
III.D.6-1, high speed transmissions are already widely used. However, 
while more common in Europe, automated manual transmissions are not 
currently used extensively in the U.S. Widespread use of this 
technology would require significant capital investment but does not 
present any significant technical or engineering issues. Start-stop 
systems also represent a significant challenge because of the 
complications involved in a changeover to a higher voltage electrical 
architecture. However, with appropriate capital investments (which are 
captured in the costs), these technology penetration rates are 
achievable within the timeframe of this rule. While most manufacturers 
have some plans for these systems, our projections indicate that their 
use may exceed 35 percent of sales, with some manufacturers requiring 
higher levels.
    Most manufacturers would not have to hybridize any vehicles due to 
the proposed standards. The hybrids shown for Toyota are projected to 
be sold even in the absence of the proposed standards. However the 
relatively high hybrid penetrations (15%) projected for BMW, Daimler, 
Porsche, Tata and Volkswagen deserve further discussion. These 
manufacturers are all projected by the OMEGA model to utilize the 
maximum application of full hybrids allowed by our model in this time 
frame, which is 15 percent.
    As discussed in the EPA DRIA, a 2016 technology penetration rate of 
85% is projected for the vast majority of available technologies, 
however, for full hybrid systems the projection shows that given the 
available lead-time full hybrids can only be applied to approximately 
15% of a manufacturer's fleet. This number of course can vary by 
manufacturer.
    While the hybridization levels of BMW, Daimler, Porsche, Tata and 
Volkswagen are relatively high, the sales levels of these five 
manufacturers are relatively low. Thus, industry-wide, hybridization 
reaches only 8 percent, compared with 3 percent in the reference case. 
This 8 percent level is believed to be well within the capability of 
the hybrid component industry by 2016. Thus, the primary challenge for 
these five companies would be at the manufacturer level, redesigning a 
relatively large percentage of sales to include hybrid technology. The 
proposed TLAAS provisions will provide significant aid to these 
manufacturers in pre-2016 compliance, since all qualified companies are 
expected to be able to take advantage of these provisions. By 2016, it 
is likely that these manufacturers would also be able to change vehicle 
characteristics which currently cause their vehicles to emit much more 
CO2 than similar sized vehicles produced by other 
manufacturers. These factors may include changes in model mix, further 
lightweighting, downpowering, electric and/or plug-in hybrid vehicles, 
or downsizing (our current baseline fleet assumes very little change in 
footprint from 2012-2016), as well as technologies that may not be 
included in our packages. Also, companies may have technology 
penetration rates of less costly technologies (listed in the above 
tables) greater than 85%, and they may also be able to apply hybrid 
technology to more than 15 percent of their fleet (as the 15% for 
hybrid technology is an industry average). For example, a switch to a 
low GWP alternative refrigerant in a large fraction of a fleet can 
replace many other much more costly technologies, but this option is 
not captured in the modeling. In addition, these manufacturers can also 
take advantage of flexibilities, such as early credits for air 
conditioning and trading with other manufacturers. The EPA expects that 
there will be certain high volume manufacturers that will earn a 
significant amount of early GHG credits starting in 2009 and 2010 that 
will expire 5 years later, by 2014 and 2015, unused. The EPA believes 
that these manufacturers will be willing to sell these expiring credits 
to manufacturers with whom there is no direct competition. Furthermore, 
some of these manufacturers have also stated either publicly or in 
confidential discussions with EPA that they will be able to comply with 
2016 standards. Because of the confidential nature of this information 
sharing, EPA is unable to capture these packages specifically in our 
modeling. The following companies have all submitted letters in support 
of the national program, including the 2016 MY levels discussed above: 
BMW, Chrysler, Daimler, Ford, GM, Honda, Mazda, Toyota, and Volkswagen. 
This supports the view that the emissions reductions needed to achieve 
the standards are technically and economically feasible for all these 
companies, and that EPA's projection of non-compliance for four of the 
companies is based on an inability of our model to fully account for 
the full flexibilities of the EPA program as well as the potentially 
unique technology approaches or new product offerings which these 
manufactures are likely to employ.
    In addition, manufacturers do not need to apply technology exactly 
according to our projections. Our projections simply indicate one path 
which would achieve compliance. Those manufacturers whose vehicles are 
heavier and higher performing than average in particular have 
additional options to facilitate compliance and reduce their 
technological burden closer to the industry average. These options 
include decreasing the mass of the vehicles and/or decreasing the power 
output of the engines. Finally, EPA allows compliance to be shown 
through the use of emission credits obtained from other manufacturers. 
Especially for the lower volume sales of some manufacturers that could 
be one component of an effective compliance strategy, reducing the 
technology that needs to be employed on their vehicles.
    For the vast majority of light-duty cars and trucks, manufacturers 
have available to them a range of technologies that are currently 
commercially available and can feasibly be employed in their vehicles 
by MY 2016. Our modeling projects widespread use of these technologies 
as a technologically feasible approach to complying with the proposed 
standards.

[[Page 49555]]

    In sum, EPA believes that the emissions reductions called for by 
the proposed standards are technologically feasible, based on 
projections of widespread use of commercially available technology, as 
well as use by some manufacturers of other technology approaches and 
compliance flexibilities not fully reflected in our modeling.
    EPA also projected the cost associated with these projections of 
technology penetration. Table III.D.6-4 shows the cost of technology in 
order for manufacturers to comply with the 2011 MY CAFE standards, as 
well as those associated with the proposed 2016 CO2 emission 
standards. The latter costs are incremental to those associated with 
the 2011 MY standards and also include $60 per vehicle, on average, for 
the cost of projected use of improved air-conditioning systems.\163\
---------------------------------------------------------------------------

    \163\ Note that the actual cost of the A/C technology is 
estimated at $78 per vehicle as shown in Table III.D.2-3. However, 
we expect only 85 percent of the fleet to add that technology. 
Therefore, the cost of the technology when spread across the entire 
fleet is $66 per vehicle ($78x85%=$66).

                         Table III.D.6-4--Cost of Technology per Vehicle in 2016 ($2007)
----------------------------------------------------------------------------------------------------------------
                                            2011 MY CAFE standards              Proposed 2016 CO2 standards
                                   -----------------------------------------------------------------------------
                                        Cars        Trucks        All          Cars        Trucks        All
----------------------------------------------------------------------------------------------------------------
BMW...............................         $319         $479         $361       $1,701       $1,665       $1,691
Chrysler..........................            7          125           59        1,331        1,505        1,408
Daimler...........................          431          632          495        1,631        1,357        1,543
Ford..............................           28          211          109        1,435        1,485        1,457
General Motors....................           28          136           73          969        1,782        1,311
Honda.............................            0            0            0          606          695          633
Hyundai...........................            0           76           14          739        1,680          907
Kia...............................            0           48            8          741        1,177          812
Mazda.............................            0            0            0          946        1,030          958
Mitsubishi........................           96          322          123        1,067        1,263        1,090
Nissan............................            0           19            6        1,013        1,194        1,064
Porsche...........................          535        1,074          706        1,549          666        1,268
Subaru............................           64          100           77          903        1,329        1,057
Suzuki............................           99          231          133        1,093        1,263        1,137
Tata..............................          691        1,574        1,161        1,270          674          952
Toyota............................            0            0            0          600          436          546
Volkswagen........................          269          758          354        1,626          949        1,509
Overall...........................           47          141           78          968        1,214        1,051
----------------------------------------------------------------------------------------------------------------

    As can be seen, the industry average cost of complying with the 
2011 MY CAFE standards is quite low, $78 per vehicle. The range of 
costs across manufacturers is quite large, however. Honda, Mazda and 
Toyota are projected to face no cost, while Daimler, Porsche and Tata 
face costs of at least $495 per vehicle. As described above, these last 
three manufacturers face such high costs to meet even the 2011 MY CAFE 
standards due to both their vehicles' weight per unit footprint and 
performance. Also, these cost estimates apply to sales in the 2016 MY. 
These three manufacturers, as well as others like Volkswagen, may 
choose to pay CAFE fines prior to this or even in 2016.
    As shown in the last row of Table III.D.6-4, the average cost of 
technology to meet the proposed 2016 standards for cars and trucks 
combined relative to the 2011 MY CAFE standards is $1051 per vehicle. 
The projection shows that the average cost for cars would be slightly 
lower than that for trucks. Toyota and Honda show projected costs 
significantly below the average, while BMW, Porsche, Tata and 
Volkswagen show significantly higher costs. On average, the $1051 per 
vehicle cost is significant, representing roughly 5% of the total cost 
of a new vehicle. However, as discussed below, the fuel savings 
associated with the proposed standards exceeds this cost significantly.
    While the CO2 emission compliance modeling using the 
OMEGA model focused on the proposed 2016 MY standards, EPA believes 
that the proposed standards for 2012-2015 would also be feasible. As 
discussed above, EPA believes that manufacturers develop their vehicle 
designs with several model years in view. Generally, the technology 
estimated above for 2016 MY vehicles represents the technology which 
would be added to those vehicles which are being redesigned in 2012-
2015. The proposed CO2 standards for 2012-2016 reduce 
CO2 emissions at a fairly steady rate. Thus, manufacturers 
which redesign their vehicles at a fairly steady rate will 
automatically comply with the interim standard as they plan for 
compliance in 2016.
    Manufacturers which redesign much fewer than 20% of their sales in 
the early years of the proposed program would face a more difficult 
challenge, as simply implementing the ``2016 MY'' technology as 
vehicles are redesigned may not enable compliance in the early years. 
However, even in this case, manufacturers would have several options to 
enable compliance. One, they could utilize the proposed debit carry-
forward provisions described above. This may be sufficient alone to 
enable compliance through the 2012-2016 MY time period, if their 
redesign schedule exceeds 20% per year prior to 2016. If not, at some 
point, the manufacturer might need to increase their use of technology 
beyond that projected above in order to generate the credits necessary 
to balance the accrued debits. For most manufacturers representing the 
vast majority of U.S. sales, this would simply mean extending the same 
technology to a greater percentage of sales. The added cost of this in 
the later years of the program would be balanced by lower costs in the 
earlier years. Two, the manufacturer could buy credits from another 
manufacturer. As indicated above, several manufacturers are projected 
to require less stringent technology than the average. These 
manufacturers would be in a position to provide credits at a reasonable 
technology cost. Thus, EPA believes the proposed standards for 2012-
2016 would be feasible.
7. What Other Fleet-Wide CO2 Levels Were Considered?
    Two alternative sets of CO2 standards were considered. 
One set would reduce

[[Page 49556]]

CO2 emissions at a rate of 4 percent per year. The second 
set would reduce CO2 emissions at a rate of 6 percent per 
year. The analysis of these standards followed the exact same process 
as described above for the proposed standards. The only difference was 
the level of CO2 emission standards. The footprint-based 
standard coefficients of the car and truck curves for these two 
alternative control scenarios were discussed above. The resultant 
CO2 standards in 2016 for each manufacturer under these two 
alternative scenarios and under the proposal are shown in Table 
III.D.7-1.

 Table III.D.7-1--Overall Average CO2 Emission Standards by Manufacturer
                                 in 2016
------------------------------------------------------------------------
                                           4% per                6% per
                                            year     Proposed     year
------------------------------------------------------------------------
BMW....................................        245        241        222
Chrysler...............................        266        262        241
Daimler................................        257        253        233
Ford...................................        270        266        245
General Motors.........................        272        268        247
Honda..................................        243        239        219
Hyundai................................        235        231        212
Kia....................................        237        234        215
Mazda..................................        231        227        208
Mitsubishi.............................        226        223        204
Nissan.................................        251        247        227
Porsche................................        234        230        210
Subaru.................................        237        233        213
Suzuki.................................        227        223        203
Tata...................................        267        263        241
Toyota.................................        247        243        223
Volkswagen.............................        233        230        211
Overall................................        254        250        230
------------------------------------------------------------------------

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

                          Table III.D.7-2--Technology Penetration--4% per Year CO2 Standards in 2016: Cars and Trucks Combined
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 Mass
                                                      GDI       GDI+ deac    GDI+ turbo    6 Speed    Dual clutch   Start-stop     Hybrid     reduction
                                                                                          auto trans     trans                                   (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................           4%          35%          47%          15%          71%          71%          14%            5
Chrysler........................................           47           25            3           33           48           48            0            5
Daimler.........................................            3           44           39           11           73           72           13            5
Ford............................................           33           32           13           23           61           61            0            5
General Motors..................................           33           25            7           19           48           48            0            5
Honda...........................................           20            1            0            6           19           19            2            2
Hyundai.........................................           27            2           12            2           39           39            0            3
Kia.............................................           31            0            4            1           34           34            0            2
Mazda...........................................           34            2           16           10           43           43            0            3
Mitsubishi......................................           65            2            7           28           60           60            0            6
Nissan..........................................           34           22            2           40           51           51            1            5
Porsche.........................................            7           36           49           10           70           70           15            4
Subaru..........................................           46            4           14           10           54           46            0            3
Suzuki..........................................           72            5            2           15           63           63            0            4
Tata............................................            4           81            0           14           70           70           15            6
Toyota..........................................           25            2            0           30           33            5           13            1
Volkswagen......................................            9           26           58           12           72           70           15            4
Overall.........................................           28           17            9           20           45           40            4            4
Increase over 2011 CAFE.........................           21           15            9           -5           42           38            1            4
--------------------------------------------------------------------------------------------------------------------------------------------------------


                      Table III.D.7-3--Technology Penetration--6% per Year Alternative Standards in 2016: Cars and Trucks Combined
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Weight
                                                      GDI       GDI+ deac    GDI+ turbo    6 Speed    Dual clutch   Start-stop     Hybrid     reduction
                                                                                          auto trans     trans                                   (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.............................................           4%          35%          47%          15%          71%          71%          14%            5
Chrysler........................................           29           50            6            4           85           85            0            8
Daimler.........................................            3           44           39           11           73           72           13            5
Ford............................................            8           37           40            4           74           74           11            7
General Motors..................................           24           54            8            6           81           81            0            8
Honda...........................................           38            1           15            8           50           50            2            4
Hyundai.........................................           36            9           28            7           66           66            0            5
Kia.............................................           48            0           25           18           55           55            0            4
Mazda...........................................           65            2           16            4           81           76            0            6

[[Page 49557]]

 
Mitsubishi......................................           59            7           19            7           80           80            5            8
Nissan..........................................           34           17           35            9           76           76           10            7
Porsche.........................................            7           36           49           10           70           70           15            4
Subaru..........................................           66            4           14            0           85           80            0            6
Suzuki..........................................            2           12           71            0           80           80            5            7
Tata............................................            4           81            0           14           70           70           15            6
Toyota..........................................           40            7           11           25           50           50           13            3
Volkswagen......................................            9           26           58           12           72           70           15            4
Overall.........................................           28           24           23           11           67           67            7            6
Increase over 2011 CAFE.........................           22           23           22          -15           65           65            4            6
--------------------------------------------------------------------------------------------------------------------------------------------------------

    With respect to the 4 percent per year standards, the levels of 
requisite control technology decreased relative to those under the 
proposed standards, as would be expected. Industry-wide, the largest 
decrease was a 2 percent decrease in the application of start-stop 
technology. On a manufacturer specific basis, the most significant 
decreases were a 6 percent decrease in hybrid penetration for BMW and a 
2 percent drop for Daimler. These are relatively small changes and are 
due to the fact that the 4 percent per year standards only require 4 g/
mi CO2 less control than the proposed standards in 2016. 
Porsche, Tata and Volkswagen continue to be unable to comply with the 
CO2 standards in 2016.
    With respect to the 6 percent per year standards, the levels of 
requisite control technology increased relative to those under the 
proposed standards, as again would be expected. Industry-wide, the 
largest increase was an 8 percent increase in the application of start-
stop technology. On a manufacturer specific basis, the most significant 
increases were a 42 percent increase in hybrid penetration for BMW and 
a 38 percent increase for Daimler. These are more significant changes 
and are due to the fact that the 6 percent per year standards require 
20 g/mi CO2 more control than the proposed standards in 
2016. Porsche, Tata and Volkswagen continue to be unable to comply with 
the CO2 standards in 2016. However, BMW joins this list, as 
well, though just by 1 g/mi. Most manufacturers experience the increase 
in start-stop technology application, with the increase ranging from 5 
to 17 percent.
    Table III.D.7-4 shows the projected cost of the two alternative 
sets of standards.

               Table III.D.7-4--Technology Cost per Vehicle in 2016--Alternative Standards ($2007)
----------------------------------------------------------------------------------------------------------------
                                         4 Percent per year standards           6 Percent per year standards
                                   -----------------------------------------------------------------------------
                                        Cars        Trucks        All          Cars        Trucks        All
----------------------------------------------------------------------------------------------------------------
BMW...............................       $1,701       $1,665       $1,691       $1,701       $1,665       $1,691
Chrysler..........................        1,340        1,211        1,283        1,642        2,211        1,893
Daimler...........................        1,631        1,357        1,543        1,631        1,357        1,543
Ford..............................        1,429        1,305        1,374        2,175        2,396        2,273
General Motors....................          969        1,567        1,221        1,722        2,154        1,904
Honda.............................          633          402          564          777        1,580        1,016
Hyundai...........................          685        1,505          832        1,275        1,680        1,347
Kia...............................          741          738          741        1,104        1,772        1,213
Mazda.............................          851          914          860        1,369        1,030        1,320
Mitsubishi........................        1,132          247        1,028        1,495        2,065        1,563
Nissan............................          910        1,194          991        1,654        2,274        1,830
Porsche...........................        1,549          666        1,268        1,549          666        1,268
Subaru............................          903        1,131          985        1,440        1,615        1,503
Suzuki............................        1,093        1,026        1,076        1,718        2,219        1,846
Tata..............................        1,270          674          952        1,270          674          952
Toyota............................          518          366          468          762        1,165          895
Volkswagen........................        1,626          949        1,509        1,626          949        1,509
Overall...........................          940        1,054          978        1,385        1,859        1,544
----------------------------------------------------------------------------------------------------------------

    As can be seen, the average cost of the 4 percent per year 
standards is only $73 per vehicle less than that for the proposed 
standards. In contrast, the average cost of the 6 percent per year 
standards is nearly $500 per vehicle more than that for the proposed 
standards. Compliance costs are entering the region of non-linearity. 
The $73 cost savings of the 4 percent per year standards relative to 
the proposal represents $18 per g/mi CO2 increase. The $493 
cost increase of the 6 percent per year standards relative to the 
proposal represents $25 per g/mi CO2 increase.
    EPA does not believe the 4% per year alternative is an appropriate 
standard for the MY2012-2016 time frame. As discussed above, the 250 g/
mi proposal is technologically feasible in this time frame at 
reasonable costs, and provides higher GHG emission reductions at a 
modest cost increase over the 4% per year alternative (less than $100 
per vehicle). In addition, the 4% per year alternative does not result 
in a harmonized National Program for the country. Based on California's 
letter of May 18, 2009, the emission standards under this alternative 
would not result in the State of California revising its regulations 
such that compliance with

[[Page 49558]]

EPA's GHG standards would be deemed to be in compliance with 
California's GHG standards for these model years. Thus, the consequence 
of promulgating a 4% per year standard would be to require 
manufacturers to produce two vehicle fleets: a fleet meeting the 4% per 
year Federal standard, and a separate fleet meeting the more stringent 
California standard for sale in California and the section 177 States. 
This further increases the costs of the 4% per year standard and could 
lead to additional difficulties for the already stressed automotive 
industry.
    EPA also does not believe the 6% per year alternative is an 
appropriate standard for the MY 2012-2016 time frame. As shown in 
Tables III.D.7-3 and III.D.7-4, the 6% per year alternative represents 
a significant increase in both the technology required and the overall 
costs compared to the proposed standards. In absolute percent increases 
in the technology penetration, compared to the proposed standards the 
6% per year alternative requires for the industry as a whole: an 18% 
increase in GDI fuel systems, an 11% increase in turbo-downsize 
systems, a 6% increase in dual-clutch automated manual transmissions 
(DCT), and a 9% increase in start-stop systems. For a number of 
manufacturers the expected increase in technology is greater: for GM, a 
15% increase in both DCTs and start-stop systems, for Nissan a 9% 
increase in full hybrid systems, for Ford an 11% increase in full 
hybrid systems, for Chrysler a 34% increase in both DCT and start-stop 
systems and for Hyundai a 23% increase in the overall penetration of 
DCT and start-stop systems. For the industry as a whole, the per-
vehicle cost increase for the 6% per year alternative is nearly $500. 
On average this is a 50% increase in costs compared to the proposed 
standards. At the same time, CO2 emissions would be reduced 
by about 8%, compared to the 250 g/mi target level.
    These technology and cost increases are significant, given the 
amount of lead-time between now and model years 2012-2016. In order to 
achieve the levels of technology penetration for the proposed 
standards, the industry needs to invest significant capital and product 
development resources right away, in particular for the 2012 and 2013 
model year, which is only 2-3 years from now. For the 2014-2016 time 
frame, significant product development and capital investments will 
need to occur over the next 2-3 year in order to be ready for launching 
these new products for those model years. Thus a major part of the 
required capital and resource investment will need to occur in the next 
few years, under the proposed standards. EPA believes that the proposal 
(a target of 250 gram/mile in 2016) already requires significant 
investment and product development costs for the industry, focused on 
the next few years.
    It is important to note, and as discussed later in this preamble, 
as well as in the draft Joint Technical Support Document and the draft 
EPA Regulatory Impact Analysis document, the average model year 2016 
per-vehicle cost increase of nearly $500 includes an estimate of both 
the increase in capital investments by the auto companies and the 
suppliers as well as the increase in product development costs. These 
costs can be significant, especially as they must occur over the next 
2-3 years. Both the domestic and transplant auto firms, as well as the 
domestic and world-wide automotive supplier base, is experiencing one 
of the most difficult markets in the U.S. and internationally that has 
been seen in the past 30 years. One major impact of the global downturn 
in the automotive industry and certainly in the U.S. is the significant 
reductions in product development engineers and staffs, as well as a 
tightening of the credit markets which allow auto firms and suppliers 
to make the near-term capital investments necessary to bring new 
technology into production. EPA is concerned that the significantly 
increased pressure on capital and other resources from the 6% per year 
alternative may be too stringent for this time frame, given both the 
relatively limited amount of lead-time between now and model years 
2012-2016, the need for much of these resources over the next few 
years, as well the current financial and related circumstances of the 
automotive industry. EPA is not concluding that the 6% per year 
alternative standards are technologically infeasible, but EPA believes 
such standards for this time frame would be overly stringent given the 
significant strain it would place on the resources of the industry 
under current conditions. EPA believes this degree of stringency is not 
warranted at this time. Therefore EPA does not believe the 6% per year 
alternative would be an appropriate balance of various relevant factors 
for model years 2012-1016.
    These alternative standards represent two possibilities out of 
many. The EPA believes that the current proposed standards represent an 
appropriate balance of the factors relevant under section 202(a). For 
further discussion of this issue, see Chapter 4 of the DRIA.

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview
    This section of the preamble describes EPA's proposal for a 
comprehensive program to ensure compliance with EPA's proposed emission 
standards for carbon dioxide (CO2), nitrous oxide 
(N2O), and methane (CH4), as described in Section 
III.B. An effective compliance program is essential to achieving the 
environmental and public health benefits promised by these mobile 
source GHG standards. EPA's proposal for a GHG compliance program is 
designed around two overarching priorities: (1) To address Clean Air 
Act (CAA) requirements and policy objectives; and (2) to streamline the 
compliance process for both manufacturers and EPA by building on 
existing practice wherever possible, and by structuring the program 
such that manufacturers can use a single data set to satisfy both the 
new GHG and Corporate Average Fuel Economy (CAFE) testing and reporting 
requirements. The program proposed by EPA and NHTSA recognizes, and 
replicates as closely as possible, the compliance protocols associated 
with the existing CAA Tier 2 vehicle emission standards, and with CAFE 
standards. The certification, testing, reporting, and associated 
compliance activities closely track current practices and are thus 
familiar to manufacturers. EPA already oversees testing, collects and 
processes test data, and performs calculations to determine compliance 
with both CAFE and CAA standards. Under this proposed coordinated 
approach, the compliance mechanisms for both programs are consistent 
and non-duplicative.
    Vehicle emission standards established under the CAA apply 
throughout a vehicle's full useful life. In this case EPA is proposing 
fleet average standards where compliance with the fleet average is 
determined based on the testing performed at time of production, as 
with the current CAFE fleet average. EPA is also proposing in-use 
standards that apply throughout a vehicle's useful life, with the 
standard determined by adding a 10% adjustment factor to the model-
level emission results used to calculate the fleet average. Therefore, 
EPA's proposed program must not only assess compliance with the fleet 
average standards described in Section III.B, but must also assess 
compliance with the in-use standards. As it does now, EPA would use a 
variety of compliance mechanisms to conduct these assessments, 
including pre-production certification and post-production, in-use

[[Page 49559]]

monitoring once vehicles enter customer service. Specifically, EPA is 
proposing a compliance program for the fleet average that utilizes CAFE 
program protocols with respect to testing, a certification procedure 
that operates in conjunction with the existing CAA Tier 2 certification 
procedures, and assessment of compliance with the in-use standards 
concurrent with existing EPA and manufacturer Tier 2 emission 
compliance testing programs. Under the proposed compliance program 
manufacturers would also be afforded numerous flexibilities to help 
achieve compliance, both stemming from the program design itself in the 
form of a manufacturer-specific CO2 fleet average standard, 
as well as in various credit banking and trading opportunities, as 
described in Section III.C. EPA's proposed compliance program is 
outlined in further detail below. EPA requests comment on all aspects 
of the compliance program design including comments about whether 
differences between the proposed compliance scheme for GHG and the 
existing compliance scheme for other regulated pollutants are 
appropriate.
2. Compliance With Fleet-Average CO2 Standards
    Fleet average emission levels can only be determined when a 
complete fleet profile becomes available at the close of the model 
year. Therefore, EPA is proposing to determine compliance with the 
fleet average CO2 standards when the model year closes out, 
as is currently the protocol under EPA's Tier 2 program as well as 
under the current CAFE program. The compliance determination would be 
based on actual production figures for each model and on model-level 
emissions data collected through testing over the course of the model 
year. Manufacturers would submit this information to EPA in an end-of-
year report which is discussed in detail in Section III.E.5.h below.
    Manufacturers currently conduct their CAFE testing over an entire 
model year to maximize efficient use of testing and engineering 
resources. Manufacturers submit their CAFE test results to EPA and EPA 
conducts confirmatory fuel economy testing at its laboratory on a 
subset of these vehicles under EPA's Part 600 regulations. EPA is 
proposing that manufacturers continue to perform the model level 
testing currently required for CAFE fuel economy performance and 
measure and report the CO2 values for all tests conducted. 
Thus, manufacturers will submit one data set in satisfaction of both 
CAFE and GHG requirements such that EPA's proposed program would not 
impose additional timing or testing requirements on manufacturers 
beyond that required by the CAFE program. For example, manufacturers 
currently submit fuel economy test results at the subconfiguration and 
configuration levels to satisfy CAFE requirements. Under this proposal 
manufacturers would also submit CO2 values for the same 
vehicles. Section III.E.3 discusses how this will be implemented in the 
certification process.
a. Compliance Determinations
    As described in Section III.B above, the fleet average standards 
would be determined on a manufacturer by manufacturer basis, separately 
for cars and trucks, using the proposed footprint attribute curves. 
Under this proposal, EPA would calculate the fleet average emission 
level using actual production figures and, for each model type, 
CO2 emission test values generated at the time of a 
manufacturer's CAFE testing. EPA would then compare the actual fleet 
average to the manufacturer's footprint standard to determine 
compliance, taking into consideration use of averaging and/or other 
types of credits.
    Final determination of compliance with fleet average CO2 
standards may not occur until several years after the close of the 
model year due to the flexibilities of carry-forward and carry-back 
credits and the remediation of deficits (see Section III.C). A failure 
to meet the fleet average standard after credit opportunities have been 
exhausted could ultimately result in penalties and injunctive orders 
under the CAA as described in Section III.E.6 below.
    EPA periodically provides mobile source emissions and fuel economy 
information to the public, for example through the annual Compliance 
Report \164\ and Fuel Economy Trends Report.\165\ EPA plans to expand 
these reports to include GHG performance and compliance trends 
information, such as annual status of credit balances or debits, use of 
various credit programs, attained versus projected fleet average 
emission levels, and final compliance status for a model year after 
credit reconciliation occurs. We seek comment on all aspects of public 
dissemination of GHG compliance information
---------------------------------------------------------------------------

    \164\ 2007 Progress Report Vehicle and Engine Compliance 
Activities; EPA-420-R-08-011; October 2008. This document is 
available electronically at http://www.epa.gov/otaq/about/420r08011.pdf.
    \165\ Light-Duty Automotive Technology and Fuel-Economy Trends: 
1975 Through 2008; EPA-420-S-08-003; September 2008. This document 
is available electronically at http://www.epa.gov/otaq/fetrends.htm.
---------------------------------------------------------------------------

b. Required Minimum Testing for Fleet Average CO2
    As noted, EPA is proposing that the same test data required for 
determining a manufacturer's compliance with the CAFE standard also be 
used to determine the manufacturer's compliance with the fleet average 
CO2 emissions standard. CAFE requires manufacturers to 
submit test data representing at least 90% of the manufacturer's model 
year production, by configuration.\166\ The CAFE testing covers the 
vast majority of models in a manufacturer's fleet. Manufacturers 
industry-wide currently test more than 1,000 vehicles each year to meet 
this requirement. EPA believes this minimum testing requirement is 
necessary and applicable for calculating accurate CO2 fleet 
average emissions. Manufacturers may test additional vehicles, at their 
option. As described above, EPA would use the emissions results from 
the model-level testing to calculate a manufacturer's fleet average 
CO2 emissions and to determine compliance with the 
CO2 standard.
---------------------------------------------------------------------------

    \166\ See 40 CFR 600.010-08(d).
---------------------------------------------------------------------------

    EPA is proposing to continue to allow certain testing flexibilities 
that exist under the CAFE program. EPA has always permitted 
manufacturers some ability to reduce their test burden in tradeoff for 
lower fuel economy numbers. Specifically the practice of ``data 
substitution'' enables manufacturers to apply fuel economy test values 
from a ``worst case'' configuration to other configurations in lieu of 
testing them. The substituted values may only be applied to 
configurations that would be expected to have better fuel economy and 
for which no actual test data exist. Substituted data would only be 
accepted for the GHG program if it is also used for CAFE purposes.
    EPA's regulations for CAFE fuel economy testing permit the use of 
analytically derived fuel economy data in lieu of an actual fuel 
economy test in certain situations.\167\ Analytically derived data is 
generated mathematically using expressions determined by EPA and is 
allowed on a limited basis when a manufacturer has not tested a 
specific vehicle configuration. This has been done as a means to reduce 
some of the testing burden on manufacturers without sacrificing 
accuracy in fuel economy measurement. EPA has issued guidance that 
provides details on analytically

[[Page 49560]]

derived data and that specifies the conditions when analytically 
derived fuel economy may be used. EPA would also apply the same 
guidance to the GHG program and would allow any analytically derived 
data used for CAFE to also satisfy the GHG data reporting requirements. 
EPA would, however, need to revise the terms in the current equations 
for analytically derived fuel economy to specify them in terms of 
CO2. Analytically derived CO2 data would not be 
permitted for the Emission Data Vehicle representing a test group for 
pre-production certification, only for the determination of the model 
level test results used to determine actual fleet-average 
CO2 levels.
---------------------------------------------------------------------------

    \167\ 40 CFR 600.006-08(e).
---------------------------------------------------------------------------

    EPA is retaining the definitions needed to determine CO2 
levels of each model type (such as ``subconfiguration,'' 
``configuration,'' ``base level,'' etc.) as they are currently defined 
in EPA's fuel economy regulations.
3. Vehicle Certification
    CAA section 203(a)(1) prohibits manufacturers from introducing a 
new motor vehicle into commerce unless the vehicle is covered by an 
EPA-issued certificate of conformity. Section 206(a)(1) of the CAA 
describes the requirements for EPA issuance of a certificate of 
conformity, based on a demonstration of compliance with the emission 
standards established by EPA under section 202 of the Act. The 
certification demonstration requires emission testing, and must be done 
for each model year.\168\
---------------------------------------------------------------------------

    \168\ CAA section 206(a)(1).
---------------------------------------------------------------------------

    Under Tier 2 and other EPA emission standard programs, vehicle 
manufacturers certify a group of vehicles called a test group. A test 
group typically includes multiple vehicle car lines and model types 
that share critical emissions-related features.\169\ The manufacturer 
generally selects and tests one vehicle to represent the entire test 
group for certification purposes. The test vehicle is the one expected 
to be the worst case for the emission standard at issue. Emission 
results from the test vehicle are used to assign the test group to one 
of several specified bins of emissions levels, identified in the Tier 2 
rule, and this bin level becomes the in-use emissions standard for that 
test group.\170\
---------------------------------------------------------------------------

    \169\ The specific test group criteria are described in 40 CFR 
86.1827-01, car lines and model types have the meaning given in 40 
CFR 86.1803-01.
    \170\ Initially in-use standards were different from the bin 
level determined at certification as the useful life level. The 
current in-use standards, however, are the same as the bin levels. 
In all cases, the bin level, reflecting useful life levels, has been 
used for determining compliance with the fleet average.
---------------------------------------------------------------------------

    Since compliance with the Tier 2 fleet average depends on actual 
test group sales volumes and bin levels, it is not possible to 
determine compliance at the time the manufacturer applies for and 
receives a certificate of conformity for a test group. Instead, EPA 
requires the manufacturer to make a good faith demonstration in the 
certification application that vehicles in the test group will both (1) 
comply throughout their useful life with the emissions bin assigned, 
and (2) contribute to fleetwide compliance with the Tier 2 average when 
the year is over. EPA issues a certificate for the vehicles included in 
the test group based on this demonstration, and includes a condition in 
the certificate that if the manufacturer does not comply with the fleet 
average, then production vehicles from that test group will be treated 
as not covered by the certificate to the extent needed to bring the 
manufacturer's fleet average into compliance with Tier 2.
    The certification process often occurs several months prior to 
production and manufacturer testing may occur months before the 
certificate is issued. The certification process for the Tier 2 program 
is an efficient way for manufacturers to conduct the needed testing 
well in advance of certification, and to receive the needed 
certificates in a time frame which allows for the orderly production of 
vehicles. The use of a condition on the certificate has been an 
effective way to ensure compliance with the Tier 2 fleet average.
    EPA is proposing to similarly condition each certificate of 
conformity for the GHG program upon a manufacturer's good faith 
demonstration of compliance with the manufacturer's fleetwide average 
CO2 standard. The following discussion explains how EPA 
proposes to integrate the proposed vehicle certification program into 
the existing certification program.
a. Compliance Plans
    EPA is proposing that manufacturers submit a compliance plan to EPA 
prior to the beginning of the model year and prior to the certification 
of any test group. This plan would include the manufacturer's estimate 
of its footprint-based standard (Section III.B), along with a 
demonstration of compliance with the standard based on projected model-
level CO2 emissions, and production estimates. Manufacturers 
would submit the same information to NHTSA in the pre-model year report 
required for CAFE compliance. However, the GHG compliance plan could 
also include additional information relevant only to the EPA program. 
For example, manufacturers seeking to take advantage of air 
conditioning or other credit flexibilities (Section III.C) would 
include these in their compliance demonstration. Similarly, the 
compliance demonstration would need to include a credible plan for 
addressing deficits accrued in prior model years. EPA would review the 
compliance plan for technical viability and conduct a certification 
preview discussion with the manufacturer. EPA would view the compliance 
plan as part of the manufacturer's good faith demonstration, but 
understands that initial projections can vary considerably from the 
reality of final production and emission results. EPA requests comment 
on the proposal to evaluate manufacturer compliance plans prior to the 
beginning of model year certification. EPA also requests comment on 
what criteria the agency should use to evaluate the sufficiency of the 
plan and on what steps EPA should take if it determines that a plan is 
unlikely to offset a deficit.
b. Certification Test Groups and Test Vehicle Selection
    Manufacturers currently divide their fleet into ``test groups'' for 
certification purposes. The test group is EPA's unit of certification; 
one certificate is issued per test group. These groupings cover 
vehicles with similar emission control system designs expected to have 
similar emissions performance.\171\ The factors considered for 
determining test groups include combustion cycle, engine type, engine 
displacement, number of cylinders and cylinder arrangement, fuel type, 
fuel metering system, catalyst construction and precious metal 
composition, among others. Vehicles having these features in common are 
generally placed in the same test group.\172\ Cars and trucks may be 
included in the same test group as long as they have similar emissions 
performance (manufacturers frequently produce cars and trucks that have 
identical engine designs and emission controls).
---------------------------------------------------------------------------

    \171\ 40 CFR 86.1827-01.
    \172\ EPA provides for other groupings in certain circumstances, 
and can establish its own test groups in cases where the criteria do 
not apply. 40 CFR 86.1827-01(b), (c) and (d).
---------------------------------------------------------------------------

    EPA is proposing to retain the current Tier 2 test group structure 
for cars and light trucks in the certification requirements for 
CO2. At the time of certification, manufacturers would use 
the CO2 emission level from the Tier 2 Emission Data Vehicle 
as a surrogate to represent all of the models in the test group. 
However, following certification

[[Page 49561]]

further testing would generally be required for compliance with the 
fleet average CO2 standard as described below. EPA's 
issuance of a certificate would be conditioned upon the manufacturer's 
subsequent model level testing and attainment of the actual fleet 
average. Further discussion of these requirements is presented in 
Section III.E.6.
    EPA recognizes that the Tier 2 test group criteria do not 
necessarily relate to CO2 emission levels. For instance, 
while some of the criteria, such as combustion cycle, engine type and 
displacement, and fuel metering, may have a relationship to 
CO2 emissions, others, such as those pertaining to the 
catalyst, may not. In fact, there are many vehicle design factors that 
impact CO2 generation and emission but are not included in 
EPA's test group criteria.\173\ Most important among these may be 
vehicle weight, horsepower, aerodynamics, vehicle size, and performance 
features.
---------------------------------------------------------------------------

    \173\ EPA noted this potential lack of connection between fuel 
economy testing and testing for emissions standard purposes when it 
first adopted fuel economy test procedures. See 41 FR at 38677 
(Sept. 10, 1976).
---------------------------------------------------------------------------

    EPA considered, but is not proposing, a requirement for separate 
CO2 test groups established around criteria more directly 
related to CO2 emissions. Although CO2-specific 
test groups might more consistently predict CO2 emissions of 
all vehicles in the test group, the addition of a CO2 test 
group requirement would greatly increase the pre-production 
certification burden for both manufacturers and EPA. For example, a 
current Tier 2 test group would need to be split into two groups if 
automatic and manual transmissions models had been included in the same 
group. Two- and four-wheel drive vehicles in a current test group would 
similarly require separation, as would weight differences among 
vehicles. This would at least triple the number of test groups. EPA 
believes that the added burden of creating separate CO2 test 
groups is not warranted or necessary to maintain an appropriately 
rigorous certification program because the test group data are later 
replaced by model specific data which are used as the basis for 
determining compliance with a manufacturer's fleet average standard.
    EPA believes that the current test group concept is appropriate for 
N2O and CH4 because the technologies that would 
be employed to control N2O and CH4 emissions 
would generally be the same as those used to control the criteria 
pollutants.
    As just discussed, the ``worst case'' vehicle a manufacturer 
selects as the Emissions Data Vehicle to represent a test group under 
Tier 2 (40 CFR 86.1828-01) may not have the highest levels of 
CO2 in that group. For instance, there may be a heavier, 
more powerful configuration that would have higher CO2, but 
may, due to the way the catalytic converter has been matched to the 
engine, actually have lower NOX, CO, PM or HC.
    Therefore, in lieu of a separate CO2-specific test 
group, EPA considered requiring manufacturers to select a 
CO2 test vehicle from within the Tier 2 test group that 
would be expected, based on good engineering judgment, to have the 
highest CO2 emissions within that test group. The 
CO2 emissions results from this vehicle would be used to 
establish an in-use CO2 emission standard for the test 
group. The requirement for a separate, worst case CO2 
vehicle would provide EPA with some assurance that all vehicles within 
the test group would have CO2 emission levels at or below 
those of the selected vehicle, even if there is some variation in the 
CO2 control strategies within the test group (such as 
different transmission types). Under this approach, the test vehicle 
might or might not be the same one that would be selected as worst case 
for criteria pollutants. Thus, manufacturers might be required to test 
two vehicles in each test group, rather than a single vehicle. This 
would represent an added timing burden to manufacturers because they 
might need to build additional test vehicles at the time of 
certification that previously weren't required to be tested.
    Instead, EPA is proposing to require a single Emission Data Vehicle 
that would represent the test group for both Tier 2 and CO2 
certification. The manufacturer would be allowed to initially apply the 
Emission Data Vehicle's CO2 emissions value to all models in 
the test group, even if other models in the test group are expected to 
have higher CO2 emissions. However, as a condition of the 
certificate, this surrogate CO2 emissions value would 
generally be replaced with actual, model-level CO2 values 
based on results from CAFE testing that occurs later in the model year. 
This model level data would become the official certification test 
results (as per the conditioned certificate) and would be used to 
determine compliance with the fleet average. Only if the test vehicle 
is in fact the worst case CO2 vehicle for the test group 
could the manufacturer elect to apply the Emission Data Vehicle 
emission levels to all models in the test group for purposes of 
calculating fleet average emissions. Manufacturers would be unlikely to 
make this choice, because doing so would ignore the emissions 
performance of vehicle models in their fleet with lower CO2 
emissions and would unnecessarily inflate their CO2 fleet 
average. Testing at the model level already occurs and data are already 
being submitted to EPA for CAFE and labeling purposes, so it would be 
an unusual situation that would cause a manufacturer to ignore these 
data and choose to accept a higher CO2 fleet average.
    EPA requests comment regarding whether the Tier 2 test group can 
adequately represent CO2 emissions for certification 
purposes, and whether the Emission Data Vehicle's CO2 
emission level is an appropriate surrogate for all vehicles in a test 
group at the time of certification, given that the certificate would be 
conditioned upon additional model level testing occurring during the 
year (see Section III.E.6) and that the surrogate CO2 
emission values would be replaced with model-level emissions data from 
those tests. Comments should also address EPA's desire to minimize the 
up-front pre-production testing burden and whether the proposed 
efficiencies would be balanced by the requirement to test all model 
types in the fleet by the conclusion of the model year in order to 
establish the fleet average CO2 levels.
    There are two standards that the manufacturer would be subject to, 
the fleet average standard and the in-use standard for the useful life 
of the vehicle. Compliance with the fleet average standard is based on 
production-weighted averaging of the test data that applies for each 
model. For each model, the in-use standard is set at 10% higher than 
the level used for that model in calculating the fleet average. The 
certificate would cover both of these standards, and the manufacturer 
would have to demonstrate compliance with both of these standards for 
purposes of receiving a certificate of conformity. The certification 
process for the in-use standard is discussed below in Section III.E.4.
c. Certification Testing Protocols and Procedures
    To be consistent with CAFE, EPA proposes to combine the 
CO2 emissions results from the FTP and HFET tests using the 
same calculation method used to determine fuel economy for CAFE 
purposes. This approach is appropriate for CO2 because 
CO2 and fuel economy are so closely related. Other than the 
fact that fuel economy is calculated using a harmonic average and 
CO2 emissions can be calculated using a conventional 
average, the calculation methods are very similar. The FTP 
CO2

[[Page 49562]]

data will be weighted at 55%, and the highway CO2 data at 
45%, and then averaged to determine the combined number. See Section 
III.B.1 for more detailed information on CO2 test 
procedures, Section III.C.1 on Air Conditioning Emissions, and Section 
III.B.6 for N2O and CH4 test procedures.
    For the purposes of compliance with the fleet average and in-use 
standards, the emissions measured from each test vehicle will include 
hydrocarbons (HC) and carbon monoxide (CO), in addition to 
CO2. All three of these exhaust constituents are currently 
measured and used to determine the amount of fuel burned over a given 
test cycle using a ``carbon balance equation'' defined in the 
regulations, and thus measurement of these is an integral part of 
current fuel economy testing. As explained in Section III.C, it is 
important to account for the total carbon content of the fuel. 
Therefore the carbon-related combustion products HC and CO must be 
included in the calculations along with CO2. CO emissions 
are adjusted by a coefficient that reflects the carbon weight fraction 
(CWF) of the CO molecule, and HC emissions are adjusted by a 
coefficient that reflects the CWF of the fuel being burned (the 
molecular weight approach doesn't work since there are many different 
hydrocarbons being accounted for). Thus, EPA is proposing that the 
carbon-related exhaust emissions of each test vehicle be calculated 
according to the following formula, where HC, CO, and CO2 
are in units of grams per mile:

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

    As part of the current CAFE and Tier 2 compliance programs, EPA 
selects a subset of vehicles for confirmatory testing at its National 
Vehicle and Fuel Emissions Laboratory. The purpose of confirmatory 
testing is to validate the manufacturer's emissions and/or fuel economy 
data. Under this proposal, EPA would add CO2, 
N2O, and CH4 to the emissions measured in the 
course of Tier 2 and CAFE confirmatory testing. The emission values 
measured at the EPA laboratory would continue to stand as official, as 
under existing regulatory programs.
    As is the current practice with fuel economy testing, if during 
EPA's confirmatory testing the EPA CO2 value differs from 
the manufacturer's value by more than 3%, manufacturers could request a 
re-test. Also as with current practice, the results of the re-test 
would stand as official, even if they differ from the manufacturer 
value by more than 3%. EPA is proposing to allow a re-test request 
based on a 3% or greater disparity since a manufacturer's fleet average 
emissions level would be established on the basis of model level 
testing only (unlike Tier 2 for which a fixed bin standard structure 
provides the opportunity for a compliance buffer). EPA requests comment 
on whether the 3% value currently used during CAFE confirmatory testing 
is appropriate and should be retained under the proposed GHG program.
4. Useful Life Compliance
    Section 202(a)(1) of the CAA requires emission standards to apply 
to vehicles throughout their statutory useful life, as further 
described in Section III.A. For emission programs that have fleet 
average standards, such as Tier 2 and the proposed CO2 
standards, the useful life requirement applies to individual vehicles 
rather than to the fleet average standard. For example, in Tier 2 the 
useful life requirements apply to the individual emission standard 
levels or ``bins'' that the vehicles are certified to, not the fleet 
average standard. For Tier 2, the useful life requirement is 10 years 
or 120,000 miles with an optional 15 year or 150,000 mile provision. 
For each model, the proposed CO2 standards in-use are the 
model specific levels used in calculating the fleet average, adjusted 
to be 10% higher. EPA is proposing the 10% adjustment factor to provide 
some margin for production and test-to-test variability that could 
result in differences between initial model-level emission results used 
in calculating the fleet average and any subsequent in-use testing. EPA 
requests comment on whether a separate in-use standard is an 
appropriate means of addressing issues of variability and whether 10% 
is an appropriate adjustment.
    This in-use standard would apply for the same useful life period as 
in Tier 2. Section 202(i)(3)(D) of the CAA allows EPA to adopt useful 
life periods for light-duty vehicles and light-duty trucks which differ 
from those in section 202(d). Similar to Tier 2, the useful life 
requirements would be applicable to the model-level CO2 
certification values (similar to the Tier 2 bins), not to the fleet 
average standard.
    EPA believes that the useful life period established for criteria 
pollutants under Tier 2 is also appropriate for CO2. Data 
from EPA's current in-use compliance test program indicate that 
CO2 emissions from current technology vehicles increase very 
little with age and in some cases may actually improve slightly. The 
stable CO2 levels are expected because unlike criteria 
pollutants, CO2 emissions in current technology vehicles are 
not controlled by after treatment systems that may fail with age. 
Rather, vehicle CO2 emission levels depend primarily on 
fundamental vehicle design characteristics that do not change over 
time. Therefore, vehicles designed for a given CO2 emissions 
level would be expected to sustain the same emissions profile over 
their full useful life.
    The CAA requires emission standards to be applicable for the 
vehicle's full useful life. Under Tier 2 and other vehicle emission 
standard programs, EPA requires manufacturers to demonstrate at the 
time of certification that the new vehicles being certified will 
continue to meet emission standards throughout their useful life. EPA 
allows manufacturers several options for predicting in-use 
deterioration, including full vehicle testing, bench-aging specific 
components, and application of a deterioration factor based on data 
and/or engineering judgment.
    In the specific case of CO2, EPA does not currently 
anticipate notable deterioration and is therefore proposing that an 
assigned deterioration factor be applied at the time of certification. 
EPA is further proposing an additive assigned deterioration factor of 
zero, or a multiplicative factor of one. EPA anticipates that the 
deterioration factor would be updated from time to time, as new data 
regarding emissions deterioration for CO2 are obtained and 
analyzed. Additionally, EPA may consider technology-specific 
deterioration factors, should data indicate that certain CO2 
control technologies deteriorate differently than others.
    During compliance plan discussions prior to the beginning of the 
certification process, EPA would explore with each manufacturer any new 
technologies that could warrant use of a different deterioration 
factor. Manufacturers would not be allowed to use the assigned 
deterioration factor but rather would be required to establish an 
appropriate factor for any vehicle model determined likely to 
experience increases in CO2 emissions over the vehicle's 
useful life. If such an instance were to occur, EPA is also proposing 
to allow manufacturers to use the whole-vehicle mileage accumulation 
method currently offered in EPA's regulations.
    EPA requests comments on the proposal to allow manufacturers to use 
an EPA-assigned deterioration factor for CO2 useful life 
compliance, and to set that factor at zero (additive) or one 
(multiplicative). Particularly helpful would be data from in-use 
vehicles that demonstrate the rate of change in CO2 
emissions over a vehicle's useful life,

[[Page 49563]]

separated according to vehicle technology.
    N2O and CH4 emissions are directly affected 
by vehicle emission control systems. Any of the durability options 
offered under EPA's current compliance program can be used to determine 
how emissions of N2O and CH4 change over time.
a. Ensuring Useful Life Compliance
    The CAA requires a vehicle to comply with emission standards over 
its regulatory useful life and affords EPA broad authority for the 
implementation of this requirement. As such, EPA has authority to 
require a manufacturer to remedy any noncompliance issues. The remedy 
can range from the voluntary or mandatory recall of any noncompliant 
vehicles to the recalculation of a manufacturers fleet average 
emissions level. This provides manufacturers with a strong incentive to 
design and build complying vehicles.
    Currently, EPA regulations require manufacturers to conduct in-use 
testing as a condition of certification. Specifically, manufacturers 
must commit to later procure and test privately-owned vehicles that 
have been normally used and maintained. The vehicles are tested to 
determine the in-use levels of criteria pollutants when they are in 
their first and third years of service. This testing is referred to as 
the In-Use Verification Program (IUVP) testing, which was first 
implemented as part of EPA's CAP 2000 certification program.\174\ The 
emissions data collected from IUVP serves several purposes. It provides 
EPA with annual real-world in-use data representing the majority of 
certified vehicles. EPA uses IUVP data to identify in-use problems, 
validate the accuracy of the certification program, verify the 
manufacturer's durability processes, and support emission modeling 
efforts. Manufacturers are required to test low mileage and high 
mileage vehicles over the FTP and US06 test cycles. They are also 
required to provide evaporative emissions and on-board diagnostics 
(OBD) data.
---------------------------------------------------------------------------

    \174\ 64 FR 23906, May 4, 1999.
---------------------------------------------------------------------------

    Manufacturers are required to provide data for all regulated 
criteria pollutants. Some manufacturers voluntarily submit 
CO2 data as part of IUVP. EPA is proposing that for IUVP 
testing, all manufacturers will provide emission data for 
CO2 and also for N2O and CH4. EPA is 
also proposing that manufacturers perform the highway test cycle as 
part of IUVP. Since the proposed CO2 standard reflects a 
combined value of FTP and highway results, it is necessary to include 
the highway emission test in IUVP to enable EPA to compare an in-use 
CO2 level with a vehicle's in-use standard. EPA requests 
comments on adding the highway test cycle as part of the IUVP 
requirements.
    Another component of the CAP 2000 certification program is the In-
Use Confirmatory Program (IUCP). This is a manufacturer-conducted 
recall quality in-use test program that can be used as the basis for 
EPA to order an emission recall. In order to qualify for IUCP, there is 
a threshold of 1.30 times the certification emission standard and an 
additional requirement that at least 50% of the test vehicles for the 
test group fail for the same pollutant. EPA is proposing to exclude 
IUVP data for CO2, N2O, and CH4 
emissions from the IUCP thresholds. At this time, EPA does not have 
sufficient data to determine if the existing thresholds are appropriate 
or even applicable to those emissions. Once EPA can gather more data 
from the IUVP program and from EPA's internal surveillance program 
described below, EPA will reassess the need to exclude IUCP thresholds, 
and if warranted, propose a separate rulemaking establishing IUCP 
threshold criteria which may include CO2, N2O, 
and CH4 emissions. EPA requests comment on the proposal to 
exclude CO2, N2O, and CH4 from the 
IUCP threshold.
    EPA has also administered its own in-use testing program for light-
duty vehicles under authority of section 207(c) of the CAA for more 
than 30 years. In this program, EPA procures and tests representative 
privately owned vehicles to determine whether they are complying with 
emission standards. When testing indicates noncompliance, EPA works 
with the manufacturer to determine the cause of the problem and to 
conduct appropriate additional testing to determine its extent or the 
effectiveness of identified remedies. This program operates in 
conjunction with the IUVP program and other sources of information to 
provide a comprehensive picture of the compliance profile for the 
entire fleet and address compliance problems that are identified. EPA 
proposes to add CO2, N2O, and CH4 to 
the emissions measurements it collects during surveillance testing.
b. In-Use Compliance Standard
    For Tier 2, the in-use standard and the certification standard are 
the same. In-use compliance for an individual vehicle is determined by 
comparing the vehicle's in-use emission results with the emission 
standard levels or ``bin'' to which the vehicle is certified rather 
than to the Tier 2 fleet average standard for the manufacturer. This is 
because as part of a fleet average standard, individual vehicles can be 
certified to various emission standard levels, which could be higher or 
lower than the fleet average standard. Thus, comparing an individual 
vehicle to the fleet average, where that vehicle was certified to an 
emission level that could be different than the fleet average level, 
would be inappropriate.
    This would also be true for the proposed CO2 fleet 
average standard. Therefore, to ensure that an individual vehicle 
complies with the proposed CO2 standards in-use, it is 
necessary to compare the vehicle's in-use CO2 emission 
result with the appropriate model-level certification CO2 
level used in determining the manufacturer's fleet average result.
    There is a fundamental difference between the proposed 
CO2 standards and Tier 2 standards. For Tier 2, the 
certification standard is one of eight different emission levels, or 
``bins,'' whereas for the proposed CO2 fleet average 
standard, the certification standard is the model-level certification 
CO2 result. The Tier 2 fleet average standard is calculated 
using the ``bin'' emission level or standard, not the actual 
certification emission level of the certification test vehicle. So no 
matter how low a manufacturer's actual certification emission results 
are, the fleet average is still calculated based on the ``bin'' level 
rather than the lower certification result. In contrast, EPA is 
proposing that the CO2 fleet average standard would be 
calculated using the actual vehicle model-level CO2 values 
from the certification test vehicles. With a known certification 
emission standard, such as the Tier 2 ``bins,'' manufacturers typically 
attempt to over-comply with the standard to give themselves some 
cushion for potentially higher in-use testing results due to emissions 
performance deterioration and/or variability that could result in 
higher emission levels during subsequent in-use testing. For our 
proposed CO2 standards, the certification standard is the 
actual certification vehicle test result, thus manufacturers cannot 
over comply since the certification test vehicle result will always be 
the value used in determining the CO2 fleet average. If the 
manufacturer attempted to design the vehicle to achieve a lower 
CO2 value, similar to Tier 2 for in-use purposes, the new 
lower CO2 value would simply become the new certification 
standard.
    The CO2 fleet average standard is based on the 
performance of pre-production technology that is

[[Page 49564]]

representative of the point of production, and while there is expected 
to be limited if any deterioration in effectiveness for any vehicle 
during the useful life, the fleet average standard does not take into 
account the test to test variability or production variability that can 
affect in-use levels. Therefore, EPA believes that unlike Tier 2, it is 
necessary to have a different in-use standard for CO2 to 
account for these variabilities. EPA is proposing to set the in-use 
standard at 10% higher than the appropriate model-level certification 
CO2 level used in determining the manufacturer's fleet 
average result.
    As described above, manufacturers typically design their vehicles 
to emit at emission levels considerably below the standards. This 
intentional difference between the actual emission level and the 
emission standard is referred to as ``certification margin,'' since it 
is typically the difference between the certification emission level 
and the emission standard. The certification margin can provide 
manufacturers with some protection from exceeding emission standards 
in-use, since the in-use standards are typically the same as the 
certification standards. For Tier 2, the certification margin is the 
delta between the specific emission standard level, or ``bin,'' to 
which the vehicle is certified, and the vehicle's certification 
emission level.
    Since the level of the fleet average standard does not reflect this 
kind of variability, EPA believes it is appropriate to set an in-use 
standard that provides manufacturers with an in-use compliance factor 
of 10% that will act as a surrogate for a certification margin. The 
factor would only be applicable to CO2 emissions, and would 
be applied to the model-level test results that are used to establish 
the model-level in-use standard.
    If the in-use emission result for the vehicle exceeds the model-
level CO2 certification result multiplied by the in-use 
compliance factor of 10%, then the vehicle would have exceeded the in-
use emission standard. The in-use compliance factor would apply to all 
in-use compliance testing including IUVP, selective enforcement audits, 
and EPA's internal test program.
    The intent of the separate in-use standard, based on a 10% 
compliance factor adjustment, is to provide a reasonable margin such 
that vehicles are not automatically deemed as exceeding standards 
simply because of normal variability in test results. EPA has some 
concerns however that this in-use compliance factor could be perceived 
as providing manufacturers with the ability to design their fleets to 
generate CO2 emissions up to 10% higher than the actual 
values they use to certify and to calculate the year end fleet average 
value that determines compliance with the fleet average standard. This 
concern provides additional rationale for requiring FTP and HFET IUVP 
data for CO2 emissions to ensure that in-use values are not 
regularly 10% higher than the values used in the fleet average 
calculation. If in the course of reviewing a manufacturer's IUVP data 
it becomes apparent that a manufacturer's CO2 results are 
consistently higher than the values used for certification, EPA would 
discuss the matter with the manufacturer and consider possible 
resolutions such as changes to ensure that the emissions test data more 
accurately reflects the emissions level of vehicles at the time of 
production, increased EPA confirmatory testing, and other similar 
measures.
    EPA selected a value of 10% for the in-use standard based on a 
review of EPA's fuel economy labeling and CAFE confirmatory test 
results for the past several vehicle model years. The EPA data indicate 
that it is common for test variability to range between three to six 
percent and only on rare occasions to exceed 10%. EPA believes that a 
value of 10% should be sufficient to account for testing variability 
and any production variability that a manufacturer may encounter. EPA 
considered both higher and lower values. The Tier 2 fleet as a whole, 
for example, has a certification margin approaching 50%.\175\ However, 
there are some fundamental differences between CO2 emissions 
and other criteria pollutants in the magnitude of the pollutants. Tier 
2 NMOG and NOX emission standards are hundredths of a gram 
per mile (e.g., 0.07 g/mi NOX & 0.09 g/mi NMOG), whereas the 
CO2 standards are four orders of magnitude greater (e.g., 
250 g/mi). Thus EPA does not believe it is appropriate to consider a 
value on the order of 50 percent. In addition, little deterioration in 
emissions control is expected in-use. The adjustment factor addresses 
only one element of what is usually built into a compliance margin.
---------------------------------------------------------------------------

    \175\ See pages 39-41 of EPA's Vehicle and Engine Compliance 
Activities 2007 Progress Report (EPA-420-R-08-011) published in 
October 2008. This document is available electronically at http://epa.gov/otaq/about/420r08011.pdf.
---------------------------------------------------------------------------

    EPA requests comments regarding a proposed in-use standard that 
uses an in-use compliance factor. Specifically, is a factor the best 
way to address the technical and other feasibility of the in-use 
standard; is 10% the appropriate factor; can EPA expect variability to 
decrease as manufacturing experience increases, in which case would it 
be appropriate for the in-use compliance factor of 10% to decrease over 
time? EPA especially requests any data to support such comments.
5. Credit Program Implementation
    As described in Section III.E.2 above, for each manufacturer's 
model year production, EPA is proposing that the manufacturer would 
average the CO2 emissions within each of the two averaging 
sets (passenger cars and trucks) and compare that with its respective 
fleet average CO2 standards (which in turn would have been 
determined from the appropriate footprint curve applicable to that 
model year). In addition to this within-company averaging, EPA is 
proposing that when a manufacturer's fleet average CO2 
emissions of vehicles produced in an averaging set over-complies 
compared to the applicable fleet average standard, the manufacturer 
could generate credits that it could save for later use (banking) or 
could transfer to another manufacturer (trading). Section III.C 
discusses opportunities that EPA is proposing for manufacturers to earn 
additional credits, beyond those simply calculated by ``over-
achieving'' their applicable standard. Implementation of the credit 
program generally involves two steps: calculation of the credit amount 
and reporting the amount and the associated data and calculations to 
EPA.
    Of the various credit programs being proposed by EPA, there are two 
broad types. One type of credit directly lowers a manufacturer's actual 
fleet average by virtue of being applied to the methodology for 
calculating the fleet average emissions. Examples of this type of 
credit include the credits available for alternative fuel vehicles and 
for advanced technology vehicles. The second type of credit is 
independent of the calculation of a manufacturer's fleet average. 
Rather than giving credit by lowering a manufacturer's fleet average 
via a credit mechanism, these credits (in megagrams) are calculated 
separately and are simply added to the manufacturer's overall ``bank'' 
of credits (or debits). Using a fictional example, the remainder of 
this section will step through the different types of credits and show 
where and how they are calculated and how they impact a manufacturer's 
available credits.
a. Basic Credits for a Fleet With Average CO2 Emissions 
Below the Standard
    Basic credits are earned by doing better than the applicable 
standard. Manufacturers calculate their standards

[[Page 49565]]

(separate standards are calculated for cars and trucks) using the 
footprint-based equations described in Section III.B. A manufacturer's 
actual end-of-year fleet average CO2 is calculated similarly 
to the way in which CAFE values are currently calculated; in fact, the 
regulations are essentially identical. The current CAFE calculation 
methods are in 40 CFR Part 600. EPA is proposing to amend key subparts 
and sections of Part 600 to require that fleet average CO2 
be calculated in a manner parallel to the way CAFE values are 
calculated. First manufacturers would determine a CO2-
equivalent value for each model type. The CO2-equivalent 
value is a summation of the carbon-containing constituents of the 
exhaust emissions, with each weighted by a coefficient that reflects 
the carbon weight fraction of that constituent. For gasoline and diesel 
vehicles this simply involves measurement of total hydrocarbons and 
carbon monoxide in addition to CO2, but becomes somewhat 
more complex for alternative fuel vehicles due to the different nature 
of their exhaust emissions. For example, for ethanol-fueled vehicles, 
the emission tests must measure ethanol, methanol, formaldehyde, and 
acetaldehyde in addition to CO2. However, all these 
measurements are necessary to determine fuel economy and thus no new 
testing or data collection would be required. Second, manufacturers 
would calculate a fleet average by weighting the CO2-
equivalent value for each model type by the production of that model 
type, as they currently do for the CAFE program. Again, this would be 
done separately for cars and trucks. Finally, the manufacturer would 
compare the calculated standard with the average that is actually 
achieved to determine the credits (or debits). Both the determination 
of the applicable standard and the actual fleet average would be done 
after the model year is complete and using final model year production 
data.
    Consider a basic example where Manufacturer ``A'' has calculated a 
car standard of 300 grams/mile and a fleet average of 290 grams/mile 
(Figure III.E.5-1). Further assume that the manufacturer produced 
500,000 cars. The credit is calculated by taking the difference between 
the standard and the fleet average (300-290=10) and multiplying it by 
the production of 500,000. This result is then multiplied by the 
lifetime vehicle miles travelled (for cars this is 190,971 miles), then 
finally divided by 1,000,000 to convert from grams to total megagrams. 
The result is the number of CO2 megagrams of credit (or 
deficit, if the manufacturer was not able to comply with the fleet 
average standard) generated by the manufacturer's car fleet. In this 
example, the result is 954,855 megagrams.
BILLING CODE 4910-59-P


[[Page 49566]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.016

b. Advanced Technology Credits
    Advanced technology credits directly impact a manufacturer's fleet 
average, thus increasing the amount of credits they earn (or reducing 
the amount of debits that would otherwise accrue). To earn these 
credits, manufacturers that produce electric vehicles, plug-in hybrid 
electric vehicles, or fuel cell electric vehicles would include these 
vehicles in the fleet average calculation with their model type 
emission values (0 g/m for electric vehicles and fuel cell electric 
vehicles, and a measured CO2 value for plug-in hybrid 
electric vehicles), but would apply the proposed multiplier of 2.0 to 
the production volume of each of these vehicles. This approach would 
thus enhance the impact that each of these low-CO2 advanced 
technology vehicles has on the manufacturer's fleet average.
    EPA is proposing to limit availability of advanced technology 
credits to the technologies noted above, with the additional limitation 
that the vehicles must be certified to Tier 2 Bin 5 emission standards 
or cleaner (this obviously applies primarily to plug-in hybrid electric 
vehicles). EPA is proposing to use the following definitions to 
determine which vehicles

[[Page 49567]]

are eligible for the advanced technology credits:
     Electric vehicle means a motor vehicle that is powered 
solely by an electric motor drawing current from a rechargeable energy 
storage system, such as from storage batteries or other portable 
electrical energy storage devices, including hydrogen fuel cells, 
provided that:
    [cir] (1) Recharge energy must be drawn from a source off the 
vehicle, such as residential electric service; and
    [cir] (2) The vehicle must be certified to the emission standards 
of Bin 1 of Table S04-1 in paragraph (c)(6) of Sec.  86.1811.
     Fuel cell electric vehicle means a motor vehicle propelled 
solely by an electric motor where energy for the motor is supplied by a 
fuel cell.
     Fuel cell means an electrochemical cell that produces 
electricity via the reaction of a consumable fuel on the anode with an 
oxidant on the cathode in the presence of an electrolyte.
     Plug-in hybrid electric vehicle (PHEV) means a hybrid 
electric vehicle that: (1) Has the capability to charge the battery 
from an off-vehicle electric source, such that the off-vehicle source 
cannot be connected to the vehicle while the vehicle is in motion, and 
(2) has an equivalent all-electric range of no less than 10 miles.
    With some simplifying assumptions, assume that 25,000 of 
Manufacturer A's fleet are now plug-in hybrid electric vehicles with 
CO2 emissions of 100 g/mi, and the remaining 475,000 are 
conventional technology vehicles with average CO2 emissions 
of 290 grams/mile. By applying the factor of 2.0 to the electric 
vehicle production numbers in the appropriate places in the fleet 
average calculation formula Manufacturer A now has more than 2.6 
million credits (Figure III.E.5-2). Without the use of the multiplier 
Manufacturer A's fleet average would be 281 instead of 272, which would 
generate about 1.8 million credits.

[[Page 49568]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.017

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

FFV emissions = (280 + 260x0.15) / 2 = 160 g/mi


[[Page 49569]]


    Including these FFVs with the applicable credit in Manufacturer A's 
fleet average, as shown below in Figure III.E.5-3, further reduces the 
fleet average to 256 grams/mile and increases the manufacturer's 
credits to about 4.2 million megagrams.
[GRAPHIC] [TIFF OMITTED] TP28SE09.018

    In the 2016 and later model years the calculation of FFV emissions 
would be much the same except that the determination of the 
CO2 value to represent an FFV model type would be based upon 
the actual use of the alternative fuel and on actual CO2 
emissions while operating on that fuel. EPA's default assumption in the 
regulations is that the alternative fuel is used negligibly, and the 
CO2 value that would apply to an FFV by default would be the 
value determined for operation on conventional fuel. However, if the 
manufacturer believes

[[Page 49570]]

that the alternative fuel is used in real-world driving and that 
accounting for this use could improve the fleet average, the 
manufacturer would have two options. First, the regulations would allow 
a manufacturer to request that EPA determine an appropriate weighting 
value for an alternative fuel to reflect the degree of use of that fuel 
in FFVs relative to real-world use of the conventional fuel. Section 
III.C describes how EPA might make this determination. Any value 
determined by EPA would be published via guidance letter to 
manufacturers, and that weighting value would be available for all 
manufacturers to use for that fuel. A second option proposed in the 
regulations would allow a manufacturer to determine the degree of 
alternative fuel use for their own vehicle(s), using a variety of 
potential methods. Both the method and the use of the final results 
would have to be approved by EPA before their use would be allowed. In 
either case, whether EPA supplies the weighting factors or the 
manufacturer determines them, the CO2 emissions of an FFV in 
2016 and later would be as follows (assuming non-zero use of the 
alternative fuel):

(W1xCO2conv)+(W2xCO2alt),

Where,

W1 and W2 are the proportion of miles driven using conventional fuel 
and alternative fuel, respectively, CO2conv is the 
CO2 value while using conventional fuel, and 
CO2alt is the CO2 value while using the 
alternative fuel.
d. Dedicated Alternative Fuel Vehicle Credits
    Like the FFV credit program described above, these credits would be 
treated differently in the first years of the program than in the 2016 
and later model years. In fact, these credits are essentially identical 
to the FFV credits except for two things: (1) There is no need to 
average CO2 values for gasoline and alternative fuel, and 
(2) in 2016 and later there is no demonstration needed to get a benefit 
from the alternative fuel. The CO2 values are essentially 
determined the same way they are for FFVs operating on the alternative 
fuel. For the 2012 through 2015 model years the CO2 test 
results are multiplied by the credit adjustment factor of 0.15, and the 
result is production-weighted in the fleet average calculation. For 
example, assume that Manufacturer A now produces 20,000 dedicated CNG 
vehicles with CO2 emissions of 220 grams/mile, in addition 
to the FFVs and PHEVs already included in their fleet (Figure III.E.5-
4). Prior to the 2016 model year the CO2 emissions 
representing these CNG vehicles would be 33 grams/mile (220 x 0.15).

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[GRAPHIC] [TIFF OMITTED] TP28SE09.019

BILLING CODE 4910-59-C
    The calculation for 2016 and later would be exactly the same except 
the 0.15 credit adjustment factor would be removed from the equation, 
and the CNG vehicles would simply be production-weighted in the 
equation using their actual emissions value of 220 grams/mile instead 
of the ``credited'' value of 33 grams/mile.
e. Air Conditioning Leakage Credits
    Unlike the credit programs described above, air conditioning-
related credits do not affect the overall calculation of the fleet 
average. Whether a manufacturer generates zero air conditioning credits 
or many, the calculated fleet average remains the same. Air 
conditioning credits are calculated and added to any credits (or 
deficit) that results from the fleet average calculation. Thus, these 
credits can increase a manufacturer's credit balance or offset a 
deficit, but their calculation is external to the fleet average 
calculation. As noted in Section III.C, manufacturers could generate 
credits for reducing the leakage of refrigerant from their air 
conditioning systems. To do this the manufacturer would identify an air 
conditioning system improvement, indicate that they

[[Page 49572]]

intend to use the improvement to generate credits, and then calculate 
an annual leakage rate (grams/year) for that system based on the method 
defined by the proposed regulations. Air conditioning credits would be 
determined separately for cars and trucks using the car and truck-
specific equations described in Section III.C.
    In order to put these credits on the same basis as the basic and 
other credits describe above, the air conditioning leakage credits 
would need to be calculated separately for cars and trucks. Thus, the 
resulting grams per mile credit determined from the appropriate car or 
truck equation would be multiplied by the lifetime VMT (190,971 for 
cars; 221,199 for trucks), and then divided by 1,000,000 to get the 
total megagrams of CO2 credits generated by the improved air 
conditioning system. Although the calculations are done separately for 
cars and trucks, the total megagrams would be summed and then added to 
the overall credit balance maintained by the manufacturer.
    For example, assume that Manufacturer A has improved an air 
conditioning system that is installed in 250,000 cars and that the 
calculated leakage rate is 12 grams/year. Assume that the manufacturer 
has also implemented a new refrigerant with a Global Warming Potential 
of 850. In this case the credit per air conditioning unit, rounded to 
the nearest gram per mile would be:

[13.8 x [1--(12/16.6 x 850/1430)] = 7.9 g/mi.

    Total megagrams of credits would then be:

[ 7.9 x 250,000 x 190971 ] / 1,000,000 = 377,168 Mg.

    These credits would be added directly to a manufacturer's total 
balance; thus in this example Manufacturer A would now have, after 
consideration of all the above credits, a total of 5,437,900 Megagrams 
of credits.
f. Air Conditioning Efficiency Credits
    As noted in Section III.C.1.b, manufacturers could earn credits for 
improvements in air conditioning efficiency that reduce the impact of 
the air conditioning system on fuel consumption. These credits are 
similar to the air conditioning leakage credits described above, in 
that these credits are determined independently from the manufacturer's 
fleet average calculation, and the resulting credits are added to the 
manufacturer's overall balance for the respective model year. Like the 
air conditioning leakage credits, these credits can increase a 
manufacturer's credit balance or offset a deficit, but their 
calculation is external to the fleet average calculation.
    In order to put these credits on the same basis as the basic and 
other credits describe above, the air conditioning leakage credits 
would need to be calculated separately for cars and trucks. Thus, the 
resulting grams per mile credit determined in the above equation would 
be multiplied by the lifetime VMT (190,971 for cars; 221,199 for 
trucks), and then divided by 1,000,000 to get the total megagrams of 
CO2 credits generated by the improved air conditioning 
system. Although the calculations are done separately for cars and 
trucks, the total megagrams can be summed and then added to the overall 
credit balance maintained by the manufacturer.
    As described in Section III.C, manufacturers would determine their 
credit based on selections from a menu of technologies, each of which 
provides a gram per mile credit amount. The credits would be summed for 
all the technologies implemented by the manufacturer, but could not 
exceed 5.7 grams per mile. Once this is done, the calculation is a 
straightforward translation of a gram per mile credit to total car or 
truck megagrams, using the same methodology described above. For 
example, if Manufacturer A implements enough technologies to get the 
maximum 5.7 grams per mile for an air conditioning system that sells 
250,000 units in cars, the calculation of total credits would be as 
follows:

[5.7 x 250,000 x 190971] / 1,000,000 = 272,134 Mg.

    These credits would be added directly to a manufacturer's total 
balance; thus in this example Manufacturer A would now have, after 
consideration of all the above credits, a total of 5,710,034 Megagrams 
of credits.
g. Off-Cycle Technology Credits
    As described in Section III.C, these credits would be available for 
certain technologies that achieve real-world CO2 reductions 
that aren't adequately captured on the city or highway test cycles used 
to determine compliance with the fleet average standards. Like the air 
conditioning credits, these credits are independent of the fleet 
average calculation. Section III.C.4 describes two options for 
generating these credits: either using EPA's 5-cycle fuel economy 
labeling methodology, or if that method fails to capture the 
CO2-reducing impact of the technology, the manufacturer 
could propose and use, with EPA approval, a different analytical 
approach to determining the credit amount. Like the air conditioning 
credits above, these credits would have to be determined separately for 
cars and trucks because of the differing lifetime mileage assumptions 
between cars and trucks.
    Using the 5-cycle approach would be relatively straightforward, and 
because the 5-cycle formulae account for nationwide variations in 
driving conditions, no additional adjustments to the test results would 
be necessary. The manufacturer would simply calculate a 5-cycle 
CO2 value with the technology installed and operating and 
compare it with a 5-cycle CO2 value determined without the 
technology installed and/or operating. Existing regulations describe 
how to calculate 5-cycle fuel economy values, and the proposed 
regulations contain provisions that describe how to calculate 5-cycle 
CO2 values. The manufacturer would have to design a test 
program that accounts for vehicle differences if the technology is 
installed in different vehicle types, and enough data would have to be 
collected to address data uncertainty issues. A description of such a 
test program and the results would be submitted to EPA for approval.
    As noted in Section III.C.4, a manufacturer-developed testing, data 
collection and analysis program would require some additional EPA 
approval and oversight. Once the demonstration of the CO2 
reduction of an off-cycle technology is complete, however, and the 
resulting value accounts for variations in driving, climate and other 
conditions across the country, the two approaches are treated 
fundamentally the same way and in a way that parallels the approach for 
determining the air conditioning credits described above. Once a gram 
per mile value is approved by the EPA, the manufacturer would determine 
the total credit value by multiplying the gram per mile per vehicle 
credit by the volume of vehicles with that technology and approved for 
use of the credit. This would then be multiplied by the lifetime 
vehicle miles for cars or trucks, whichever applies, and divided by 
1,000,000 to obtain total Megagrams of CO2 credits. These 
credits would then be added to the manufacturer's total balance for the 
given model year. Just like the above air conditioning case, an off-
cycle technology that is demonstrated to achieve an average 
CO2 reduction of 4 grams/mile and that is installed in 
175,000 cars would generate credits as follows:

[4 x 175,000 x 190971] / 1,000,000 = 133,680 Mg.

[[Page 49573]]

h. End-of-Year Reporting
    In general, implementation of the averaging, banking, and trading 
(ABT) program, including the calculation of credits and deficits, would 
be accomplished via existing reporting mechanisms. EPA's existing 
regulations define how manufacturers calculate fleet average miles per 
gallon for CAFE compliance purposes, and EPA is proposing to modify 
these regulations to also require the parallel calculation of fleet 
average CO2 levels for car and light truck compliance 
categories. These regulations already require an end-of-year report for 
each model year, submitted to EPA, which details the test results and 
calculations that determine each manufacturer's CAFE levels. EPA is 
proposing to require that this report also include fleet average 
CO2 levels. In addition to requiring reporting of the actual 
fleet average achieved, this end-of-year report would also contain the 
calculations and data determining the manufacturer's applicable fleet 
average standard for that model year. As under the existing Tier 2 
program, the report would be required to contain the fleet average 
standard, all values required to calculate the fleet average standard, 
the actual fleet average CO2 that was achieved, all values 
required to calculate the actual fleet average, the number of credits 
generated or debits incurred, all the values required to calculate the 
credits or debits, and the resulting balance of credits or debits.
    Because of the multitude of credit programs that are available, the 
end-of-year report will be required to have more data and a more 
defined and specific structure than the CAFE end-of-year report does 
today. Although requiring ``all the data required'' to calculate a 
given value should be inclusive, the proposed report would contain some 
requirements specific to certain types of credits.
    For advanced technology credits that apply to vehicles like 
electric vehicles and plug-in hybrid electric vehicles, manufacturers 
would be required to identify the number and type of these vehicles and 
the effect of these credits on their fleet average. The same would be 
true for credits due to flexible-fuel and alternative-fuel vehicles, 
although for 2016 and later flexible-fuel credits manufacturers would 
also have to provide a demonstration of the actual use of the 
alternative fuel in-use and the resulting calculations of 
CO2 values for such vehicles. For air conditioning leakage 
credits manufacturers would have to include a summary of their use of 
such credits that would include which air conditioning systems were 
subject to such credits, information regarding the vehicle models which 
were equipped with credit-earning air conditioning systems, the 
production volume of these air conditioning systems, the leakage score 
of each air conditioning system generating credits, and the resulting 
calculation of leakage credits. Air conditioning efficiency reporting 
will be somewhat more complicated given the phase-in of the efficiency 
test, and reporting would have to detail compliance with the phase-in 
as well as the test results and the resulting efficiency credits 
generated. Similar reporting requirements would also apply to the 
variety of possible off-cycle credit options, where manufacturers would 
have to report the applicable technology, the amount of credit per 
unit, the production volume of the technology, and the total credits 
from that technology.
    Although it is the final end-of-year report, when final production 
numbers are known, that will determine the degree of compliance and the 
actual values of any credits being generated by manufacturers, EPA is 
also proposing that manufacturers be prepared to discuss their 
compliance approach and their potential use of the variety of credit 
options in pre-certification meetings that EPA routinely has with 
manufacturers. In addition, and in conjunction with a pre-model year 
report required under the CAFE program, the manufacturer would be 
required to submit projections of all of the elements described above.
    Finally, to the extent that there are any credit transactions, the 
manufacturer would have to detail in the end-of-year report 
documentation on all credit transactions that the manufacturer has 
engaged in. Information for each transaction would include: The name of 
the credit provider, the name of the credit recipient, the date the 
transfer occurred, the quantity of credits transferred, and the model 
year in which the credits were earned. Failure by the manufacturer to 
submit the annual report in the specified time period would be 
considered to be a violation of section 203(a)(1) of the Clean Air Act.
6. Enforcement
    As discussed above in Section III.E.5 under the proposed program, 
manufacturers would report to EPA their fleet average standard for a 
given model year (reporting separately for each of the car and truck 
averaging sets), the credits or deficits generated in the current year, 
the balance of credit balances or deficits (taking into account banked 
credits, deficit carry-forward, etc. see Section III.E.5), and whether 
they were in compliance with the fleet average standard under the terms 
of the regulations. EPA would review the annual reports, figures, and 
calculations submitted by the manufacturer to determine any 
nonconformance. EPA requests comments on the above approach for 
monitoring and enforcement of the fleet average standard.
    Each certificate, required prior to introduction into commerce, 
would be conditioned upon the manufacturer attaining the CO2 
fleet average standard. If a manufacturer failed to meet this condition 
and had not generated or purchased enough credits to cover the fleet 
average exceedance following the three year deficit carry-forward 
(Section III.B.4, then EPA would review the manufacturer's sales for 
the most recent model year and designate which vehicles caused the 
fleet average standard to be exceeded. EPA would designate as 
nonconforming those vehicles with the highest emission values first, 
continuing until a number of vehicles equal to the calculated number of 
non-complying vehicles as determined above is reached and those 
vehicles would be considered to be not covered by the certificates of 
conformity covering those model types. In a test group where only a 
portion of vehicles would be deemed nonconforming, EPA would determine 
the actual nonconforming vehicles by counting backwards from the last 
vehicle sold in that model type. A manufacturer would be subject to 
penalties and injunctive orders on an individual vehicle basis for sale 
of vehicles not covered by a certificate. This is the same general 
mechanism used for the National LEV and Tier 2 corporate average 
standards, except that these programs operate slightly differently in 
that the non-compliant vehicles would be designated not in the most 
recent model year, but in the model year in which the deficit 
originated. EPA requests comment on which approach is most appropriate; 
the Tier 2 approach of penalizing vehicles from the year in which the 
deficit was generated, or the proposed approach that would penalize 
vehicles from the year in which the manufacturer failed to make up the 
deficit as required.
    Section 205 of the CAA authorizes EPA to assess penalties of up to 
$37,500 per vehicle for violations of the requirements or prohibitions 
of this proposed rule.\176\ This section of the

[[Page 49574]]

CAA provides that the agency shall take the following penalty factors 
into consideration in determining the appropriate penalty for any 
specific case: The gravity of the violation, the economic benefit or 
savings (if any) resulting from the violation, the size of the 
violator's business, the violator's history of compliance with this 
title, action taken to remedy the violation, the effect of the penalty 
on the violator's ability to continue in business, and such other 
matters as justice may require.
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    \176\ 42 U.S.C. 7524(a), Civil Monetary Penalty Inflation 
Adjustment, 69 FR 7121 (Feb. 13, 2004) and Civil Monetary Penalty 
Inflation Adjustment Rule, 73 FR 75340 (Dec. 11, 2008).
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    EPA recognizes that it may be appropriate, should a manufacturer 
fail to comply with the NHTSA fuel economy standards as well as the 
CO2 standard proposed today in a case arising out of the 
same facts and circumstances, to take into account the civil penalties 
that NHTSA has assessed for violations of the CAFE standards when 
determining the appropriate penalty amount for violations of the 
CO2 emissions standards. This approach is consistent with 
EPA's broad discretion to consider ``such other matters as justice may 
require,'' and will allow EPA to exercise its discretion to prevent 
injustice and ensure that penalties for violations of the 
CO2 rule are assessed in a fair and reasonable manner.
    The statutory penalty factor that allows EPA to consider ``such 
other matters as justice may require'' vests EPA with broad discretion 
to reduce the penalty when other adjustment factors prove insufficient 
or inappropriate to achieve justice.\177\ The underlying principle of 
this penalty factor is to operate as a safety mechanism when necessary 
to prevent injustice.\178\
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    \177\ In re Spang & Co., 6 E.A.D. 226, 249 (EAB 1995).
    \178\ B.J. Carney Industries, 7 E.A.D. 171, 232, n. 82 (EAB 
1997).
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    In other environmental statutes, Congress has specifically required 
EPA to consider penalties assessed by other government agencies where 
violations arise from the same set of facts. For instance, section 
311(b)(8) of the Clean Water Act, 33 U.S.C. 1321(b)(8) authorizes EPA 
to consider any other penalty for the same incident when determining 
the appropriate Clean Water Act penalty. Likewise, section 113(e) of 
the CAA authorizes EPA to consider ``payment by the violator of 
penalties previously assessed for the same violation'' when assessing 
penalties for certain violations of Title I of the Act.
7. Prohibited Acts in the CAA
    Section 203 of the Clean Air Act describes acts that are prohibited 
by law. This section and associated regulations apply equally to the 
greenhouse standards proposed today as to any other regulated 
pollutant.
8. Other Certification Issues
a. Carryover/Carry Across Certification Test Data
    EPA's certification program for vehicles allows manufacturers to 
carry certification test data over and across certification testing 
from one model year to the next, when no significant changes to models 
are made. EPA expects that this policy could also apply to 
CO2, N2O and CH4 certification test 
data. A manufacturer may also be eligible to use carryover and carry 
across data to demonstrate CO2 fleet average compliance if 
they had done so for CAFE purposes.
b. Compliance Fees
    The CAA allows EPA to collect fees to cover the costs of issuing 
certificates of conformity for the classes of vehicles and engines 
covered by this proposal. On May 11, 2004, EPA updated its fees 
regulation based on a study of the costs associated with its motor 
vehicle and engine compliance program (69 FR 51402). At the time that 
cost study was conducted the current rulemaking was not considered.
    At this time the extent of any added costs to EPA as a result of 
this proposal is not known. EPA will assess its compliance testing and 
other activities associated with the proposed rule and may amend its 
fees regulations in the future to include any warranted new costs.
c. Small Entity Deferment
    EPA is proposing to defer CO2 standards for certain 
small entities, and these entities (necessarily) would not be subject 
to the certification requirements of this proposal.
    As discussed in Section III.B.7, businesses meeting the Small 
Business Administration (SBA) criterion of a small business as 
described in 13 CFR 121.201 would not be subject to the proposed GHG 
requirements, pending future regulatory action. EPA is proposing that 
such entities submit a declaration to EPA containing a detailed written 
description of how that manufacturer qualifies as a small entity under 
the provisions of 13 CFR 121.201 in order to ensure EPA is aware of the 
deferred companies. This declaration would have to be signed by a chief 
officer of the company, and would have to be made at least 30 days 
prior to the introduction into commerce of any vehicles for each model 
year for which the small entity status is requested, but not later than 
December of the calendar year prior to the model year for which 
deferral is requested. For example, if a manufacturer will be 
introducing model year 2012 vehicles in October of 2011, then the small 
entity declaration would be due in September of 2011. If 2012 model 
year vehicles are not planned for introduction until March of 2012, 
then the declaration would have to be submitted in December of 2011. 
Such entities are not automatically exempted from other EPA regulations 
for light-duty vehicles and light-duty trucks; therefore, absent this 
annual declaration EPA would assume that each entity was not deferred 
from compliance with the proposed greenhouse gas standards.
d. Onboard Diagnostics (OBD) and CO2 Regulations
    The light-duty on-board diagnostics (OBD) regulations require 
manufacturers to detect and identify malfunctions in all monitored 
emission-related powertrain systems or components.\179\ Specifically, 
the OBD system is required to monitor catalysts, oxygen sensors, engine 
misfire, evaporative system leaks, and any other emission control 
systems directly intended to control emissions, such as exhaust gas 
recirculation (EGR), secondary air, and fuel control systems. The 
monitoring threshold for all of these systems or components is 1.5 
times the applicable standards, which typically include NMHC, CO, 
NOX, and PM. EPA is confident that many of the emission-
related systems and components currently monitored would effectively 
catch any malfunctions related to CO2 emissions. For 
example, malfunctions resulting from engine misfire, oxygen sensors, 
the EGR system, the secondary air system, and the fuel control system 
would all have an impact on CO2 emissions. Thus, repairs 
made to any of these systems or components should also result in an 
improvement in CO2 emissions. In addition, EPA does not have 
data on the feasibility or effectiveness of monitoring various emission 
systems and components for CO2 emissions and does not 
believe it would be prudent to include CO2 emissions without 
such information. Therefore, at this time, EPA does not plan to require 
CO2 emissions as one of the applicable standards required 
for the OBD monitoring threshold. EPA plans to evaluate OBD monitoring 
technology, with regard to monitoring CO2 emissions-related 
systems and components, and may choose to propose to include 
CO2 emissions as part of the OBD requirements in a future 
regulatory

[[Page 49575]]

action. EPA requests comment as to whether this is appropriate at this 
time, and specifically requests any data that would support the need 
for CO2-related components that could or should be monitored 
via an OBD system.
---------------------------------------------------------------------------

    \179\ 40 CFR 86.1806-04.
---------------------------------------------------------------------------

e. Applicability of Current High Altitude Provisions to Greenhouse 
Gases
    EPA is proposing that vehicles covered by this proposal meet the 
CO2, N2O and CH4 standard at altitude. 
The CAA requires emission standards under section 202 to apply at all 
altitudes.\180\ EPA does not expect vehicle CO2, 
CH4, or N2O emissions to be significantly 
different at high altitudes based on vehicle calibrations commonly used 
at all altitudes. Therefore, EPA is proposing to retain its current 
high altitude regulations so manufacturers would not normally be 
required to submit vehicle CO2 test data for high altitude. 
Instead, they would submit an engineering evaluation indicating that 
common calibration approaches will be utilized at high altitude. Any 
deviation in emission control practices employed only at altitude would 
need to be included in the auxiliary emission control device (AECD) 
descriptions submitted by manufacturers at certification. In addition, 
any AECD specific to high altitude would be required to include 
emissions data to allow EPA evaluate and quantify any emission impact 
and validity of the AECD. EPA requests comment on this approach, and 
specifically requests data on impact of altitude on FTP and HFET 
CO2 emissions.
---------------------------------------------------------------------------

    \180\ See CAA 206(f).
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f. Applicability of Standards to Aftermarket Conversions
    With the exception of the small entity deferment option EPA is 
proposing, EPA's emission standards, including the proposed greenhouse 
gas standards, would continue to apply as stated in the applicability 
sections of the relevant regulations. The proposed greenhouse gas 
standards are being incorporated into 40 CFR part 86, subpart S, the 
provisions of which include exhaust and evaporative emission standards 
for criteria pollutants. Subpart S includes requirements for new light-
duty vehicles, light-duty trucks, medium-duty passenger vehicles, Otto-
cycle complete heavy-duty vehicles, and some incomplete light-duty 
trucks. Subpart S is currently specifically applicable to aftermarket 
conversion systems, aftermarket conversion installers, and aftermarket 
conversion certifiers, as those terms are defined in 40 CFR 85.502. EPA 
expects that some aftermarket conversion companies would qualify for 
and seek the small entity deferment, but those that do not qualify 
would be required to meet the applicable emission standards, including 
the proposed greenhouse gas standards.
9. Miscellaneous Revisions to Existing Regulations
a. Revisions and Additions to Definitions
    EPA is proposing to amend its definitions of ``engine code,'' 
``transmission class,'' and ``transmission configuration'' in its 
vehicle certification regulations (Part 86) to conform with the 
definitions for those terms in its fuel economy regulations (Part 600). 
The exact terms in Part 86 are used for reporting purposes and are not 
used for any compliance purpose (e.g., an engine code would not 
determine which vehicle was selected for emission testing). However, 
the terms are used for this purpose in Part 600 (e.g., engine codes, 
transmission class, and transmission configurations are all criteria 
used to determine which vehicles are to be tested for the purposes of 
establishing corporate average fuel economy). Here, EPA is proposing 
that the same vehicles tested to determine corporate average fuel 
economy also be tested to determine fleet average CO2, so 
the same definitions should apply. Thus EPA is proposing to amend its 
Part 86 definitions of the above terms to conform to the definitions in 
Part 600.
    To bring EPA's fuel economy regulations in Part 600 into conformity 
with this proposal for fleet average CO2 and NHTSA's reform 
truck regulations two amendments are proposed. First, the definition of 
``footprint'' that is proposed in this rule is also being proposed for 
addition to EPA's Part 86 and 600 regulations. This definition is based 
on the definition promulgated by NHTSA at 49 CFR 523.2. Second, EPA is 
proposing to amend its model year CAFE reporting regulations to include 
the footprint information necessary for EPA to determine the reformed 
truck standards and the corporate average fuel economy. This same 
information is proposed to be included in this proposal for fleet 
average CO2 and fuel economy compliance.
b. Addition of Ethanol Fuel Economy Calculation Procedures
    EPA is proposing to add calculation procedures to part 600 for 
determining the carbon-related exhaust emissions and calculating the 
fuel economy of vehicles operating on ethanol fuel. Manufacturers have 
been using these procedures as needed, but the regulatory language--
which specifies how to determine the fuel economy of gasoline, diesel, 
compressed natural gas, and methanol fueled vehicles--has not 
previously been brought up-to-date to provide procedures for vehicles 
operating on ethanol. Thus EPA is proposing a carbon balance approach 
similar to other fuels for the determination of carbon-related exhaust 
emissions for the purpose of determining fuel economy and for 
compliance with the proposed fleet average CO2 standards. 
The carbon balance formula is similar to that for methanol, except that 
ethanol-fueled vehicles must also measure the emissions of ethanol and 
acetaldehyde. The proposed carbon balance equation for determining fuel 
economy is as follows, where CWF is the carbon weight fraction of the 
fuel and CWFexHC is the carbon weight fraction of the 
exhaust hydrocarbons:

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

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

CO2-eq = (CWFexHCx HC) + (0.429 x CO) + (0.375 
x CH3OH) + (0.400 x HCHO) + (0.521 x 
C2H5OH) + (0.545 x 
C2H4O) + CO2.

    EPA requests comment on the use of these formulae to determine fuel 
economy and carbon emissions.
c. Revision of Electric Vehicle Applicability Provisions
    In 1980 EPA issued a rule that provided for the inclusion of 
electric vehicles in the CAFE program.\181\ EPA now believes that 
certain provisions of the regulations should be updated to reflect the 
current state of motor vehicle emission and fuel economy regulations. 
In particular, EPA believes that the exemption of electric vehicles in 
certain cases from fuel economy labeling and CAFE requirements should 
be reevaluated and revised.
---------------------------------------------------------------------------

    \181\ 45 FR 49256, July 24, 1980.
---------------------------------------------------------------------------

    The rule created an exemption for electric vehicles from fuel 
economy labeling in the following cases: (1) If the electric vehicles 
are produced by a company that produces only electric vehicles; and (2) 
if the electric vehicles are produced by a company that

[[Page 49576]]

produces fewer than 10,000 vehicles of all kinds worldwide. EPA 
believes that this exemption language is no longer appropriate and 
proposes to delete it from the affected regulations. First, since 1980 
many regulatory provisions have been put in place to address the 
concerns of small manufacturers and enable them to comply with fuel 
economy and emission programs with reduced burden. EPA believes that 
all small volume manufacturers should compete on a fair and level 
regulatory playing field and that there is no longer a need to treat 
small volume electric vehicles any differently than small volume 
manufacturers of other types of vehicles. Current regulations contain 
streamlined certification procedures for small companies, and because 
electric vehicles emit no direct pollution there is effectively no 
certification emission testing burden. For example, the proposed 
greenhouse gas regulations contain a provision allowing the exemption 
of certain small entities. Meeting the requirements for fuel economy 
labeling and CAFE will entail a testing, reporting, and labeling 
burden, but these burdens are not extraordinary and should be applied 
equally to all small volume manufacturers, regardless of the fuel that 
moves their vehicles. EPA has been working with existing electric 
vehicle manufacturers on fuel economy labeling, and EPA believes it is 
important for the consumer to have impartial, accurate, and useful 
label information regarding the energy consumption of these vehicles. 
Second, EPCA does not provide for an exemption of electric vehicles 
from NHTSA's CAFE program, and NHTSA regulations regarding the 
applicability of the CAFE program do not provide an exemption for 
electric vehicles. Third, the blanket exemption for any manufacturer of 
only electric vehicles assumed at the time that these companies would 
all be small, but the exemption language inappropriately did not 
account for size and would allow large manufacturers to be exempt as 
well. Finally, because of growth expected in the electric vehicle 
market in the future, EPA believes that the labeling and CAFE 
regulations need to be designed to more specifically accommodate 
electric vehicles and to require that consumers be provided with 
appropriate information regarding these vehicles. For these reasons EPA 
is proposing revisions to 40 CFR Part 600 applicability regulations 
such that these electric vehicle exemptions are deleted starting with 
the 2012 model year.
d. Miscellaneous Conforming Regulatory Amendments
    Throughout the regulations EPA has made a number of minor 
amendments to update the regulations as needed or to conform with 
amendments discussed in this preamble. For example, for consistency 
with the ethanol fuel economy calculation procedures discussed above, 
EPA has amended regulations where necessary to require the collection 
of emissions of ethanol and acetaldehyde. Other changes are made to 
applicability sections to remove obsolete regulatory requirements such 
as phase-ins related to EPA's Tier 2 emission standards program, and 
still other changes are made to better accommodate electric vehicles in 
EPA emission control regulations. Not all of these minor amendments are 
noted in this preamble, thus the reader should carefully evaluate the 
proposed regulatory text to ensure a complete understanding of the 
regulatory changes being proposed by EPA.
10. Warranty, Defect Reporting, and Other Emission-Related Components 
Provisions
    Under section 207(a) of the CAA, manufacturers must warrant that a 
vehicle is designed to comply with the standards and will be free from 
defects that may cause it to not comply over the specified period which 
is 2 years/24,000 miles (whichever is first) or, for major emission 
control components, 8 years/80,000 miles. Under certain conditions, 
manufacturers may be liable to replace failed emission components at no 
expense to the owner. EPA regulations define ``emission related parts'' 
for the purpose of warranty. This definition includes parts which must 
function properly to assure continued compliance with the emission 
standards.\182\
---------------------------------------------------------------------------

    \182\ 40 CFR 85.2102(14).
---------------------------------------------------------------------------

    The air conditioning system and its components have not previously 
been covered under the CAA warranty provisions. However, the proposed 
A/C leakage and A/C-related CO2 emission standards are 
dependent upon the proper functioning of a number of components on the 
A/C system, such as rings, fittings, compressors, and hoses. Therefore, 
EPA is proposing that these components be included under the CAA 
section 207(a) emission warranty provisions, with a warranty of 2 
years/24,000 miles.
    EPA requests comment as to whether any other parts or components 
should be designated as ``emission related parts'' subject to warranty 
and defect reporting provisions under this proposal.
11. Light Duty Vehicles and Fuel Economy Labeling
    American consumers need accurate and meaningful information about 
the environmental and fuel economy performance of new light vehicles. 
EPA believes it is important that the fuel-economy label affixed to the 
new vehicles provide consumers with the critical information they need 
to make smart purchase decisions. This is a special challenge in light 
of the expected increase in market share of electric and other advanced 
technology vehicles. Consumers may need new and different information 
than today's vehicle labels provide in order to help them understand 
the energy use and associated cost of owning these electric and 
advanced technology vehicles. As discussed below, these two issues are 
key to determining whether the current MPG-based fuel-economy label is 
adequate.
    Therefore, as part of this action, EPA seeks comments on issues 
surrounding consumer vehicle labeling in general, and labeling of 
advanced technology vehicles in particular. EPA also plans to initiate 
a separate rulemaking to explore in detail the information displayed on 
the fuel economy label and the methodology for deriving that 
information. The purposes of this new rulemaking would be to ensure 
that American consumers continue to have the most accurate, meaningful, 
and useful information available to them when purchasing new vehicles, 
and that the information is presented to them in clear and 
understandable terms.
a. Background
    EPA has considerable experience in providing vehicle information to 
consumers through its fuel-economy labeling activities and related web-
based programs. Under 49 U.S.C. 32908(b) EPA is responsible for 
developing the fuel economy labels that are posted on window stickers 
of all new light duty cars and trucks sold in the U.S. and, beginning 
with the 2011 model year, on all new medium-duty passenger vehicles (a 
category that includes large sport-utility vehicles and passenger 
vans). The statutory requirements established by EPCA require that the 
label contain the following:
     The fuel economy of the vehicle; \183\
---------------------------------------------------------------------------

    \183\ ``Fuel economy'' per the statute is miles per gallon of 
gasoline (or equivalent amount of other fuel).
---------------------------------------------------------------------------

     The estimated annual fuel cost of operating the vehicle;

[[Page 49577]]

     The range of fuel economy of comparable vehicles among all 
manufacturers;
     A statement that a fuel economy booklet is available from 
the dealer; \184\ and
---------------------------------------------------------------------------

    \184\ EPA and DOE jointly publish the annual Fuel Economy Guide 
and distribute it to dealers.
---------------------------------------------------------------------------

     The amount of the ``gas guzzler'' tax imposed on the 
vehicle by the Internal Revenue Service.
     Other information required or authorized by EPA that is 
related to the information required above.
    Fuel economy is defined as the number of miles traveled by an 
automobile for each gallon of gasoline (or equivalent amount of other 
fuel). It is relatively easy to determine the miles per gallon (MPG) 
for vehicles that use liquid fuels (e.g., gasoline or diesel), but an 
expression that uses gallons--whether miles per gallon or gallons per 
mile--may not be a useful metric for vehicles that have limited to no 
operation on liquid fuel such as electric or compressed natural gas 
vehicles. The mpg metric is the one generally used today to provide 
comparative fuel economy information to consumers.
    As part of its vehicle certification, CAFE, and fuel economy 
labeling authorities, EPA works with stakeholders on the testing and 
other regulatory requirements necessary to bring advanced technology 
vehicles to market. With increasing numbers of advanced technology 
vehicles beginning to be sold, EPA believes it is now appropriate to 
address potential regulatory and certification issues associated with 
these technologies including how best to provide relevant consumer 
information about their environmental impact, energy consumption, and 
cost.
b. Test Procedures
    As discussed in this notice, there are explicit and very long-
standing test procedures and calculation methodologies associated with 
CAFE that EPA uses to test conventionally-fueled vehicles and to 
calculate their fuel economy. These test procedures and calculations 
also generally apply to advanced technology vehicles (e.g., an electric 
(EV) or plug-in hybrid vehicle (PHEV)).
    The basic test procedure for an electric vehicle follows a 
standardized practice--an EV is fully charged and then driven over the 
city cycle (Urban Dynamometer Drive Schedule) until the vehicle can no 
longer maintain the required drive cycle vehicle speed. For some 
vehicles, this could require operation over multiple drive cycles. The 
EV is then fully recharged and the AC energy to the charger is 
recorded.
    To derive the CAFE value for electric vehicles, the amount of AC 
energy needed to recharge the battery is divided by the range the 
vehicle reached in the repeated city drive cycle. This calculation 
provides a raw CAFE energy consumption value expressed in kilowatt 
hours per 100 miles. The raw CAFE number is then converted to miles per 
gallon of equivalent gasoline using a Department of Energy (DOE) 
conversion factor of 82,700 Kwhr/gallon of gasoline.\185\ The DOE 
conversion factor combines several adjustments including: an adjustment 
similar to the statutory 6.67 multiplier credit \186\ used in deriving 
the final CAFE value for alternative fueled vehicles; a factor 
representing the gasoline-equivalent energy content of electricity; and 
various adjustments to account for the relative efficiency of producing 
and transporting the electricity. The resulting value after the DOE 
conversion factor is applied becomes the final CAFE city value.
---------------------------------------------------------------------------

    \185\ 49 U.S.C. 32904 and 10 CFR 474.3.
    \186\ 49 U.S.C. 32905.
---------------------------------------------------------------------------

    The label value calculation for an EV uses a different conversion 
factor than the CAFE value calculation. To come up with the final city 
fuel economy label value for an EV, a conversion factor of 33,705 Kwhr/
gallon of gasoline equivalent is applied to the raw consumption number 
instead of the 82,700 Kwhr/gallon used for CAFE. The conversion factor 
used for labeling purposes represents only the gasoline-equivalent 
energy content of electricity, without the multiplier credit and other 
adjustments used in the CAFE calculation. The consumption, now 
expressed as a fuel economy in miles per gallon equivalent, is then 
applied to the derived 5-cycle equation required under EPA's fuel 
economy labeling regulations. The above process is then repeated for 
the EV highway fuel economy label number. Finally, the combined city/
highway numbers for the EV use the same 55/45 weighting as conventional 
vehicles to determine the final fuel economy label values. CAFE numbers 
end up being significantly higher for EVs than the associated fuel 
economy label values, both because a higher adjustment factor applies 
under CAFE regulations and also because other real-world adjustments 
such as the 5-cycle test are not applied to the CAFE values.
    For PHEVs, a similar process would be followed, except that PHEVs 
require testing in both charge sustain (CS) and charge depleting (CD) 
modes to capture how these vehicles operate. For charge sustain modes, 
PHEVs essentially operate as conventional Hybrid Electric Vehicles 
(HEVs). PHEVs therefore test in all 5-cycles (for further information 
on these test cycles, see Section III.C.4) just as HEVs do for CS fuel 
economy. For CD fuel economy, PHEVs are only required to test on the 
Urban Dynamometer Drive Schedule and Highway Fuel Economy cycles just 
like other alternative fueled vehicles--the 5-cycle fuel economy 
testing is optional in the CD mode. There are additional processes that 
address different PHEV modes, such as for PHEVs that operate solely on 
electricity throughout the CD mode.
    As this discussion shows, the CAFE and fuel economy labeling test 
procedures and calculations for advanced technology vehicles such as 
EVs and PHEVs can be very complicated. EPA is interested in comments on 
these processes, including views on the appropriate use of adjustment 
factors. Currently in guidance, EPA references SAE J1634 for EV range 
and consumption test procedures. EPA currently includes the 
``California Exhaust Emission Standards and Test Procedures for 2003 
and Subsequent Model Zero-Emission Vehicles, in the Passenger Car, 
Light Truck, and Medium-duty Vehicle Classes'' by reference in 40 CFR 
86.1. As California requirements and SAE test procedures are updated 
these may be included by reference in the future.
c. Current Fuel Economy Label
    In 2006 EPA redesigned the window stickers to make them more 
informative for consumers. More particular, the redesigned stickers 
more prominently feature annual fuel cost information, to provide 
contemporary and easy-to-use graphics for comparing the fuel economy of 
different vehicles, to use clearer text, and to include a Web site 
reference to www.fueleconomy.gov which provides additional information. 
In addition, EPA updated how the city and highway fuel economy values 
were calculated, to reflect typical real-world driving patterns.\187\ 
This rulemaking involved significant stakeholder outreach in 
determining how best to calculate and display this new information. The 
feedback EPA has received to date on the new label design and values 
has been generally very positive.
---------------------------------------------------------------------------

    \187\ 71 FR 77872 (December 27, 2006). Fuel Economy Labeling of 
Motor Vehicles: Revisions to Improve Calculations of Fuel Economy 
Estimates. U.S. EPA.
---------------------------------------------------------------------------

    During the 2006 label rulemaking process EPA requested comments on

[[Page 49578]]

how a fuel consumption metric (such as gallons per 100 miles) could be 
used and represented to the public, including presentation in the 
annual Fuel Economy Guide. EPA received a number of comments from both 
vehicle manufacturers and consumer organizations, suggesting that the 
MPG measures can be misleading and that a fuel consumption metric might 
be more meaningful to consumers than the established MPG metric found 
on fuel economy labels. The reason is that fuel consumption metric, 
directly measures the amount of fuel used and is thus directly related 
to cost that consumers incur when filling up.
    The problem with the MPG metric is that it is inversely related to 
fuel consumption and cost. As higher MPG values are reached, the 
relative impact of these higher values on fuel consumption and fuel 
costs decreases. For example, a 25 percent increase in gallons per 100 
miles will always lead to a 25 percent increase in the fuel cost, but a 
similar 25 percent increase in MPG will have varying impacts on actual 
fuel cost depending on whether the percent increase occurs to a low or 
high MPG value. Many consumers do not understand this nonlinear 
relationship between MPG and fuel costs. Evidence suggest that people 
tend to see the MPG as being linear with fuel cost, which will lead to 
erroneous decisions regarding vehicle purchases. Figure III.E.11-1 
below illustrates the issue; one can see that changes in MPG at low MPG 
levels can result in large changes in the fuel cost, while changes in 
MPG values at high MPG levels result in small changes in the fuel cost. 
For example, a change from 10 to 15 MPG will reduce the 10-mile fuel 
cost from $2.50 to $1.60, but a similar increase in MPG from 20 to 25 
MPG will only reduce the 10-mile fuel cost by less than $0.30.

[[Page 49579]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.020

    Because of the potential for consumers to misunderstand this MPG/
cost relationship, commenters on the 2006 labeling rule universally 
agreed that any change to the label metric should involve a significant 
public education campaign directed toward both dealers and consumers.
    In 2006, EPA did not include a consumption-based metric on the 
redesigned fuel economy label in 2006. It was concerned about potential 
confusion associated with introducing a second metric on the label (MPG 
is a required element, as noted above). EPA has developed an 
interactive feature on www.fueleconomy.gov which allows consumers, 
while viewing data on a specific vehicle, to switch units between the 
MPG and gallons per 100 miles metrics. The tool also displays the cost 
and the amount of fuel needed to drive 25 miles. As indicated above, 
however, EPA is alert to the problems with the MPG measure and the 
importance of providing consumers with a clear sense

[[Page 49580]]

of the consequences of their purchasing decisions; a gallon-per mile 
measure would have significant advantages. EPA plans to seek comment 
and engage in extensive public debate about fuel consumption and other 
appropriate consumer information metrics as part of a new labeling rule 
initiative. EPA also welcomes comments on this topic in response to 
this GHG proposal.
d. Labeling for Advanced Technology Vehicles
    Even though a fuel consumption metric may more directly represent 
likely fuel costs than a fuel economy metric, any expression that uses 
gallons--whether miles per gallon or gallons per mile--is not a useful 
metric for vehicles that have limited to no operation on liquid fuel 
(e.g., electricity or compressed natural gas). For example, PHEVs and 
extended range electric vehicles (EREVs) can use two types of energy 
sources: (1) An onboard battery, charged by plugging the vehicle into 
the electrical grid via a conventional wall outlet, to power an 
electric motor, as well as (2) a gas or diesel-powered engine to propel 
the vehicle or power a generator used to provide electricity to the 
electric motor. Depending on how these vehicles are operated, they can 
use electricity exclusively, never use electricity and operate like a 
conventional hybrid, or operate in some combination of these two modes. 
The use of a MPG figure alone would not account for the electricity 
used to propel the vehicle.
    EPA has worked closely with numerous stakeholders including vehicle 
manufacturers, the Society of Automotive Engineers (SAE), the State of 
California, the Department of Energy (DOE) and others to develop 
possible approaches for both estimating fuel economy and labeling 
vehicles that can operate using more than one energy source. At the 
present time, EPA believes the appropriate method for estimating fuel 
economy of PHEVs and EREVs would be a weighted average of fuel economy 
for the two modes of operation. A methodology developed by SAE and DOE 
to predict the fractions of total distance driven in each mode of 
operation (electricity and gas) uses a term known as a utility factor 
(UF). By using a utility factor, it is possible to determine a weighted 
average for fuel economy of the electric and gasoline modes. For 
example, a UF of 0.8 would indicate that a PHEV or EREV operates in an 
all electric mode 80% of the time and uses the gasoline engine the 
other 20% of the time. In this example, the weighted average fuel 
economy value would be influenced more by the electrical operation than 
the gasoline operation.
    Under this approach, a UF could be assigned to each successive fuel 
economy test until the battery charge was depleted and the PHEV or EREV 
needed power from the gasoline engine to propel the vehicle or to 
recharge the battery. One minus the sum of all the utility factors 
would then represent the fraction of driving performed in this 
``gasoline mode.'' Fuel economy could then be expressed as:
[GRAPHIC] [TIFF OMITTED] TP28SE09.021

    Likewise, the electrical consumption would be expressed by adding 
the fuel consumption from each mode. Since there is no electrical 
consumption in hybrid mode, the equation for electricity consumption 
would be as follows:
[GRAPHIC] [TIFF OMITTED] TP28SE09.074

    Utility factors could be cycle specific not only due to different 
battery ranges on different test cycles but also due to the fact that 
``highway'' type driving may imply longer trips than urban driving. 
That is to say that the average city trip could be shorter than the 
average highway trip.
e. Request for Comments
    EPA is interested in comments on both topics raised in this 
section. For the methodology, we are interested in comments addressing 
how the utility factor is calculated and which data should be used in 
establishing the UF. Additionally, commenters should address: The 
appropriateness of this approach for estimating fuel economy for PHEVs 
and EREVs, including the concept of using a UF to determine the fuel 
economy for vehicles operated in multiple modes; the appropriate form 
and value of the factor, including the type of data that would be 
necessary to confidently develop it accurately; and availability of 
other potential methodologies for determining fuel economy for vehicles 
that can operate in multiple modes, such as ``all electric'' and 
``hybrid,'' including the use of fuel consumption, cost, GHG emissions, 
or other metrics in addition to miles per gallon.
    EPA is also requesting comment on how the agency can satisfy 
statutory labeling requirements while providing relevant information to 
consumers. For example, the statute indicates that EPA may provide 
other related items on the label beyond those that are required.\188\ 
EPA is interested in receiving comments on the potential approaches and 
supporting data we might consider for adding additional information 
regarding fuel economics while maintaining our statutory obligation to 
report MPG on the label.
---------------------------------------------------------------------------

    \188\ 49 U.S.C. 3290(b)(F).
---------------------------------------------------------------------------

    There are a number of different metrics that are available that 
could be useful in this regard. Two possible options would be to show 
consumption in fuel use per distance (e.g., gallons/100 miles) or in 
cost per distance (e.g., $/100 miles). As discussed above, these two 
metrics have benefits over a straight mpg value in showing a more 
direct relationship between fuel consumption and cost. The cost/
distance metric has an added potential benefit of providing a common 
basis for comparing differently fueled or powered vehicles, for example 
being able to show the cost of gasoline used over a specified distance 
or time for a conventional gasoline-powered vehicle in comparison to 
the gasoline and electricity used over the same period for a plug-in 
hybrid vehicle. Another approach would be to use a metric that provides 
information about a vehicle's greenhouse gas emissions per unit of 
travel, such as carbon dioxide equivalent grams per mile (g 
CO2e/mi). This type of metric would allow consumers to 
directly compare among vehicles on the basis of their overall 
greenhouse gas impact. A total annual energy cost would be another way 
to look at this information, and is currently used on the fuel economy 
label. As is currently done, EPA would need to determine and show a 
common set of fuel costs used to calculate such values, recognizing 
that energy costs vary across the country.
    The Agency is also interested in comments on the usefulness of 
adding other types of information, such as an estimated driving range 
for electric vehicles. The label design is also an important issue to 
consider and any changes to the existing label would need to show 
information in a technologically accurate, meaningful and 
understandable manner, while ensuring that the label does not become 
overcrowded and difficult for consumers to comprehend. EPA is also 
interested in what and how other information paths, such as web-based 
programs, could be used to enhance the consumer education process.

[[Page 49581]]

F. How Would This Proposal Reduce GHG Emissions and Their Associated 
Effects?

    This action is an important step towards curbing steady growth of 
GHG emissions from cars and light trucks. In the absence of control, 
GHG emissions worldwide and in the U.S. are projected to continue 
steady growth; Table III.F-1 shows emissions of CO2, 
methane, nitrous oxide and air conditioning refrigerants on a 
CO2-equivalent basis for calendar years 2010, 2020, 2030, 
2040 and 2050. U.S. GHGs are estimated to make up roughly 15 percent of 
total worldwide emissions, and the contribution of direct emissions 
from cars and light trucks to this U.S. share is growing over time, 
reaching an estimated 20 percent of U.S. emissions by 2030 in the 
absence of control. As discussed later in this section, this steady 
rise in GHG emissions is associated with numerous adverse impacts on 
human health, food and agriculture, air quality, and water and forestry 
resources.

                          Table III.F-1--Reference Case GHG Emissions by Calendar Year
                                                   [MMTCO2 Eq]
----------------------------------------------------------------------------------------------------------------
                                                              2010       2020       2030       2040       2050
----------------------------------------------------------------------------------------------------------------
All Sectors (Worldwide) a................................     41,016     48,059     52,870     56,940     60,209
All Sectors (U.S. Only) a................................      7,118      7,390      7,765      8,101      8,379
U.S. Cars/Light Truck Only b.............................      1,359      1,332      1,516      1,828      2,261
----------------------------------------------------------------------------------------------------------------
a ADAGE model projections, U.S. EPA.\189\
b MOVES (2010), OMEGA Model (2020-50) U.S. EPA. See DRIA Chapter 5.3 for modeling details.

    EPA's proposed GHG rule, if finalized, will result in significant 
reductions as newer, cleaner vehicles come into the fleet, and the rule 
is estimated to have a measurable impact on world global temperatures. 
As discussed in Section I, this GHG proposal is part of a joint 
National Program such that a large majority of the projected benefits 
would be achieved jointly with NHTSA's proposed CAFE standards which 
are described in detail in Section IV of this preamble. EPA estimates 
the reductions attributable to the GHG program over time assuming the 
proposed 2016 standards continue indefinitely post-2016,\190\ compared 
to a baseline scenario in which the 2011 model year fuel economy 
standards continue beyond 2011.
---------------------------------------------------------------------------

    \189\ U.S. EPA (2009). ``EPA Analysis of the American Clean 
Energy and Security Act of 2009: H.R. 2454 in the 111th Congress.'' 
U.S. Environmental Protection Agency, Washington, DC, USA. 
(www.epa.gov/climatechange/economics/economicanalyses.html)
    \190\ This analysis does not include the EISA requirement for 35 
MPG through 2020 or California's Pavley 1 GHG standards. The 
proposed standards are intended to supersede these requirements, and 
the baseline case for comparison is the emissions that would result 
without further action above the currently promulgated fuel economy 
standards.
---------------------------------------------------------------------------

    Using this approach, EPA estimates these standards would cut annual 
fleetwide car and light truck tailpipe CO2 emissions 21 
percent by 2030, when 90 percent of car and light truck miles will be 
travelled by vehicles meeting the new standards. Roughly 20 percent of 
these reductions are due to emission reductions from gasoline 
extraction, production and distribution processes as a result of 
reduced gasoline demand associated with this proposal. Some of the 
overall emission reductions also come from projected improvements in 
the efficiency of vehicle air conditioning systems, which will 
substantially reduce direct emissions of HFCs, one of the most potent 
greenhouse gases, as well as indirect emissions of tailpipe 
CO2 emissions attributable to reduced engine load from air 
conditioning. In total, EPA estimates that compared to a baseline of 
indefinite 2011 model year standards, net GHG emission reductions from 
the proposed program would be 325 million metric tons CO2-
equivalent (MMTCO2eq) annually by 2030, which represents a 
reduction of 4 percent of total U.S. GHG emissions and 0.6 percent of 
total worldwide GHG emissions projected in that year. This estimate 
accounts for all upstream fuel production and distribution emission 
reductions, vehicle tailpipe emission reductions including air 
conditioning benefits, as well as increased vehicle miles travelled 
(VMT) due to the ``rebound'' effect discussed in Section III.H. EPA 
estimates this would be the equivalent of removing nearly 60 million 
cars and light trucks from the road in this timeframe.
    EPA projects the total reduction of the program over the full life 
of model year 2012-2016 vehicles is about 950 MMTCO2eq, with 
fuel savings of 76 billion gallons (1.8 billion barrels) of gasoline 
over the life of these vehicles, assuming that some manufacturers take 
advantage of low-cost HFC reduction strategies to help meet these 
proposed standards.
    These reductions are projected to reduce global mean temperature by 
approximately 0.007-0.016[deg]C by 2100, and global mean sea level rise 
is projected to be reduced by approximately 0.06-0.15 cm by 2100.
1. Impact on GHG Emissions
a. Calendar Year Reductions Due to GHG Standards
    This action, if finalized, will reduce GHG emissions emitted 
directly from vehicles due to reduced fuel use and more efficient air 
conditioning systems. In addition to these ``downstream'' emissions, 
reducing CO2 emissions translates directly to reductions in 
the emissions associated with the processes involved in getting 
petroleum to the pump, including the extraction and transportation of 
crude oil, and the production and distribution of finished gasoline 
(termed ``upstream'' emissions). Reductions from tailpipe GHG standards 
grow over time as the fleet turns over to vehicles affected by the 
standards, meaning the benefit of the program will continue as long as 
the oldest vehicles in the fleet are replaced by newer, lower 
CO2 emitting vehicles.
    EPA is not projecting any reductions in tailpipe CH4 or 
N2O emissions as a result of these proposed emission caps, 
which are meant to prevent emission backsliding and to bring diesel 
vehicles equipped with advanced technology aftertreatment into 
alignment with current gasoline vehicle emissions.
    As detailed in the DRIA, EPA estimated calendar year tailpipe 
CO2 reductions based on pre- and post-control CO2 
gram per mile levels from EPA's OMEGA model and assumed to continue 
indefinitely into the future, coupled with VMT projections from 
AEO2009. These estimates reflect the real-world CO2 
emissions reductions projected for the entire U.S. vehicle fleet in a 
specified calendar year, including the projected effect of air 
conditioning credits, TLAASP credits and FFV credits. EPA also 
estimated full lifetime reductions for model years 2012-2016

[[Page 49582]]

using pre- and post-control CO2 levels projected by the 
OMEGA model, coupled with projected vehicle sales and lifetime mileage 
estimates. These estimates reflect the real-world CO2 
emissions reductions projected for model years 2012 through 2016 
vehicles over their entire life.
    This proposal would allow manufacturers to earn credits for 
improved vehicle air conditioning efficiency. Since these improvements 
are relatively low cost, EPA projects that manufacturers will take 
advantage of this flexibility, leading to reductions from emissions 
associated with vehicle air conditioning systems. As explained above, 
these reductions will come from both direct emissions of air 
conditioning refrigerant over the life of the vehicle and tailpipe 
CO2 emissions produced by the increased load of the A/C 
system on the engine. In particular, EPA estimates that direct 
emissions of HFCs, one of the most potent greenhouse gases, would be 
reduced 40 percent from light-duty vehicles when the fleet has turned 
over to more efficient vehicles. The fuel savings derived from lower 
tailpipe CO2 would also lead to reductions in upstream 
emissions. Our estimated reductions from the A/C credits program are 
based on our analysis of how manufacturers are expected to take 
advantage of this credit opportunity in complying with the 
CO2 fleetwide average tailpipe standards.
    Upstream emission reductions associated with the production and 
distribution of fuel were estimated using emission factors from DOE's 
GREET1.8 model, with some modifications as detailed in the DRIA. These 
estimates include both international and domestic emission reductions, 
since reductions in foreign exports of finished gasoline and/or crude 
would make up a significant share of the fuel savings resulting from 
the proposed GHG standards. Thus, significant portions of the upstream 
GHG emission reductions will occur outside of the U.S.; a breakdown of 
projected international versus domestic reductions is included in the 
DRIA.
    Table III.F.1-1 shows reductions estimated from these proposed GHG 
standards assuming a pre-control case of 2011 MY standards continuing 
indefinitely beyond 2011, and a post-control case in which 2016 MY 
standards continue indefinitely beyond 2016. These reductions are 
broken down by upstream and downstream components, including air 
conditioning improvements, and also account for the offset from a 10 
percent VMT ``rebound'' effect as discussed in Section III.H. Including 
the reductions from upstream emissions, total reductions are estimated 
to reach 325 MMTCO2eq annually by 2030 (a 21 percent 
reduction in U.S. car and light truck emissions), and grow to over 500 
MMTCO2eq in 2050 as cleaner vehicles continue to come into 
the fleet (a 23 percent reduction in U.S. car and light truck 
emissions).

                                  Table III.F.1-1--Projected Net GHG Reductions
                                              [MMTCO2 Eq per year]
----------------------------------------------------------------------------------------------------------------
                                                                           Calendar year
                                                 ---------------------------------------------------------------
                                                       2020            2030            2040            2050
----------------------------------------------------------------------------------------------------------------
Net Reduction Due to Tailpipe Standards *.......           165.2           324.6           417.5           518.5
Tailpipe Standards..............................           107.7           211.4           274.1           344.0
A/C--indirect CO2...............................            11.0            21.1            27.3            34.2
A/C--direct HFCs................................            13.5            27.2            32.1            34.9
Upstream........................................            33.1            64.9            84.1           105.5
Percent reduction relative to U.S. reference               12.4%           21.4%           22.8%           22.9%
 (cars + light trucks)..........................
Percent reduction relative to U.S. reference                2.2%            4.2%            5.2%            6.2%
 (all sectors)..................................
Percent reduction relative to worldwide                     0.3%            0.6%            0.7%            0.9%
 reference......................................
----------------------------------------------------------------------------------------------------------------
* Includes impacts of 10% VMT rebound rate presented in Table III.F.1-3.

b. Lifetime Reductions for 2012-2016 Model Years
    EPA also analyzed the emission reductions over the full life of the 
2012-2016 model year cars and trucks affected by this proposal.\191\ 
These results, including both upstream and downstream GHG 
contributions, are presented in Table III.F.1-2, showing lifetime 
reductions of nearly 950 MMTCO2eq, with fuel savings of 76 
billion gallons (1.8 billion barrels) of gasoline.
---------------------------------------------------------------------------

    \191\ As detailed in the DRIA, for this analysis the full life 
of the vehicle is represented by average lifetime mileages for cars 
(190,000 miles) and trucks (221,000 miles) averaged over calendar 
years 2012 through 2030, a function of how far vehicles drive per 
year and scrappage rates.

              Table III.F.1-2--Projected Net GHG Reductions
                          [MMTCO2 Eq per year]
------------------------------------------------------------------------
                                        Lifetime GHG      Lifetime fuel
             Model year                reduction (MMT   savings (billion
                                           CO2 EQ)          gallons)
------------------------------------------------------------------------
2012................................              81.4               6.6
2013................................             125.0              10.0
2014................................             174.1              13.9
2015................................             243.2              19.5
2016................................             323.6              26.3
                                     -----------------------------------
    Total Program Benefit...........             947.4              76.2
------------------------------------------------------------------------


[[Page 49583]]

c. Impacts of VMT Rebound Effect
    As noted above and discussed more fully in Section III.H., the 
effect of fuel cost on VMT (``rebound'') was accounted for in our 
assessment of economic and environmental impacts of this proposed rule. 
A 10 percent rebound case was used for this analysis, meaning that VMT 
for affected model years is modeled as increasing by 10 percent as much 
as the increase in fuel economy; i.e., a 10 percent increase in fuel 
economy would yield a 1.0 percent increase in VMT. Results are shown in 
Table III.F.1-3; using the 10 percent rebound rate results in an 
overall emission increase of 26.4 MMTCO2eq annually in 2030 
(this increase is accounted for in the reductions presented in Tables 
III.F.1-1 and III.F.1-2). Our estimated changes in CH4 or 
N2O emissions as a result of these proposed vehicle GHG 
standards are attributed solely to this rebound effect.
    As discussed in Section III.H, EPA will be reassessing the 
appropriate rate of VMT rebound for the final rule. Although EPA has 
not directly quantified the GHG emissions effect of using a lower 
rebound rate for this analysis, lowering the rebound rate would reduce 
the emission increases in Tables III.F.1-1 and III.F.1-2 in proportion 
(i.e., zero rebound equals zero emissions effect), and, thus, would 
increase our estimates of emission reductions due to these proposed 
standards.

                                Table III.F.1-3--GHG Impact of 10% VMT Rebound a
                                              [MMTCO2 Eq per year]
----------------------------------------------------------------------------------------------------------------
                                                       2020            2030            2040            2050
----------------------------------------------------------------------------------------------------------------
Total GHG Increase..............................          13.6            26.4            34.2            42.9
Tailpipe & Indirect A/C CO2.....................          10.6            20.6            26.6            33.4
Upstream GHGs b.................................           2.95            5.74            7.43            9.32
Tailpipe N2O....................................           0.040           0.085           0.113           0.142
Tailpipe CH4....................................           0.008           0.016           0.021           0.027
----------------------------------------------------------------------------------------------------------------
a These impacts are included in the reductions shown in Table III.F.1-1 and III.F.1-2.
b Upstream rebound impact calculated as upstream total CO2 effect times ratio of downstream tailpipe rebound CO2
  effect to downstream tailpipe total CO2 effect.

d. Analysis of Alternatives
    EPA analyzed two alternative scenarios, including 4% and 6% annual 
increases in 2 cycle (CAFE) fuel economy. In addition to this annual 
increase, EPA assumed that manufacturers would use air conditioning 
improvements in identical penetrations as in the primary scenario. 
Under these assumptions, EPA expects achieved fleetwide average 
emission levels of 254 g/mile CO2 EQ (4%), and 230 g/mile 
CO2 EQ (6%) in 2016.
    As in the primary scenario, EPA assumed that the fleet complied 
with the standards. For full details on modeling assumptions, please 
refer to DRIA Chapter 5.

                         Table III.F.1-4--Calendar Year Impacts of Alternative Scenarios
----------------------------------------------------------------------------------------------------------------
                                                  Calendar year
-----------------------------------------------------------------------------------------------------------------
                                             Scenario           CY 2020      CY 2030      CY 2040      CY 2050
----------------------------------------------------------------------------------------------------------------
Total GHG Reductions (MMT CO2EQ)....  Primary...............        165.2        324.6        417.5        518.5
                                      4%....................        152.8        305.9        394.1        489.3
                                      6%....................        215.2        426.2        549.3        683.9
Fuel Savings (Billion Gallons         Primary...............         13.4         26.2         33.9         42.6
 Gasoline Equivalent).
                                      4%....................         12.2         24.5         31.8         39.9
                                      6%....................         17.8         35.1         45.5         57.1
----------------------------------------------------------------------------------------------------------------


                                              Table III.F.1-5--Model Year Impacts of Alternative Scenarios
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Model year lifetime
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Scenario              MY 2012      MY 2013      MY 2014      MY 2015      MY 2016       Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total GHG Reductions (MMT CO2EQ)...........  Primary......................         81.4        125.0        174.1        243.2        323.6        947.4
                                             4%...........................         41.8         93.5        160.8        231.0        305.2        832.3
                                             6%...........................         60.2        146.4        239.9        333.3        424.9      1,204.7
Fuel Savings (Billion Gallons Gasoline       Primary......................          6.6         10.0         13.9         19.5         26.3         76.2
 Equivalent).
                                             4%...........................          3.1          7.2         12.7         18.4         24.7         66.1
                                             6%...........................          4.7         11.9         19.7         27.4         35.2         99.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Overview of Climate Change Impacts From GHG Emissions
    Once emitted, greenhouse gases (GHG) that are the subject of this 
regulation can remain in the atmosphere for decades to centuries, 
meaning that (1) their concentrations become well-mixed throughout the 
global atmosphere regardless of emission origin, and (2) their effects 
on climate are long lasting. Greenhouse gas emissions come mainly from 
the combustion of fossil fuels (coal, oil, and gas), with additional 
contributions from the clearing of

[[Page 49584]]

forests and agricultural activities. The transportation sector accounts 
for a portion, 28%, of US GHG emissions.\192\
---------------------------------------------------------------------------

    \192\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC. http://www.epa.gov/climatechange/emissions/usgginv_archive.html.
---------------------------------------------------------------------------

    This section provides a broad overview of some of the impacts of 
GHG emissions. The best sources of information include the major 
assessment reports of both the Intergovernmental Panel on Climate 
Change (IPCC) and the U.S. Global Change Research Program (USGCRP, 
formerly referred to as the U.S. Climate Change Science Program). The 
IPCC and USGCRP assessments base their findings on the large body of 
individual, peer- reviewed studies in the literature, and then the IPCC 
and USGCRP assessments themselves go through a transparent peer-
reviewed process. The USGCRP reports, where possible, are specific to 
impacts in the U.S. and therefore represent the best available 
syntheses of relevant impacts.
    Most recently, the USGCRP released a report entitled ``Global 
Climate Change Impacts in the United States''.\193\ The report 
summarizes the science and the impacts of climate change on the United 
States, now and in the future. It focuses on climate change impacts in 
different regions of the U.S. and on various aspects of society and the 
economy such as energy, water, agriculture, and human health. It's also 
a report written in plain language, with the goal of better informing 
public and private decision making at all levels. The foundation of 
this report is a set of 21 Synthesis and Assessment Products (SAPs), 
which were designed to address key policy-relevant issues in climate 
science. The report was extensively reviewed and revised based on 
comments from experts and the public. The report was approved by its 
lead USGCRP Agency, the National Oceanic and Atmospheric 
Administration, the other USGCRP agencies, and the Committee on the 
Environment and Natural Resources on behalf of the National Science and 
Technology Council. This report meets all Federal requirements 
associated with the Information Quality Act, including those pertaining 
to public comment and transparency. Readers are encouraged to review 
this report.
---------------------------------------------------------------------------

    \193\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

    The source document for the section below is the draft endangerment 
Technical Support Document (TSD). In EPA's Proposed Endangerment and 
Cause or Contribute Findings Under the Clean Air Act,\194\ EPA provides 
a summary of the USGCRP and IPCC reports in a draft TSD. The draft TSD 
reviews observed and projected changes in climate based on current and 
projected atmospheric GHG concentrations and emissions, as well as the 
related impacts and risks from climate change that are projected in the 
absence of GHG mitigation actions, including this proposal and other 
U.S. and global actions. The TSD serves as an important support 
document to EPA's proposed Endangerment Finding; however, the document 
is a draft and is still undergoing comment and review as part of EPA's 
rulemaking process, and is subject to change based upon comments to the 
final endangerment finding.
---------------------------------------------------------------------------

    \194\ See Federal Register/Vol. 74, No. 78/Friday, April 24, 
2009/Proposed Rules; also Docket Number EPA-HQ-OAR-2009-0171; FRL-
8895-5.
---------------------------------------------------------------------------

a. Changes in Atmospheric Concentrations of GHGs From Global and U.S. 
Emissions
    Concentrations of six key GHGs (carbon dioxide, methane, nitrous 
oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) 
are at unprecedented levels compared to the recent and distant past. 
The global atmospheric CO2 concentration has increased about 
38% from pre-industrial levels to 2009, and almost all of the increase 
is due to anthropogenic emissions.
    Based on data from the most recent Inventory of U.S. Greenhouse Gas 
Emissions and Sinks (2008),\195\ total U.S. GHG emissions increased by 
905.9 teragrams of CO2-equivalent (Tg CO2 Eq), or 
14.7%, between 1990 and 2006. U.S. transportation sources subject to 
control under section 202(a) of the Clean Air Act (passenger cars, 
light duty trucks, other trucks and buses, motorcycles, and cooling 
\196\) emitted 1665 Tg CO2 Eq in 2006, representing almost 
24% of the total U.S. GHG emissions. Total global emissions, calculated 
by summing emissions of the six greenhouse gases by country, for 2005 
was 38,725.9 Tg CO2 Eq. This represents an increase of 26% 
from the 1990 level. See the EPA report ``Inventory of U.S. Greenhouse 
Gas Emissions and Sinks: 1990-2006'',\197\ Section 2 of the proposed 
Endangerment TSD, and IPCC's Working Group I (WGI) Fourth Assessment 
Report (AR4) \198\ for a more complete discussion of GHG emissions and 
concentrations.
---------------------------------------------------------------------------

    \195\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC.
    \196\ Cooling refers to refrigerants/air conditioning from all 
transportation sources and is related to HFCs.
    \197\ U.S. EPA (2008) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2006. EPA-430-R-08-005, Washington, DC. http://www.epa.gov/climatechange/emissions/usgginv_archive.html.
    \198\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
---------------------------------------------------------------------------

b. Observed Changes in Climate
i. Temperature
    The warming of the climate system is unequivocal, as is now evident 
from observations of increases in global air and ocean temperatures, 
widespread melting of snow and ice, and rising global average sea 
level. The global average net effect of the increase in atmospheric GHG 
concentrations, plus other human activities (e.g., land use change and 
aerosol emissions), on the global energy balance since 1750 has been 
one of warming. The global mean surface temperature \199\ over the last 
100 years (1906-2005) has risen by about 0.74 [deg]C (1.5 [deg]F) +/- 
0.18 [deg]C, and climate model simulations suggest that natural 
variation alone (e.g., changes in solar irradiance) cannot explain the 
observed warming. The rate of warming over the last 50 years is almost 
double that over the last 100 years. Most of the observed increase in 
global mean surface temperature since the mid-20th century is very 
likely due to the observed increase in anthropogenic GHG 
concentrations.
---------------------------------------------------------------------------

    \199\ Surface temperature is calculated by processing data from 
thousands of world-wide observation sites on land and sea.
---------------------------------------------------------------------------

    It can be stated with confidence that global mean surface 
temperature was higher during the last few decades of the 20th century 
than during any comparable period during the preceding four centuries. 
Like global mean surface temperatures, U.S. surface temperatures also 
warmed during the 20th and into the 21st century. U.S. average annual 
temperatures are now approximately 0.69[deg]C (1.25[deg]F) warmer than 
at the start of the 20th century, with an increased rate of warming 
over the past 30 years. Temperatures in winter have risen more than any 
other season, with winters in the Midwest and northern Great Plains 
increasing more than 7 [deg]F.\200\ Some of these changes have been 
faster than previous assessments had suggested.
---------------------------------------------------------------------------

    \200\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.) Cambridge 
University Press, 2009.
---------------------------------------------------------------------------

    For additional information, please see Section 4 of the proposed 
Endangerment

[[Page 49585]]

TSD, IPCC WGI AR4,\201\ and the report ``Global Climate Change Impacts 
in the United States''.\202\
---------------------------------------------------------------------------

    \201\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \202\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

ii. Precipitation
    Observations show that changes are occurring in the amount, 
intensity, frequency and type of precipitation. Global, long-term 
trends from 1900 to 2005 have been observed in the amount of 
precipitation over many large regions. Patterns in precipitation change 
are more spatially and seasonally variable than temperature change, but 
where significant precipitation changes do occur they are consistent 
with measured changes in stream flow. Significantly increased 
precipitation has been observed in eastern parts of North and South 
America, northern Europe and northern and central Asia.\200\ More 
intense and longer droughts have been observed over wider areas since 
the 1970s, particularly in the tropics and subtropics. It is likely 
there has been an increase in heavy precipitation events (e.g., 95th 
percentile) within many land regions, even in those where there has 
been a reduction in total precipitation amount, consistent with a 
warming climate and observed significant increasing amounts of water 
vapor in the atmosphere. Rising temperatures have generally resulted in 
rain rather than snow in locations and seasons such as in northern and 
mountainous regions where the average (1961-1990) temperatures were 
close to 0 [deg]C. Over the contiguous U.S., total annual precipitation 
increased at an average rate of 6.5% from 1901-2006, with the greatest 
increases in precipitation in the East and North Central climate 
regions (11.2% per century).
    For additional information, please see Section 4 of the proposed 
Endangerment TSD, IPCC WGI AR4,\203\ and the USGCRP report ``Global 
Climate Change Impacts in the United States''.\204\
---------------------------------------------------------------------------

    \203\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \204\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

iii. Extreme Events
    Changes in climate extremes have been observed related to 
temperature, precipitation, tropical cyclones, and sea level. In the 
last 50 years, there have been widespread changes in extreme 
temperatures observed across the globe. For example, cold days, cold 
nights, and frost have become less frequent, while hot days, hot 
nights, and heat waves have become more frequent. Globally, a reduction 
in the number of daily cold extremes has been observed in 70 to 75% of 
the land regions where data is available. Cold nights (lowest or 
coldest 10% of nights, based on the period 1961-1990) have become rarer 
over the last 50 years.
    Observational evidence indicates an increase in intense tropical 
cyclone (i.e., tropical storms and/or hurricanes) activity in the North 
Atlantic. Since about 1970, increases in cyclone developments that 
affect the U.S. East and Gulf Coasts have been correlated with 
increases of tropical sea surface temperatures In the contiguous U.S., 
studies find statistically significant increases in heavy precipitation 
(the heaviest 5%) and very heavy precipitation (the heaviest 1%) of 14 
and 20%, respectively. Much of this increase occurred during the last 
three decades of the 20th century and is most apparent over the eastern 
parts of the country. Trends in drought also have strong regional 
variations. In much of the Southeast and large parts of the western 
U.S., the frequency of drought has increased coincident with rising 
temperatures over the past 50 years. Although there has been an overall 
increase in precipitation and no clear trend in drought for the nation 
as a whole, increasing temperatures have made droughts more severe and 
widespread than they would have otherwise been.
    For additional information, please see Section 4 of the proposed 
Endangerment TSD, the CCSP report ``Weather and Climate Extremes in a 
Changing Climate. Regions of Focus: North America, Hawaii, Caribbean, 
and U.S. Pacific Islands'',\205\ IPCC WGI AR4,\206\ and the report 
``Global Climate Change Impacts in the United States''.\207\
---------------------------------------------------------------------------

    \205\ Weather and Climate Extremes in a Changing Climate. 
Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific 
Islands. A Report by the U.S. Climate Change Science Program and the 
Subcommittee on Global Change Research. [Thomas R. Karl, Gerald A. 
Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and 
William L. Murray (eds.)]. Department of Commerce, NOAA's National 
Climatic Data Center, Washington, D.C., USA, 164 pp.
    \206\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \207\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
---------------------------------------------------------------------------

iv. Physical and Biological Changes
    Observations show that climate change is currently affecting U.S. 
physical and biological systems in significant ways. Observations of 
the cryosphere (the ``frozen'' component of the climate system) have 
revealed changes in sea ice, glaciers and snow cover, freezing and 
thawing, and permafrost. Satellite data since 1978 show that annual 
average Arctic sea ice extent has shrunk by 2.7% (+/- 0.6%) per decade, 
with larger decreases in summer. Subtropical and tropical corals in 
shallow waters have already suffered major bleaching events that are 
primarily driven by increases in sea surface temperatures. Heat stress 
from warmer ocean water can cause corals to expel the microscopic algae 
that live inside them which are essential to their survival. Another 
stressor on coral populations is ocean acidification which occurs as 
CO2 is absorbed from the atmosphere by the oceans. About 
one-third of the carbon dioxide emitted by human activities has been 
absorbed by the ocean, resulting in a decrease in the ocean's pH. A 
lower pH affects the ability of living things to create and maintain 
shells or skeletons of calcium carbonate. Other documented bio-physical 
impacts include a significant lengthening of the growing season and 
increase in net primary productivity \208\ in higher latitudes of North 
America. Over the last 19 years, global satellite data indicate an 
earlier onset of spring across the temperate latitudes by 10 to 14 
days.
---------------------------------------------------------------------------

    \208\ Net primary productivity is the rate at which an ecosystem 
accumulates energy or biomass, excluding the energy it uses for the 
process of respiration.

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

[[Page 49586]]

    For additional information, please see Section 4 of the proposed 
Endangerment TSD and IPCC WGI AR4.\209\
---------------------------------------------------------------------------

    \209\ IPCC (2007a) Climate Change 2007: The Physical Science 
Basis. Contribution of Working Group I to the Fourth Assessment 
Report of the Intergovernmental Panel on Climate Change [Solomon, 
S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor 
and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, 
United Kingdom and New York, NY, USA.
---------------------------------------------------------------------------

c. Projected Changes in Climate
    Most future scenarios that assume no explicit GHG mitigation 
actions (beyond those already enacted) project increasing global GHG 
emissions over the century, with corresponding climbing GHG 
concentrations. Carbon dioxide is expected to remain the dominant 
anthropogenic GHG over the course of the 21st century. The radiative 
forcing \210\ associated with the non-CO2 GHGs is still 
significant and increasing over time. As a result, warming over this 
century is projected to be considerably greater than over the last 
century and climate related changes are expected to continue while new 
ones develop. Described below are projected changes in climate for the 
U.S.
---------------------------------------------------------------------------

    \210\ Radiative forcing is a measure of the change that a factor 
causes in altering the balance of incoming (solar) and outgoing 
(infrared and reflected shortwave) energy in the Earth-atmosphere 
system and thus shows the relative importance of different factors 
in terms of their contribution to climate change.
---------------------------------------------------------------------------

    See Section 6 of the proposed Endangerment TSD, IPCC WGI AR4,\211\ 
the USGCRP report ``Global Climate Change Impacts in the United 
States'',\212\ and the CCSP report ``Weather and Climate Extremes in a 
Changing Climate, Regions of Focus: North America, Hawaii, Caribbean, 
and U.S. Pacific Islands'' \213\ for a more complete discussion of 
projected changes in climate.
---------------------------------------------------------------------------

    \211\ Climate Change 2007: The Physical Science Basis. 
Contribution of Working Group I to the Fourth Assessment Report of 
the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, 
M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M.Tignor and H.L. 
Miller (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
    \212\ Global Climate Change Impacts in the United States, Thomas 
R. Karl, Jerry M. Melillo, and Thomas C. Peterson, (eds.). Cambridge 
University Press, 2009. http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts.
    \213\ Weather and Climate Extremes in a Changing Climate. 
Regions of Focus: North America, Hawaii, Caribbean, and U.S. Pacific 
Islands. A Report by the U.S. Climate Change Science Program and the 
Subcommittee on Global Change Research. [Thomas R. Karl, Gerald A. 
Meehl, Christopher D. Miller, Susan J. Hassol, Anne M. Waple, and 
William L. Murray (eds.)]. Department of Commerce, NOAA's National 
Climatic Data Center, Washington, DC, USA, 164 pp.
---------------------------------------------------------------------------

i. Temperature
    Future warming over the course of the 21st century, even under 
scenarios of low emissions growth, is very likely to be greater than 
observed warming over the past century. The range of IPCC SRES 
scenarios provides a global warming range of 1.8 [deg]C to 4.0 [deg]C 
(3.2 [deg]F to 7.2 [deg]F) with an uncertainty range of 1.1 [deg]C to 
6.4 [deg]C (2.0 [deg]F to 11.5 [deg]F). All of the U.S. is very likely 
to warm during this century, and most areas of the U.S. are expected to 
warm by more than the global average. The average warming in the U.S. 
through 2100 is projected by nearly all the models used in the IPCC 
assessment to exceed 2 [deg]C (3.6 [deg]F) for all scenarios, with 5 
out of 21 models projecting average warming in excess of 4 [deg]C (7.2 
[deg]F) for the mid-range emissions scenario. The number of days with 
high temperatures above 90 [deg]F is projected to increase throughout 
the U.S. Temperature increases in the next couple of decades will be 
primarily determined by past emissions of heat-trapping gases. As a 
result, there is less difference in projected temperature scenarios in 
the near-term (around 2020) than in the middle (2050) and end of the 
century, which will be determined more by future emissions.
ii. Precipitation
    Increases in the amount of precipitation are very likely in higher 
latitudes, while decreases are likely in most subtropical latitudes and 
the southwestern U.S., continuing observed patterns. The mid-
continental area is expected to experience drying during the summer, 
indicating a greater risk of drought. Climate models project continued 
increases in the heaviest downpours during this century, while the 
lightest precipitation is projected to decrease. With more intense 
precipitation expected to increase, the risk of flooding and greater 
runoff and erosion will also increase. In contrast, droughts are likely 
to become more frequent and severe in some regions. The Southwest, in 
particular, is expected to experience increasing drought as changes in 
atmospheric circulation patterns cause the dry zone just outside the 
tropics to expand farther northward into the United States.
iii. Extreme Events
    It is likely that hurricanes will become more intense, especially 
along the Gulf and Atlantic coasts, with stronger peak winds and more 
heavy precipitation associated with ongoing increases of tropical sea 
surface temperatures. Heavy rainfall events are expected to increase, 
increasing the risk of flooding, greater runoff and erosion, and thus 
the potential for adverse water quality effects. These projected trends 
can increase the number of people at risk from suffering disease and 
injury due to floods, storms, droughts, and fires. Severe heat waves 
are projected to intensify, which can increase heat-related mortality 
and sickness.
iv. Physical and Biological Changes
    IPCC projects a six-inch to two-foot rise in sea level during the 
21st century from processes such as thermal expansion of sea water and 
the melting of land-based polar ice sheets. Ocean acidification is 
projected to continue, resulting in the reduced biological production 
of marine calcifiers, including corals. In addition to ocean 
acidification, coastal waters are very likely to continue to warm by as 
much as 4 to 8 [deg]F in this century, both in summer and winter. This 
will result in a northward shift in the geographic distribution of 
marine life along the coasts. Warmer ocean temperatures will also 
contribute to increased coral bleaching.
d. Key Climate Change Impacts and Risks
    The effects of climate changes observed to date and/or projected to 
occur in the future include: More frequent and intense heat waves, more 
wildfires, degraded air quality, more heavy downpours and flooding, 
increased drought, greater sea level rise, more intense storms, water 
quantity and quality problems, and negative impacts to human health, 
water supply, agriculture, forestry, coastal areas, wildlife and 
ecosystems, and many other aspects of society and the natural 
environment.
i. Human Health
    Warm temperatures and extreme weather already cause and contribute 
to adverse human health outcomes through heat-related mortality and 
morbidity, storm-related fatalities and injuries, and disease. In the 
absence of effective adaptation, these effects are likely to increase 
with climate change. Health effects related to climate change include 
increased deaths, injuries, infectious diseases, and stress-related 
disorders and other adverse effects associated with social disruption 
and migration from more frequent extreme weather. Severe heat waves are 
projected to intensify in magnitude and duration over the portions of 
the U.S. where these events already occur, with potential increases in 
mortality and morbidity, especially among the elderly, young and other 
sensitive populations.

[[Page 49587]]

However, reduced human mortality from cold exposure is projected 
through 2100. It is not clear whether reduced mortality from cold will 
be greater or less than increased heat-related mortality, especially 
among the elderly, young and frail. Public health effects from climate 
change will likely disproportionately impact the health of certain 
segments of the population, such as the poor, the very young, the 
elderly, those already in poor health, the disabled, those living alone 
and/or indigenous populations dependent on one or a few resources. 
Increases are expected in potential ranges and exposure of certain 
diseases affected by temperature and precipitation changes, including 
vector and waterborne diseases (i.e., malaria, dengue fever, West Nile 
virus). See the CCSP Report ``Analyses of the effects of global change 
on human health and welfare and human systems'',\214\ IPCC's Working 
Group II (WG2) AR4,\215\ and Section 7 of the proposed Endangerment TSD 
for a more complete discussion regarding climate change and impacts on 
human health.
---------------------------------------------------------------------------

    \214\ Analyses of the effects of global change on human health 
and welfare and human systems. A Report by the U.S. Climate Change 
Science Program and the Subcommittee on Global Change Research. 
[Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, 
(Authors)]. U.S. Environmental Protection Agency, Washington, DC, 
USA.
    \215\ Climate Change 2007: Impacts, Adaptation and 
Vulnerability. Contribution of Working Group II to the Fourth 
Assessment Report of the Intergovernmental Panel on Climate Change 
[M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and 
C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
---------------------------------------------------------------------------

ii. Air Quality
    Climate change can be expected to influence the concentration and 
distribution of air pollutants through a variety of direct and indirect 
processes, including the modification of biogenic emissions, the change 
of chemical reaction rates, wash-out of pollutants by precipitation, 
and modification of weather patterns that influence pollutant build-up. 
Higher temperatures and weaker circulation patterns associated with 
climate change are expected to worsen regional ozone pollution in the 
U.S., with associated risks in respiratory infection, aggravation of 
asthma, and premature death. In addition to human health effects, 
elevated levels of tropospheric ozone have significant adverse effects 
on crop yields, pasture and forest growth, and species composition. See 
Section 8 of the proposed Endangerment TSD, EPA's report ``Assessment 
of the Impacts of Global Change on Regional U.S. Air Quality: A 
Synthesis of Climate Change Impacts on Ground-Level Ozone'', \216\ the 
CCSP report ``Analyses of the effects of global change on human health 
and welfare and human systems'' \217\ and IPCC WGII AR4 \218\ for a 
more complete discussion regarding human health impacts resulting from 
climate change effects on air quality.
---------------------------------------------------------------------------

    \216\ EPA (2009) Assessment of the Impacts of Global Change on 
Regional U.S. Air Quality: A Synthesis of Climate Change Impacts on 
Ground-Level Ozone. An Interim Report of the U.S. EPA Global Change 
Research Program. U.S. Environmental Protection Agency, Washington, 
DC, EPA/600/R-07/094.
    \217\ Analyses of the effects of global change on human health 
and welfare and human systems. A Report by the U.S. Climate Change 
Science Program and the Subcommittee on Global Change Research. 
[Gamble, J.L. (ed.), K.L. Ebi, F.G. Sussman, T.J. Wilbanks, 
(Authors)]. U.S. Environmental Protection Agency, Washington, DC, 
USA.
    \218\ Climate Change 2007: Impacts, Adaptation and 
Vulnerability. Contribution of Working Group II to the Fourth 
Assessment Report of the Intergovernmental Panel on Climate Change 
[M.L. Parry, O.F. Canziani, J.P. Palutikof, P.J. van der Linden and 
C.E. Hanson (eds.)]. Cambridge University Press, Cambridge, United 
Kingdom and New York, NY, USA.
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iii. Food and Agriculture
    The CCSP concluded that, with increased CO2 and 
temperature, the life cycle of grain and oilseed crops will likely 
progress more rapidly. But, as temperature rises, these crops will 
increasingly begin to experience failure, especially if climate 
variability increases and precipitation lessens or becomes more 
variable. Furthermore, the marketable yield of many horticultural crops 
(e.g., tomatoes, onions, fruits) is very likely to be more sensitive to 
climate change than grain and oilseed crops. Higher temperatures will 
very likely reduce livestock production during the summer season, but 
these losses will very likely be partially offset by warmer 
temperatures during the winter season. Cold water fisheries will likely 
be negatively affected; warm-water fisheries will generally benefit; 
and the results for cool-water fisheries will be mixed, with gains in 
the northern and losses in the southern portions of ranges. See Section 
9 of the proposed Endangerment TSD, the CCSP report ``The Effects of 
Climate Change on Agriculture, Land Resources, Water Resources, and 
Biodiversity in the United States'', and the USGCRP report ``Global 
Climate Change Impacts in the United States'' for a more complete 
discussion regarding climate science and impacts to food production and 
agriculture.
iv. Forestry
    Climate change has very likely increased the size and number of 
forest fires, insect outbreaks, and tree mortality in the interior 
west, the Southwest, and Alaska, and will continue to do so. 
Disturbances like wildfire and insect outbreaks are increasing and are 
likely to intensify in a warmer future with drier soils and longer 
growing seasons. Although recent climate trends have increased 
vegetation growth, continuing increases in disturbances are likely to 
limit carbon storage, facilitate invasive species, and disrupt 
ecosystem services. Overall forest growth for North America as a whole 
will likely increase modestly (10-20%) as a result of extended growing 
seasons and elevated CO2 over the next century, but with 
important spatial and temporal variation. Forest growth is slowing in 
areas subject to drought and has been subject to significant loss due 
insect infestations such as the spruce bark beetle in Alaska. See 
Section 10 of the proposed Endangerment TSD, the CCSP report ``The 
Effects of Climate Change on Agriculture, Land Resources, Water 
Resources, and Biodiversity in the United States'', IPCC WGII, and the 
USGCRP report ``Global Climate Change Impacts in the United States'' 
for a more complete discussion regarding climate science and impacts to 
forestry.
v. Water Resources
    The vulnerability of freshwater resources in the United States to 
climate change varies from region to region. Climate change will likely 
further constrain already over-allocated water resources in some 
sections of the U.S., increasing competition among agricultural, 
municipal, industrial, and ecological uses. Although water management 
practices in the U.S. are generally advanced, particularly in the 
western U.S climate change may increasingly create conditions well 
outside of historic observations impacting managed water systems. 
Rising temperatures will diminish snowpack and increase evaporation, 
affecting seasonal availability of water. Groundwater systems generally 
respond more slowly to climate change than surface water systems. In 
semi-arid and arid areas, groundwater resources are particularly 
vulnerable because of precipitation and stream flow are concentrated 
over a few months, year-to-year variability is high, and deep 
groundwater wells or reservoirs generally do not exist. Availability of 
groundwater is likely to be influenced by changes in withdrawals 
(reflecting development, demand, and availability of other sources).
    In the Great Lakes and major river systems, lower levels are likely 
to exacerbate challenges relating to water quality, navigation, 
recreation,

[[Page 49588]]

hydropower generation, water transfers, and bi-national relationships. 
Decreased water supply and lower water levels are likely to exacerbate 
challenges relating to aquatic navigation. Higher water temperatures, 
increased precipitation intensity, and longer periods of low flows will 
exacerbate many forms of water pollution, potentially making attainment 
of water quality goals more difficult. As waters become warmer, the 
aquatic life they now support will be replaced by other species better 
adapted to warmer water. In the long-term, warmer water and changing 
flow may result in deterioration of aquatic ecosystems. See Section 11 
of the proposed Endangerment TSD, the CCSP report ``The Effects of 
Climate Change on Agriculture, Land Resources, Water Resources, and 
Biodiversity in the United States'', IPCC WGII, and the USGCRP report 
``Global Change Impacts in the United States'' for a more complete 
discussion regarding climate science and impacts to water resources.
vi. Sea Level Rise and Coastal Areas
    Warmer temperatures raise sea level by expanding ocean water, 
melting glaciers, and possibly increasing the rate at which ice sheets 
discharge ice and water into the oceans. Rising sea level and the 
potential for stronger storms pose an increasing threat to coastal 
cities, residential communities, infrastructure, beaches, wetlands, and 
ecosystems. Coastal communities and habitats will be increasingly 
stressed by climate change effects interacting with development and 
pollution. Sea level is rising along much of the U.S. coast, and the 
rate of change will increase in the future, exacerbating the impacts of 
progressive inundation, storm-surge flooding, and shoreline erosion. 
Studies find 75% of the shoreline removed from the influence of spits, 
tidal inlets and engineering structures is eroding along the U.S. East 
Coast probably due to sea level rise. Storm impacts are likely to be 
more severe, especially along the Gulf and Atlantic coasts. Salt 
marshes, estuaries, other coastal habitats, and dependent species will 
be further threatened by sea level rise. The interaction with coastal 
zone development and climate change effects such as sea level rise will 
further stress coastal communities and habitats. Population growth and 
rising value of infrastructure in coastal areas increases vulnerability 
and risk of climate variability and future climate change. Sea level 
rise and high rates of water withdrawal promote the intrusion of saline 
water in to groundwater supplies, which adversely affects water 
quality. See Section 12 of the proposed Endangerment TSD, the CCSP 
report ``Coastal Sensitivity to Sea Level Rise: A Focus on the Mid-
Atlantic Region'',\219\ the USGCRP report ``Global Change Impacts in 
the United States'', and IPCC WGII for a more complete discussion 
regarding climate science and impacts to sea level rise and coastal 
areas.
---------------------------------------------------------------------------

    \219\ CCSP (2009) Coastal Sensitivity to Sea-Level Rise: A Focus 
on the Mid-Atlantic Region. A report by the U.S. Climate Change 
Science Program and the Subcommittee on Global Change Research. 
[James G. Titus (Coordinating Lead Author), K. Eric Anderson, Donald 
R. Cahoon, Dean B. Gesch, Stephen K. Gill, Benjamin T. Gutierrez, E. 
Robert Thieler, and S. Jeffress Williams (Lead Authors)], U.S. 
Environmental Protection Agency, Washington DC, USA, 320 pp.
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vii. Energy, Infrastructure and Settlements
    Most of the effects of climate change on the U.S. energy sector 
will be related to energy use and production. The research evidence is 
relatively clear that climate warming will mean reductions in total 
U.S. heating requirements and increases in total cooling requirements 
for building. These changes will vary by region and by season and will 
affect household and business energy costs. Studies project that 
temperature increases due to global warming are very likely to increase 
peak demand for electricity in most regions of the country as rising 
temperatures are expected to increase energy requirements for cooling 
residential and commercial buildings. An increase in peak demand for 
electricity can lead to a disproportionate increase in energy 
infrastructure investment. Extreme weather events can threaten coastal 
energy infrastructures and electricity transmission and distribution in 
the U.S. Increases in hurricane intensity are likely to cause further 
disruptions to oil and gas operations in the Gulf, like those 
experienced in 2005 with Hurricane Katrina. Climate change is likely to 
affect some renewable energy sources across the nation, such as 
hydropower production in regions subject to changing patterns of 
precipitation or snowmelt. The U.S. energy sector, which relies heavily 
on water for both hydropower and cooling capacity, may be adversely 
impacted by changes to water supply and quality in reservoirs and other 
water bodies.
    Water infrastructure, including drinking water and wastewater 
treatment plants, and sewer and storm water management systems, will be 
at greater risk of flooding, sea level rise and storm surge, low flows, 
and other factors that could impair performance. In addition, as water 
supply is constrained and demand increases it will become more likely 
that water will have to be transported and moved which will require 
additional energy capacity. See Section 13 of the proposed Endangerment 
TSD, the CCSP reports ``the Effects of Climate Change on Energy 
Production in the United States'' \220\ and ``Impacts of Climate Change 
and Variability on Transportation Systems and Infrastructure'',\221\ 
and the USGCRP report ``Global Change Impacts in the United States'' 
for a more complete discussion regarding climate science and impacts to 
energy, infrastructure and settlements.
---------------------------------------------------------------------------

    \220\ CCSP (2007): Effects of Climate Change on Energy 
Production and Use in the United States. A Report by the U.S. 
Climate Change Science Program and the subcommittee on Global Change 
Research. Thomas J. Wilbanks, Vatsal Bhatt, Daniel E. Bilello, 
Stanley R. Bull, James Ekmann, William C. Horak, Y. Joe Huang, Mark 
D. Levine, Michael J. Sale, David K. Schmalzer, and Michael J. 
Scott). Department of Energy, Office of Biological & Environmental 
Research, Washington, DC, USA, 160 pp.
    \221\ CCSP (2008) Impacts of Climate Change and Variability on 
Transportation Systems and Infrastructure: Gulf Coast Study, Phase 
I. A Report by the U.S. Climate Change Science Program and the 
Subcommittee on Global Change Research [Savonis, M.J., V.R. Burkett, 
and J.R. Potter (eds.)]. Department of Transportation, Washington, 
DC, USA, 445 pp.
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viii. Ecosystems and Wildlife
    Disturbances such as wildfires and insect outbreaks are increasing 
in the U.S. and are likely to intensify in a warmer future with drier 
soils and longer growing seasons. Although recent climate trends have 
increased vegetation growth, continuing increases in disturbances are 
likely to limit carbon storage, facilitate invasive species, and 
disrupt ecosystem services. Over the 21st century, changes in climate 
will cause species to shift north and to higher elevations and 
fundamentally rearrange U.S. ecosystems. Differential capacities for 
range shifts are constrained by development, habitat fragmentation, 
invasive species, and broken ecological connections. IPCC consequently 
predicts significant disruption of ecosystem structure, function, and 
services. See Section 14 of the proposed Endangerment TSD, IPCC WGII, 
the CCSP report ``The Effects of Climate Change on Agriculture, Land 
Resources, Water Resources, and Biodiversity in the United States'', 
and the USGCRP report ``Global Change Impacts in the United States'' 
for a more complete discussion regarding climate science and impacts to 
ecosystems and wildlife.

[[Page 49589]]

3. Changes in Global Mean Temperature and Sea Level Rise Associated 
With the Proposal's GHG Emissions Reductions
    EPA examined \222\ the reductions in CO2 and other GHGs 
associated with the proposal and analyzed the projected effects on 
global mean surface temperature and sea level, two common indicators of 
climate change. The analysis projects that the proposal will reduce 
climate warming and sea level rise. Although the projected reductions 
are small in overall magnitude by themselves, they are quantifiable and 
would contribute to reducing climate change risks.
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    \222\ Using the Model for the Assessment of Greenhouse Gas 
Induced Climate Change (MAGICC, http://www.cgd.ucar.edu/cas/wigley/magicc/), EPA estimated the effects of this action's greenhouse gas 
emissions reductions on global mean temperature and sea level. 
Please refer to Chapter 7.4 of the DRIA for additional information.
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a. Estimated Projected Reductions in Global Mean Surface Temperatures 
and Sea Level Rise
    EPA estimated changes in the atmospheric CO2 
concentration, global mean surface temperature and sea level to 2100 
resulting from the emissions reductions in this proposal using the 
Model for the Assessment of Greenhouse Gas Induced Climate Change 
(MAGICC, version 5.3). This widely used, peer reviewed modeling tool 
was also used to project temperature and sea level rise under different 
emissions scenarios in the Third and Fourth Assessments of the 
Intergovernmental Panel on Climate Change (IPCC).
    GHG emissions reductions from Section III.F.1a were applied as net 
reductions to a peer reviewed global reference case (or baseline) 
emissions scenario to generate an emissions scenario specific to this 
proposal. For the proposal scenario, all emissions reductions were 
assumed to begin in 2012, with zero emissions change in 2011 (from the 
reference case) followed by emissions linearly increasing to equal the 
value supplied in Section III.F.1.a for 2020 and then continuing to 
2100. Details about the reference case scenario and how the emissions 
reductions were applied to generate the proposal scenario can be found 
in the DRIA Chapter 7.
    The atmospheric CO2 concentration, temperature, and sea-
level increases for both the reference case and the proposal emissions 
scenarios were computed using MAGICC. To compute the reductions in the 
atmospheric CO2 concentrations as well as in temperature and 
sea level resulting from the proposal, the output from the proposal 
scenario was subtracted from an existing MiniCAM emission scenario. To 
capture some key uncertainties in the climate system with the MAGICC 
model, changes in temperature and sea-level rise were projected across 
the most current IPCC range for climate sensitivities which ranges from 
1.5 [deg]C to 6.0 [deg]C (representing the 90% confidence 
interval).\223\ This wide range reflects the uncertainty in this 
measure of how much the global mean temperature would rise if the 
concentration of carbon dioxide in the atmosphere were to double. 
Details about this modeling analysis can be found in the DRIA Chapter 
7.4.
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    \223\ In IPCC reports, equilibrium climate sensitivity refers to 
the equilibrium change in the annual mean global surface temperature 
following a doubling of the atmospheric equivalent carbon dioxide 
concentration. The IPCC states that climate sensitivity is 
``likely'' to be in the range of 2 [deg]C to 4.5 [deg]C, ``very 
unlikely'' to be less than 1.5 [deg]C, and ``values substantially 
higher than 4.5 [deg]C cannot be excluded.'' IPCC WGI, 2007, Climate 
Change 2007--The Physical Science Basis, Contribution of Working 
Group I to the Fourth Assessment Report of the IPCC, http://www.ipcc.ch/.
---------------------------------------------------------------------------

    The results of this modeling show small, but quantifiable, 
reductions in the atmospheric CO2 concentration, the 
projected global mean surface temperature and sea level resulting from 
this proposal (assuming it is finalized), across all climate 
sensitivities. As a result of this proposal's emission reductions, the 
atmospheric CO2 concentration is projected to be reduced by 
approximately 2.9 to 3.2 parts per million (ppm), the global mean 
temperature is projected to be reduced by approximately 0.007-0.016 
[deg]C by 2100, and global mean sea level rise is projected to be 
reduced by approximately 0.06-0.15cm by 2100. The reductions are small 
relative to the IPCC's 2100 ``best estimates'' for global mean 
temperature increases (1.8-4.0 [deg]C) and sea level rise (0.20-0.59m) 
for all global GHG emissions sources for a range of emissions 
scenarios. EPA used a peer reviewed model, the MAGICC model, to do this 
analysis. This analysis is specific to the proposed rule and therefore 
cannot come from some previously published work. The Agency welcomes 
comment on the use of the MAGICC model for these purposes. Further 
discussion of EPA's modeling analysis is found in Chapter 7 of the 
Draft RIA.
    As a substantial portion of CO2 emitted into the 
atmosphere is not removed by natural processes for millennia, each unit 
of CO2 not emitted into the atmosphere avoids essentially 
permanent climate change on centennial time scales. Though the 
magnitude of the avoided climate change projected here is small, these 
reductions would represent a reduction in the adverse risks associated 
with climate change (though these risks were not formally estimated for 
this proposal) across all climate sensitivities.
4. Weight Reduction and Potential Safety Impacts
    In this section, EPA will discuss potential safety impacts of the 
proposed standards. In the joint technology analysis, EPA and NHTSA 
agree that automakers could reduce weight as one part of the industry's 
strategy for meeting the proposed standards. As shown in table III.D.6-
3, of this Preamble, EPA's modeling projects that vehicle manufacturers 
will reduce the weight of their vehicles by 4% on average between 2011 
and 2016 although individual vehicles may have greater or smaller 
weight reduction (NHTSA's results are similar using the Volpe model). 
The penetration and magnitude of these modeled changes are consistent 
with the public announcements made by many manufacturers since early 
2008 and are consistent with meetings that EPA has had with senior 
engineers and technical leadership at many of the automotive companies 
during 2008 and 2009.
    EPA also projects that automakers will not reduce footprint in 
order to meet the proposed CO2 standards in our modeling 
analysis. NHTSA and EPA have taken two measures to help ensure that the 
proposed rules provide no incentive for mass reduction to be 
accompanied by a corresponding decrease in the footprint of the vehicle 
(with its concomitant decrease in crush and crumple zones). The first 
design feature of the proposed rule is that the CO2 or fuel 
economy targets are based on the attribute of footprint (which is a 
surrogate for vehicle size).\224\ The second design feature is that the 
shape of the footprint curve (or function) has been carefully chosen 
such that it neither encourages manufacturers to increase, nor decrease 
the footprint of their fleet. Thus, the standard curves are designed to 
be approximately ``footprint neutral'' within the sloped portion of the 
function.\225\ For further discussion on this, refer to Section II.C of 
the preamble, or Chapter 2 of the joint TSD. Thus the agencies are 
assuming in their

[[Page 49590]]

modeling analysis that the manufacturers could reduce vehicle mass 
without reducing vehicle footprint as one way to respond to the 
proposed rule.\226\
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    \224\ As the footprint attribute is defined as wheelbase times 
track width, the footprint target curves do not discourage 
manufacturers from reducing vehicle size by reducing front, rear, or 
side overhang, which can impact safety by resulting in less crush 
space.
    \225\ This neutrality with respect to footprint does not extend 
to the smallest and largest vehicles, because the function is 
limited, or flattened, in these footprint ranges.
    \226\ See Chapter 1 of the joint TSD for a description of 
potential footprint changes in the 2016 reference fleet.
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    In Section IV of this preamble, NHTSA presents a safety analysis of 
the proposed CAFE standards based on the 2003 Kahane analysis. As 
discussed in Section IV, NHTSA has developed a worse case estimate of 
the impact of weight reductions on fatalities. The underlying data used 
for that analysis does not allow NHTSA to analyze the specific impact 
of weight reduction at constant footprint because historically there 
have not been a large number of vehicles produced that relied 
substantially on material substitution. Rather, the data set includes 
vehicles that were either smaller and lighter or larger and heavier. 
The numbers in the NHTSA analysis predict the safety-related fatality 
consequences that would occur in the unlikely event that weight 
reduction for model years 2012-2016 is accomplished by reducing mass 
and reducing footprint. EPA concurs with NHTSA that the safety analysis 
conducted by NHTSA and presented in Section IV is a worst case analysis 
for fatalities, and that the actual impacts on vehicle safety could be 
much less. However, EPA and NHTSA are not able to quantify the lower-
bound potential impacts at this time.
    The agencies believe that reducing vehicle mass without reducing 
the size of the vehicle or the structural integrity is technically 
feasible in the rulemaking time frame. Many of the technical options 
for doing so are outlined in Chapter 3 of the joint TSD and in EPA's 
DRIA. Weight reduction can be accomplished by the proven methods 
described below. Every manufacturer will employ these methodologies to 
some degree, the magnitude to which each will be used will depend on 
opportunities within individual vehicle design.
     Material Substitution: Substitution of lower density and/
or higher strength materials in a manner that preserves or improves the 
function of the component. This includes substitution of high-strength 
steels, aluminum, magnesium or composite materials for components 
currently fabricated from mild steel (e.g., the magnesium-alloy front 
structure used on the 2009 Ford F150 pickups).\227\ Light-weight 
materials with acceptable energy absorption properties can maintain 
structural integrity and absorption of crash energy relative to 
previous designs while providing a net decrease in component weight.
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    \227\ We note that since these MY 2009 F150s have only begun to 
enter the fleet, there is little real-world crash data available to 
evaluate the safety impacts of this new design.
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     Smart Design: Computer aided engineering (CAE) tools can 
be used to better optimize load paths within structures by reducing 
stresses and bending moments without adversely affecting structural 
integrity. This allows better optimization of the sectional thicknesses 
of structural components to reduce mass while maintaining or improving 
the function of the component. Smart designs also integrate separate 
parts in a manner that reduces mass by combining functions or the 
reduced use of separate fasteners. In addition, some ``body on frame'' 
vehicles are redesigned with a lighter ``unibody'' construction with 
little compromise in vehicle functionality.
     Reduced Powertrain Requirements: Reducing vehicle weight 
sufficiently can allow for the use of a smaller, lighter and more 
efficient engine while maintaining or even increasing performance. 
Approximately half of the reduction is due to these reduced powertrain 
output requirements from reduced engine power output and/or 
displacement, lighter weight transmission and final drive gear ratios. 
The subsequent reduced rotating mass (e.g. transmission, driveshafts/
halfshafts, wheels and tires) via weight and/or size reduction of 
components are made possible by reduced torque output requirements.
     Mass Compounding: Following from the point above, the 
compounded weight reductions of the body, engine and drivetrain can 
reduce stresses on the suspension components, steering components, 
brakes, and thus allow further reductions in the weight of these 
subsystems. The reductions in weight for unsprung masses such as 
brakes, control arms, wheels and tires can further reduce stresses in 
the suspension mounting points which can allow still further reductions 
in weight. For example, lightweighting can allow for the reduction in 
the size of the vehicle brake system, while maintaining the same 
stopping distance.
    Therefore, EPA believes it is both technically feasible to reduce 
weight without reducing vehicle size, footprint or structural strength 
and manufacturers have indicated to the agencies that they will use 
these approaches to accomplish these tasks. We request written comment 
on this assessment and this projection, including up-to-date plans 
regarding the extent of use by each manufacturer of each of the 
methodologies described above.
    For this proposed rule, as noted earlier, EPA's modeling analysis 
projects that weight reduction by model year 2016 on the order of 4% on 
average for the fleet will occur (see Section III.D.6 for details on 
our estimated mass reduction). EPA believes that such modeled changes 
in the fleet could result in much smaller fatality impacts than those 
in the worst case scenario presented in Section IV by NHTSA, since 
manufacturers have many safer options for reducing vehicle weight than 
doing so by simultaneously reducing footprint. The NHTSA analysis, 
based solely on 4-door vehicles, does not independently differentiate 
between weight reduction which comes from vehicle downsizing (a 
physically smaller vehicle) and vehicle weight reduction solely through 
design and material changes (i.e., making a vehicle weigh less without 
changing the size of the vehicle or reducing structural integrity).
    Dynamic Research Incorporated (DRI) has assessed the independent 
effects of vehicle weight and size on safety in order to determine if 
there are tradeoffs between improving vehicle safety and fuel 
consumption. In their 2005 studies 228 229 one of which was 
published as a Society of Automotive Engineers Technical Paper and 
received peer review through that body, DRI presented results that 
indicate that vehicle weight reduction tends to decrease fatalities, 
but vehicle wheelbase and track reduction tends to increase fatalities. 
The DRI work focused on four major points, with 1 and 
4 being discussed with additional detail below:
---------------------------------------------------------------------------

    \228\ ``Supplemental Results on the Independent Effects of Curb 
Weight, Wheelbase and Track on Fatality Risk'', Dynamic Research, 
Inc., DRI-TR-05-01, May 2005.
    \229\ ``An Assessment of the Effects of Vehicle Weight and Size 
on Fatality Risk in 1985 to 1998 Model Year Passenger Cars and 1985 
to 1997 Model Year'', M. Van Auken and J. Zellner, Dynamic Research 
Inc., Society of Automotive Engineers Technical Paper 2005-01-1354.
---------------------------------------------------------------------------

    1. 2-Door vehicles represented a significant portion of the light 
duty fleet and should not be ignored.
    2. Directional control and therefore crash avoidance improves with 
a reduction in curb weight.
    3. The occupants of the impacted vehicle, or ``collision partner'' 
benefit from being impacted by a lighter vehicle.
    4. Rollover fatalities are reduced by a reduction in curb weight 
due to lower centers of gravity and lower loads on the roof structures.

[[Page 49591]]

    The data used for the DRI analysis was similar to NHTSA's 2003 
Kahane study, using Fatality Analysis Reporting System (FARS) data for 
vehicle model years 1985 through 1998 for cars, and 1985 through 1997 
trucks. This data overlaps Kahane's FARS data on model year 1991 to 
1999 vehicles. However, DRI included 2-door passenger cars, whereas the 
Kahane study excluded all 2-door vehicles. The 2003 Kahane study 
excluded 2-door passenger cars because it found that for MY 1991-1999 
vehicles, sports and muscle cars constituted a significant proportion 
of those vehicles. These vehicles have relatively high weight relative 
to their wheelbase, and are also disproportionately involved in 
crashes. Thus, Kahane concluded that including these vehicles in the 
analysis excessively skewed the regression results. However, as of July 
1, 1999, 2-door passenger cars represented 29% of the registered cars 
in the United States. DRI's position was that this is a significant 
portion of the light duty fleet, too large to be ignored, and 
conclusions regarding the effects of weight and safety should be based 
on data for all cars, not just 4-doors. DRI did state in their 
conclusions that the results are sensitive to removing data for 2-doors 
and wagons, and that the results for 4-door cars with respect to the 
effects of wheelbase and track width were no longer statistically 
significant when 2-door cars were removed. EPA and NHTSA recognize that 
it is important to properly account for 2-door cars in a regression 
analysis evaluating the impacts of vehicle weight on safety. Thus, the 
agencies seek comment on how to ensure that any analysis supporting the 
final rule accounts as fully as possible for the range of safety 
impacts due to weight reduction on the variety of vehicles regulated 
under these proposed standards.
    The DRI and Kahane studies also differ with respect to the impact 
of vehicle weight on rollover fatalities. The Kahane study treated curb 
weight as a surrogate for size and weight and analyzed them as a single 
variable. Using this method, the 2003 Kahane analysis indicates that 
curb weight reductions would increase fatalities due to rollovers. The 
DRI study differed by analyzing curb weight, wheelbase, and track as 
multiple variables and concluded that curb weight reduction would 
decrease rollover fatalities, and wheelbase and track reduction would 
increase rollover fatalities. DRI offers two potential root causes for 
higher curb weight resulting in higher rollover fatalities. The first 
is that a taller vehicle tends to be heavier than a shorter vehicle; 
therefore heavier vehicles may be more likely to rollover because the 
vehicle height and weight are correlated with vehicle center of gravity 
height. The second is that FMVSS 216 for roof crush strength 
requirements for passenger cars of model years 1995 through 1999 were 
proportional to the unloaded vehicle weight if the weight is less than 
3,333 lbs, however they were a constant if the weight is greater than 
3,333 lbs. Therefore heavier vehicles may have had relatively less 
rollover crashworthiness.
    NHTSA has rejected the DRI analysis, and has not relied on it for 
its evaluation of safety impact changes in CAFE standards. See Section 
IV.G.6 of this Notice, as well as NHTSA's March 2009 Final Rulemaking 
for MY2011 CAFE standards (see 74 FR at 14402-05).
    The DRI and Kahane analyses of the FARS data appear similar in one 
respect because the results are reproducible between the two studies 
when using aggregated vehicle attributes for 4-door 
cars.230 231 232 However, when DRI and NHTSA separately 
analyzed individual vehicle attributes of mass, wheelbase and track 
width, DRI and NHTSA obtained different results for passenger cars. 
NHTSA has raised this as a concern with the DRI study. When 2-door 
vehicles are removed from the data set EPA is concerned that the 
results may no longer be statistically significant with respect to 
independent vehicle attributes due to the small remaining data set, as 
DRI stated in the 2005 study.
---------------------------------------------------------------------------

    \230\ ``Supplemental Results on the Independent Effects of Curb 
Weight, Wheelbase and Track on Fatality Risk'', Dynamic Research, 
Inc., DRI-TR-05-01, May 2005.
    \231\ ``An Assessment of the Effects of Vehicle Weight and Size 
on Fatality Risk in 1985 to 1998 Model Year Passenger Cars and 1985 
to 1997 Model Year'', M. Van Auken and J. Zellner, Dynamic Research 
Inc., Society of Automotive Engineers Technical Paper 2005-01-1354.
    \232\ FR Vol. 74, No. 59, beginning on pg. 14402.
---------------------------------------------------------------------------

    The DRI analysis concluded that there would be a small reduction in 
fatalities for cars and for trucks for a 100 pound reduction in curb 
weight without accompanied vehicle footprint or size changes. EPA notes 
that if DRI's results were to be applied using the curb weight 
reductions predicted by the OMEGA model, an overall reduction in 
fatalities would be predicted. EPA invites comment on all aspects of 
the issue of the impact of this kind of weight reduction on safety, 
including the usefulness of the DRI study in evaluating this issue.
    The agencies are committed to continuing to analyze vehicle safety 
issues so a more informed evaluation can be made. We request comment on 
this issue. These comments should include not only further discussion 
and analysis of the relevant studies but data and analysis which can 
allow the agencies to more accurately quantify any potential safety 
issues with the proposed standards.

G. How Would the Proposal Impact Non-GHG Emissions and Their Associated 
Effects?

    In addition to reducing the emissions of greenhouse gases, this 
proposal would influence the emissions of ``criteria'' air pollutants 
and air toxics (i.e., hazardous air pollutants). The criteria air 
pollutants include carbon monoxide (CO), fine particulate matter 
(PM2.5), sulfur dioxide (SOX) and the ozone 
precursors hydrocarbons (VOC) and oxides of nitrogen (NOX); 
the air toxics include benzene, 1,3-butadiene, formaldehyde, 
acetaldehyde, and acrolein. Our estimates of these non-GHG emission 
impacts from the proposed program are shown by pollutant in Table 
III.G-1 and Table III.G-2 in total, and broken down by the two drivers 
of these changes: (a) ``Upstream'' emission reductions due to decreased 
extraction, production and distribution of motor gasoline; and (b) 
``downstream'' emission increases, reflecting the effects of VMT 
rebound (discussed in Sections III.F and III.H). Total program impacts 
on criteria and toxics emissions are discussed below, followed by 
individual discussions of the upstream and downstream impacts. Those 
are followed by discussions of the effects on air quality, health, and 
other environmental concerns.
    As discussed in Chapter 5 of the DRIA, the impacts presented here 
are only from petroleum (i.e., EPA assumes that total volumes of 
ethanol and other renewable fuels will remain unchanged due to this 
program). Ethanol use was modeled at the volumes projected in AEO2007 
for the reference and control case; thus no changes are projected in 
upstream emissions related to ethanol production and distribution. 
However, due to the decreased gasoline volume associated with this 
proposal, a greater market share of E10 is expected relative to E0, 
which would be expected to have some effect on fleetwide average non-
GHG emission rates. This effect, which is likely small relative to the 
other effects considered here, has not been accounted for in the 
downstream emission modeling conducted for this proposal, but EPA does 
plan to address it in the final rule air quality analysis, for which 
localized impacts could be more significant. A more comprehensive 
analysis of the impacts of different

[[Page 49592]]

ethanol and gasoline volume scenarios is being prepared as part of 
EPA's RFS2 rulemaking package.\233\
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    \233\ 74 FR 24904. See also Docket EPA-HQ-OAR-2005-0161.
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    As shown in Table III.G-1, EPA estimates that this program would 
result in reductions of NOX, VOC, PM and SOX, but 
would increase CO emissions. For NOX, VOC, PM and 
SOX, we estimate net reductions in criteria pollutant 
emissions because the emissions reductions from upstream sources are 
larger than the emission increases due to additional driving (i.e., the 
``rebound effect''). In the case of CO, we estimate slight emission 
increases, because there are relatively small reductions in upstream 
emissions, and thus the projected emission increases due to additional 
driving are greater than the projected emission decreases due to 
reduced fuel production. EPA estimates that the proposed program would 
result in small changes for toxic emissions compared to total U.S. 
inventories across all sectors. For all pollutants the overall impact 
of the program would be relatively small compared to total U.S. 
inventories across all sectors. In 2030 EPA estimates the proposed 
program would reduce these total NOX, PM and SOX 
inventories by 0.2 to 0.3 percent and reduce the VOC inventory by 1.2 
percent, while increasing the total national CO inventory by 0.4 
percent.
    As shown in Table III.G-2, EPA estimates that the proposed program 
would result in small changes for toxic emissions compared to total 
U.S. inventories across all sectors. In 2030 EPA estimates the program 
would reduce total benzene and formaldehyde by 0.04 percent. Total 
acrolein, acetaldehyde, and 1,3-butadiene would increase by 0.03 to 0.2 
percent.
    Other factors which may impact non-GHG emissions, but are not 
estimated in this analysis, include:
     Vehicle technologies used to reduce tailpipe 
CO2 emissions; because the regulatory standards for non-GHG 
emissions are the primary driver for these emissions, EPA expects the 
impact of this program to be negligible on non-GHG emission rates per 
mile.
     The potential for increased market penetration of diesel 
vehicles; because these vehicles would be held to the same 
certification and in-use standards for criteria pollutants as their 
gasoline counterparts, EPA expects their impact to be negligible on 
criteria pollutants and other non-GHG emissions.
     Early introduction of electric vehicles and plug-in hybrid 
electric vehicles, which would reduce criteria emissions in cases where 
they are able to certify to lower certification standards. It would 
also likely reduce gaseous air toxics.
     Reduced refueling emissions due to less frequent refueling 
events and reduced annual refueling volumes resulting from the GHG 
standards.
     Increased hot soak evaporative emissions due to the likely 
increase in number of trips associated with VMT rebound modeled in this 
proposal.
     Increased market share of E10 relative to E0 due to the 
decreased overall gasoline consumption of this proposal combined with 
an unchanged fuel ethanol volume.
    EPA invites comments on the possible contribution of these factors 
to non-GHG emissions.
BILLING CODE 4910-59-P

[[Page 49593]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.022

BILLING CODE 4910-59-C
1. Upstream Impacts of Program
    Reducing tailpipe CO2 emissions from light-duty cars and 
trucks through tailpipe standards and improved A/C efficiency will 
result in reduced fuel demand and reductions in the emissions 
associated with all of the processes involved in getting petroleum to 
the pump. These upstream emission impacts on criteria pollutants are 
summarized in Table III.G-1. The upstream reductions grow over time as 
the fleet turns over to cleaner CO2 vehicles, so that by 
2030 VOC would decrease by 148,000 tons, NOX by 43,000 tons, 
and PM2.5 by 6,000 tons. Table III.G-2 shows the corresponding impacts 
on upstream air toxic emissions in 2030. Formaldehyde decreases by 112 
tons, benzene by 320 tons, acetaldehyde by 15 tons, acrolein by 2 tons, 
and 1,3-butadiene by 3 tons.
    To determine these impacts, EPA estimated the impact of reduced 
petroleum volumes on the extraction and transportation of crude oil as 
well as the production and distribution of finished gasoline. For the 
purpose of assessing domestic-only emission reductions it was necessary 
to estimate the fraction of fuel savings attributable to domestic 
finished gasoline, and of this gasoline what fraction is produced from 
domestic crude. For this analysis EPA estimated that 50 percent of fuel 
savings is attributable to domestic finished gasoline and that 90 
percent of this gasoline originated from imported crude. Emission 
factors for most upstream emission sources are based on the GREET1.8 
model, developed by DOE's Argonne National Laboratory,\234\ but in some 
cases the GREET values were modified or updated by EPA to be consistent 
with the National Emission Inventory (NEI).\235\ The primary updates 
for this analysis were to incorporate newer information on gasoline 
distribution emissions for VOC from the NEI, which were significantly 
higher than GREET estimates; and the incorporation of upstream emission 
factors for the air toxics estimated in this analysis: benzene, 1,3-
butadiene, acetaldehyde, acrolein, and

[[Page 49594]]

formaldehyde. The development of these emission factors is detailed in 
DRIA Chapter 5.
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    \234\ Greenhouse Gas, Regulated Emissions, and Energy Use in 
Transportation model (GREET), U.S. Department of Energy, Argonne 
National Laboratory, http://www.transportation.anl.gov/modeling_simulation/GREET/.
    \235\ EPA. 2002 National Emissions Inventory (NEI) Data and 
Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html.
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2. Downstream Impacts of Program
    As discussed in more detail in Section III.H, the effect of fuel 
cost on VMT (``rebound'') was accounted for in our assessment of 
economic and environmental impacts of this proposed rule. A 10 percent 
rebound case was used for this analysis, meaning that VMT for affected 
model years is modeled as increasing by 10 percent as much as the 
increase in fuel economy; i.e., a 10 percent increase in fuel economy 
would yield a 1.0 percent increase in VMT.
    Downstream emission impacts of the rebound effect are summarized in 
Table III.G-1 for criteria pollutants and precursors and Table III.G-2 
for air toxics. The emission increases from the rebound effect grow 
over time as the fleet turns over to cleaner CO2 vehicles, 
so that by 2030 VOC would increase by 5,500 tons, NOX by 
16,000 tons, and PM2.5 by 570 tons. Table III.G-2 shows the 
corresponding impacts on air toxic emissions. The most noteworthy of 
these impacts in 2030 are 40 additional tons of 1,3-butadiene, 75 tons 
of acetaldehyde, 240 tons of benzene, 96 tons of formaldehyde, and 4 
tons of acrolein.
    For this analysis the reference case non-GHG emissions for light 
duty vehicles and trucks were derived using EPA's MOtor Vehicle 
Emission Simulator (MOVES) model for VOC, CO, NOX, PM and 
air toxics. PM2.5 emission estimates include additional adjustments for 
low temperatures, discussed in detail in the DRIA. Because this 
modeling was based on calendar year estimates, estimating the rebound 
effect required a fleet-weighted rebound factor to be calculated for 
calendar years 2020 and 2030; these factors are presented in DRIA 
Chapter 5.
    As discussed in Section III.H, EPA will be taking comment on the 
appropriate level of rebound rate for this analysis. The sensitivity of 
the downstream emission increases shown in Tables III.G-1 and III.G-2 
to the level of rebound would be in direct proportion to the rebound 
rate itself; since zero rebound would result in zero emission increase, 
the downstream results presented in Table III.G-1 and Table III.G-2 can 
be directly scaled to estimate the effect of lower rebound rates.
3. Health Effects of Non-GHG Pollutants
a. Particulate Matter
i. Background
    Particulate matter is a generic term for a broad class of 
chemically and physically diverse substances. It can be principally 
characterized as discrete particles that exist in the condensed (liquid 
or solid) phase spanning several orders of magnitude in size. Since 
1987, EPA has delineated that subset of inhalable particles small 
enough to penetrate to the thoracic region (including the 
tracheobronchial and alveolar regions) of the respiratory tract 
(referred to as thoracic particles). Current NAAQS use PM2.5 
as the indicator for fine particles (with PM2.5 referring to 
particles with a nominal mean aerodynamic diameter less than or equal 
to 2.5 [micro]m), and use PM10 as the indicator for purposes 
of regulating the coarse fraction of PM10 (referred to as 
thoracic coarse particles or coarse-fraction particles; generally 
including particles with a nominal mean aerodynamic diameter greater 
than 2.5 [micro]m and less than or equal to 10 [micro]m, or 
PM10-2.5). Ultrafine particles are a subset of fine 
particles, generally less than 100 nanometers (0.1 [mu]m) in 
aerodynamic diameter.
    Fine particles are produced primarily by combustion processes and 
by transformations of gaseous emissions (e.g., SOX, 
NOX and VOC) in the atmosphere. The chemical and physical 
properties of PM2.5 may vary greatly with time, region, 
meteorology, and source category. Thus, PM2.5 may include a 
complex mixture of different pollutants including sulfates, nitrates, 
organic compounds, elemental carbon and metal compounds. These 
particles can remain in the atmosphere for days to weeks and travel 
hundreds to thousands of kilometers.
ii. Health Effects of PM
    Scientific studies show ambient PM is associated with a series of 
adverse health effects. These health effects are discussed in detail in 
EPA's 2004 Particulate Matter Air Quality Criteria Document (PM AQCD) 
and the 2005 PM Staff Paper. 236 237 238 Further discussion 
of health effects associated with PM can also be found in the DRIA for 
this rule.
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    \236\ U.S. EPA (2004). Air Quality Criteria for Particulate 
Matter. Volume I EPA600/P-99/002aF and Volume II EPA600/P-99/002bF. 
Retrieved on March 19, 2009 from Docket EPA-HQ-OAR-2003-0190 at 
http://www.regulations.gov/.
    \237\ U.S. EPA. (2005). Review of the National Ambient Air 
Quality Standard for Particulate Matter: Policy Assessment of 
Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-
05-005a. Retrieved March 19, 2009 from http://www.epa.gov/ttn/naaqs/standards/pm/data/pmstaffpaper_20051221.pdf.
    \238\ The PM NAAQS is currently under review and the EPA is 
considering all available science on PM health effects, including 
information which has been published since 2004, in the development 
of the upcoming PM Integrated Science Assessment Document (ISA). A 
second draft of the PM ISA was completed in July 2009 and was 
submitted for review by the Clean Air Scientific Advisory Committee 
(CASAC) of EPA's Science Advisory Board. Comments from the general 
public have also been requested. For more information, see http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=210586.
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    Health effects associated with short-term exposures (hours to days) 
to ambient PM include premature mortality, aggravation of 
cardiovascular and lung disease (as indicated by increased hospital 
admissions and emergency department visits), increased respiratory 
symptoms including cough and difficulty breathing, decrements in lung 
function, altered heart rate rhythm, and other more subtle changes in 
blood markers related to cardiovascular health.\239\ Long-term exposure 
to PM2.5 and sulfates has also been associated with 
mortality from cardiopulmonary disease and lung cancer, and effects on 
the respiratory system such as reduced lung function growth or 
development of respiratory disease. A new analysis shows an association 
between long-term PM2.5 exposure and a measure of 
atherosclerosis development.240 241
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    \239\ U.S. EPA. (2006). National Ambient Air Quality Standards 
for Particulate Matter; Proposed Rule. 71 FR 2620, January 17, 2006.
    \240\ K[uuml]nzli, N., Jerrett, M., Mack, W.J., et al. (2004). 
Ambient air pollution and atherosclerosis in Los Angeles. Environ 
Health Perspect., 113, 201-206.
    \241\ This study is included in the 2006 Provisional Assessment 
of Recent Studies on Health Effects of Particulate Matter Exposure. 
The provisional assessment did not and could not (given a very short 
timeframe) undergo the extensive critical review by CASAC and the 
public, as did the PM AQCD. The provisional assessment found that 
the ``new'' studies expand the scientific information and provide 
important insights on the relationship between PM exposure and 
health effects of PM. The provisional assessment also found that 
``new'' studies generally strengthen the evidence that acute and 
chronic exposure to fine particles and acute exposure to thoracic 
coarse particles are associated with health effects. Further, the 
provisional science assessment found that the results reported in 
the studies did not dramatically diverge from previous findings, and 
taken in context with the findings of the AQCD, the new information 
and findings did not materially change any of the broad scientific 
conclusions regarding the health effects of PM exposure made in the 
AQCD. However, it is important to note that this assessment was 
limited to screening, surveying, and preparing a provisional 
assessment of these studies. For reasons outlined in Section I.C of 
the preamble for the final PM NAAQS rulemaking in 2006 (see 71 FR 
61148-49, October 17, 2006), EPA based its NAAQS decision on the 
science presented in the 2004 AQCD.
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    Studies examining populations exposed over the long term (one or 
more years) to different levels of air pollution, including the Harvard 
Six Cities Study

[[Page 49595]]

and the American Cancer Society Study, show associations between long-
term exposure to ambient PM2.5 and both total and 
cardiopulmonary premature mortality.242 243 244 In addition, 
an extension of the American Cancer Society Study shows an association 
between PM2.5 and sulfate concentrations and lung cancer 
mortality.\245\
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    \242\ Dockery, D.W., Pope, C.A. III, Xu, X, et al. (1993). An 
association between air pollution and mortality in six U.S. cities. 
N Engl J Med, 329, 1753-1759. Retrieved on March 19, 2009 from 
http://content.nejm.org/cgi/content/full/329/24/1753.
    \243\ Pope, C.A., III, Thun, M.J., Namboodiri, M.M., Dockery, 
D.W., Evans, J.S., Speizer, F.E., and Heath, C.W., Jr. (1995). 
Particulate air pollution as a predictor of mortality in a 
prospective study of U.S. adults. Am. J. Respir. Crit. Care Med, 
151, 669-674.
    \244\ Krewski, D., Burnett, R.T., Goldberg, M.S., et al. (2000). 
Reanalysis of the Harvard Six Cities study and the American Cancer 
Society study of particulate air pollution and mortality. A special 
report of the Institute's Particle Epidemiology Reanalysis Project. 
Cambridge, MA: Health Effects Institute. Retrieved on March 19, 2009 
from http://es.epa.gov/ncer/science/pm/hei/Rean-ExecSumm.pdf.
    \245\ Pope, C.A., III, Burnett, R.T., Thun, M. J., Calle, E.E., 
Krewski, D., Ito, K., Thurston, G.D., (2002). Lung cancer, 
cardiopulmonary mortality, and long-term exposure to fine 
particulate air pollution. J. Am. Med. Assoc., 287, 1132-1141.
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b. Ozone
i. Background
    Ground-level ozone pollution is typically formed by the reaction of 
VOC and NOX in the lower atmosphere in the presence of heat 
and sunlight. These pollutants, often referred to as ozone precursors, 
are emitted by many types of pollution sources, such as highway and 
nonroad motor vehicles and engines, power plants, chemical plants, 
refineries, makers of consumer and commercial products, industrial 
facilities, and smaller area sources.
    The science of ozone formation, transport, and accumulation is 
complex.\246\ Ground-level ozone is produced and destroyed in a 
cyclical set of chemical reactions, many of which are sensitive to 
temperature and sunlight. When ambient temperatures and sunlight levels 
remain high for several days and the air is relatively stagnant, ozone 
and its precursors can build up and result in more ozone than typically 
occurs on a single high-temperature day. Ozone can be transported 
hundreds of miles downwind of precursor emissions, resulting in 
elevated ozone levels even in areas with low local VOC or 
NOX emissions.
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    \246\ U.S. EPA. (2006). Air Quality Criteria for Ozone and 
Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. 
Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket 
EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.
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ii. Health Effects of Ozone
    The health and welfare effects of ozone are well documented and are 
assessed in EPA's 2006 Air Quality Criteria Document (ozone AQCD) and 
2007 Staff Paper.247 248 Ozone can irritate the respiratory 
system, causing coughing, throat irritation, and/or uncomfortable 
sensation in the chest. Ozone can reduce lung function and make it more 
difficult to breathe deeply; breathing may also become more rapid and 
shallow than normal, thereby limiting a person's activity. Ozone can 
also aggravate asthma, leading to more asthma attacks that require 
medical attention and/or the use of additional medication. In addition, 
there is suggestive evidence of a contribution of ozone to 
cardiovascular-related morbidity and highly suggestive evidence that 
short-term ozone exposure directly or indirectly contributes to non-
accidental and cardiopulmonary-related mortality, but additional 
research is needed to clarify the underlying mechanisms causing these 
effects. In a recent report on the estimation of ozone-related 
premature mortality published by the National Research Council (NRC), a 
panel of experts and reviewers concluded that short-term exposure to 
ambient ozone is likely to contribute to premature deaths and that 
ozone-related mortality should be included in estimates of the health 
benefits of reducing ozone exposure.\249\ Animal toxicological evidence 
indicates that with repeated exposure, ozone can inflame and damage the 
lining of the lungs, which may lead to permanent changes in lung tissue 
and irreversible reductions in lung function. People who are more 
susceptible to effects associated with exposure to ozone can include 
children, the elderly, and individuals with respiratory disease such as 
asthma. Those with greater exposures to ozone, for instance due to time 
spent outdoors (e.g., children and outdoor workers), are of particular 
concern.
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    \247\ U.S. EPA. (2006). Air Quality Criteria for Ozone and 
Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. 
Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from Docket 
EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.
    \248\ U.S. EPA. (2007). Review of the National Ambient Air 
Quality Standards for Ozone: Policy Assessment of Scientific and 
Technical Information, OAQPS Staff Paper. EPA-452/R-07-003. 
Washington, DC. U.S. EPA. Retrieved on March 19, 2009 from Docket 
EPA-HQ-OAR-2003-0190 at http://www.regulations.gov/.
    \249\ National Research Council (NRC), 2008. Estimating 
Mortality Risk Reduction and Economic Benefits from Controlling 
Ozone Air Pollution. The National Academies Press: Washington, DC.
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    The 2006 ozone AQCD also examined relevant new scientific 
information that has emerged in the past decade, including the impact 
of ozone exposure on such health effects as changes in lung structure 
and biochemistry, inflammation of the lungs, exacerbation and causation 
of asthma, respiratory illness-related school absence, hospital 
admissions and premature mortality. Animal toxicological studies have 
suggested potential interactions between ozone and PM with increased 
responses observed to mixtures of the two pollutants compared to either 
ozone or PM alone. The respiratory morbidity observed in animal studies 
along with the evidence from epidemiologic studies supports a causal 
relationship between acute ambient ozone exposures and increased 
respiratory-related emergency room visits and hospitalizations in the 
warm season. In addition, there is suggestive evidence of a 
contribution of ozone to cardiovascular-related morbidity and non-
accidental and cardiopulmonary mortality.
c. NOX and SOX
i. Background
    Nitrogen dioxide (NO2) is a member of the NOX 
family of gases. Most NO2 is formed in the air through the 
oxidation of nitric oxide (NO) emitted when fuel is burned at a high 
temperature. SO2, a member of the sulfur oxide 
(SOX) family of gases, is formed from burning fuels 
containing sulfur (e.g., coal or oil derived), extracting gasoline from 
oil, or extracting metals from ore.
    SO2 and NO2 can dissolve in water vapor and 
further oxidize to form sulfuric and nitric acid which react with 
ammonia to form sulfates and nitrates, both of which are important 
components of ambient PM. The health effects of ambient PM are 
discussed in Section III.G.3.a of this preamble. NOX along 
with non-methane hydrocarbon (NMHC) are the two major precursors of 
ozone. The health effects of ozone are covered in Section III.G.3.b.
ii. Health Effects of NO2
    Information on the health effects of NO2 can be found in 
the U.S. Environmental Protection Agency Integrated Science Assessment 
(ISA) for Nitrogen Oxides.\250\ The U.S. EPA has concluded that the 
findings of epidemiologic, controlled human

[[Page 49596]]

exposure, and animal toxicological studies provide evidence that is 
sufficient to infer a likely causal relationship between respiratory 
effects and short-term NO2 exposure. The ISA concludes that 
the strongest evidence for such a relationship comes from epidemiologic 
studies of respiratory effects including symptoms, emergency department 
visits, and hospital admissions. The ISA also draws two broad 
conclusions regarding airway responsiveness following NO2 
exposure. First, the ISA concludes that NO2 exposure may 
enhance the sensitivity to allergen-induced decrements in lung function 
and increase the allergen-induced airway inflammatory response at 
exposures as low as 0.26 ppm NO2 for 30 minutes. Second, 
exposure to NO2 has been found to enhance the inherent 
responsiveness of the airway to subsequent nonspecific challenges in 
controlled human exposure studies of asthmatic subjects. Enhanced 
airway responsiveness could have important clinical implications for 
asthmatics since transient increases in airway responsiveness following 
NO2 exposure have the potential to increase symptoms and 
worsen asthma control. Together, the epidemiologic and experimental 
data sets form a plausible, consistent, and coherent description of a 
relationship between NO2 exposures and an array of adverse 
health effects that range from the onset of respiratory symptoms to 
hospital admission.
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    \250\ U.S. EPA (2008). Integrated Science Assessment for Oxides 
of Nitrogen--Health Criteria (Final Report). EPA/600/R-08/071. 
Washington, DC: U.S. EPA. Retrieved on March 19, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=194645.
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    Although the weight of evidence supporting a causal relationship is 
somewhat less certain than that associated with respiratory morbidity, 
NO2 has also been linked to other health endpoints. These 
include all-cause (nonaccidental) mortality, hospital admissions or 
emergency department visits for cardiovascular disease, and decrements 
in lung function growth associated with chronic exposure.
iii. Health Effects of SO2
    Information on the health effects of SO2 can be found in 
the U.S. Environmental Protection Agency Integrated Science Assessment 
for Sulfur Oxides.\251\ SO2 has long been known to cause 
adverse respiratory health effects, particularly among individuals with 
asthma. Other potentially sensitive groups include children and the 
elderly. During periods of elevated ventilation, asthmatics may 
experience symptomatic bronchoconstriction within minutes of exposure. 
Following an extensive evaluation of health evidence from epidemiologic 
and laboratory studies, the EPA has concluded that there is a causal 
relationship between respiratory health effects and short-term exposure 
to SO2. Separately, based on an evaluation of the 
epidemiologic evidence of associations between short-term exposure to 
SO2 and mortality, the EPA has concluded that the overall 
evidence is suggestive of a causal relationship between short-term 
exposure to SO2 and mortality.
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    \251\ U.S. EPA. (2008). Integrated Science Assessment (ISA) for 
Sulfur Oxides--Health Criteria (Final Report). EPA/600/R-08/047F. 
Washington, DC: U.S. Environmental Protection Agency. Retrieved on 
March 18, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=198843.
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d. Carbon Monoxide
    Carbon monoxide (CO) forms as a result of incomplete fuel 
combustion. CO enters the bloodstream through the lungs, forming 
carboxyhemoglobin and reducing the delivery of oxygen to the body's 
organs and tissues. The health threat from CO is most serious for those 
who suffer from cardiovascular disease, particularly those with angina 
or peripheral vascular disease. Healthy individuals also are affected, 
but only at higher CO levels. Exposure to elevated CO levels is 
associated with impairment of visual perception, work capacity, manual 
dexterity, learning ability and performance of complex tasks. Carbon 
monoxide also contributes to ozone nonattainment since carbon monoxide 
reacts photochemically in the atmosphere to form ozone.\252\ Additional 
information on CO related health effects can be found in the Carbon 
Monoxide Air Quality Criteria Document (CO AQCD).253 254
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    \252\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide, 
EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-
2004-0008.
    \253\ U.S. EPA (2000). Air Quality Criteria for Carbon Monoxide, 
EPA/600/P-99/001F. This document is available in Docket EPA-HQ-OAR-
2004-0008.
    \254\ The CO NAAQS is currently under review and the EPA is 
considering all available science on CO health effects, including 
information which has been published since 2000, in the development 
of the upcoming CO Integrated Science Assessment Document (ISA). A 
first draft of the CO ISA was completed in March 2009 and was 
submitted for review by the Clean Air Scientific Advisory Committee 
(CASAC) of EPA's Science Advisory Board. For more information, see 
http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=203935.
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e. Air Toxics
    Motor vehicle emissions contribute to ambient levels of air toxics 
known or suspected as human or animal carcinogens, or that have 
noncancer health effects. The population experiences an elevated risk 
of cancer and other noncancer health effects from exposure to air 
toxics. \255\ These compounds include, but are not limited to, benzene, 
1,3-butadiene, formaldehyde, acetaldehyde, acrolein, polycyclic organic 
matter (POM), and naphthalene. These compounds, except acetaldehyde, 
were identified as national or regional risk drivers in the 2002 
National-scale Air Toxics Assessment (NATA) and have significant 
inventory contributions from mobile sources.\256\ Emissions and ambient 
concentrations of compounds are discussed in the DRIA chapter on 
emission inventories and air quality (Chapters 5 and 7, respectively).
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    \255\ U. S. EPA. 2002 National-Scale Air Toxics Assessment. 
http://www.epa.gov/ttn/atw/nata12002/risksum.html.
    \256\ U.S. EPA. 2009. National-Scale Air Toxics Assessment for 
2002. http://www.epa.gov/ttn/atw/nata2002/.
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    i. Benzene
    The EPA's IRIS database lists benzene as a known human carcinogen 
(causing leukemia) by all routes of exposure, and concludes that 
exposure is associated with additional health effects, including 
genetic changes in both humans and animals and increased proliferation 
of bone marrow cells in mice.257 258 259 EPA states in its 
IRIS database that data indicate a causal relationship between benzene 
exposure and acute lymphocytic leukemia and suggest a relationship 
between benzene exposure and chronic non-lymphocytic leukemia and 
chronic lymphocytic leukemia. The International Agency for Research on 
Carcinogens (IARC) has determined that benzene is a human carcinogen 
and the U.S. Department of Health and Human Services (DHHS) has 
characterized benzene as a known human carcinogen.260 261
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    \257\ U.S. EPA. 2000. Integrated Risk Information System File 
for Benzene. This material is available electronically at http://www.epa.gov/iris/subst/0276.htm.
    \258\ International Agency for Research on Cancer (IARC). 1982. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 29. Some industrial chemicals and dyestuffs, World 
Health Organization, Lyon, France, p. 345-389.
    \259\ Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, 
V.A. 1992. Synergistic action of the benzene metabolite hydroquinone 
on myelopoietic stimulating activity of granulocyte/macrophage 
colony-stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-
3695.
    \260\ International Agency for Research on Cancer (IARC). 1987. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 29. Supplement 7, Some industrial chemicals and 
dyestuffs, World Health Organization, Lyon, France.
    \261\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at http://www.ntp.niehs.nih.gov/go/16183.
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    A number of adverse noncancer health effects including blood 
disorders, such as preleukemia and aplastic anemia, have also been 
associated with

[[Page 49597]]

long-term exposure to benzene.262 263 The most sensitive 
noncancer effect observed in humans, based on current data, is the 
depression of the absolute lymphocyte count in blood.264 265 
In addition, recent work, including studies sponsored by the Health 
Effects Institute (HEI), provides evidence that biochemical responses 
are occurring at lower levels of benzene exposure than previously know 
266 267 268 269 EPA's IRIS program has not yet evaluated 
these new data.
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    \262\ Aksoy, M. (1989). Hematotoxicity and carcinogenicity of 
benzene. Environ. Health Perspect. 82: 193-197.
    \263\ Goldstein, B.D. (1988). Benzene toxicity. Occupational 
medicine. State of the Art Reviews. 3: 541-554.
    \264\ Rothman, N., G.L. Li, M. Dosemeci, W.E. Bechtold, G.E. 
Marti, Y.Z. Wang, M. Linet, L.Q. Xi, W. Lu, M.T. Smith, N. Titenko-
Holland, L.P. Zhang, W. Blot, S.N. Yin, and R.B. Hayes (1996) 
Hematotoxicity among Chinese workers heavily exposed to benzene. Am. 
J. Ind. Med. 29: 236-246.
    \265\ U.S. EPA (2002) Toxicological Review of Benzene (Noncancer 
Effects). Environmental Protection Agency, Integrated Risk 
Information System (IRIS), Research and Development, National Center 
for Environmental Assessment, Washington DC. This material is 
available electronically at http://www.epa.gov/iris/subst/0276.htm.
    \266\ Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohen, B.; 
Melikian, A.; Eastmond, D.; Rappaport, S.; Li, H.; Rupa, D.; 
Suramaya, R.; Songnian, W.; Huifant, Y.; Meng, M.; Winnik, M.; Kwok, 
E.; Li, Y.; Mu, R.; Xu, B.; Zhang, X.; Li, K. (2003) HEI Report 115, 
Validation & Evaluation of Biomarkers in Workers Exposed to Benzene 
in China.
    \267\ Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et 
al. (2002) Hematological changes among Chinese workers with a broad 
range of benzene exposures. Am. J. Industr. Med. 42: 275-285.
    \268\ Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al. (2004) 
Hematotoxically in Workers Exposed to Low Levels of Benzene. Science 
306: 1774-1776.
    \269\ Turtletaub, K.W. and Mani, C. (2003) Benzene metabolism in 
rodents at doses relevant to human exposure from Urban Air. Research 
Reports Health Effect Inst. Report No.113.
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ii. 1,3-Butadiene
    EPA has characterized 1,3-butadiene as carcinogenic to humans by 
inhalation.270 271 The IARC has determined that 1,3-
butadiene is a human carcinogen and the U.S. DHHS has characterized 
1,3-butadiene as a known human carcinogen.272 273 There are 
numerous studies consistently demonstrating that 1,3-butadiene is 
metabolized into genotoxic metabolites by experimental animals and 
humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis 
are unknown; however, the scientific evidence strongly suggests that 
the carcinogenic effects are mediated by genotoxic metabolites. Animal 
data suggest that females may be more sensitive than males for cancer 
effects associated with 1,3-butadiene exposure; there are insufficient 
data in humans from which to draw conclusions about sensitive 
subpopulations. 1,3-butadiene also causes a variety of reproductive and 
developmental effects in mice; no human data on these effects are 
available. The most sensitive effect was ovarian atrophy observed in a 
lifetime bioassay of female mice.\274\
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    \270\ U.S. EPA (2002) Health Assessment of 1,3-Butadiene. Office 
of Research and Development, National Center for Environmental 
Assessment, Washington Office, Washington, DC. Report No. EPA600-P-
98-001F. This document is available electronically at http://www.epa.gov/iris/supdocs/buta-sup.pdf.
    \271\ U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN 
106-99-0). Environmental Protection Agency, Integrated Risk 
Information System (IRIS), Research and Development, National Center 
for Environmental Assessment, Washington, DC http://www.epa.gov/iris/subst/0139.htm.
    \272\ International Agency for Research on Cancer (IARC) (1999) 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 71, Re-evaluation of some organic chemicals, 
hydrazine and hydrogen peroxide and Volume 97 (in preparation), 
World Health Organization, Lyon, France.
    \273\ U.S. Department of Health and Human Services (2005) 
National Toxicology Program 11th Report on Carcinogens available at: 
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.
    \274\ Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996) 
Subchronic toxicity of 4-vinylcyclohexene in rats and mice by 
inhalation. Fundam. Appl. Toxicol. 32:1-10.
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iii. Formaldehyde
    Since 1987, EPA has classified formaldehyde as a probable human 
carcinogen based on evidence in humans and in rats, mice, hamsters, and 
monkeys.\275\ EPA is currently reviewing recently published 
epidemiological data. For instance, research conducted by the National 
Cancer Institute (NCI) found an increased risk of nasopharyngeal cancer 
and lymphohematopoietic malignancies such as leukemia among workers 
exposed to formaldehyde.276 277 In an analysis of the 
lymphohematopoietic cancer mortality from an extended follow-up of 
these workers, NCI confirmed an association between lymphohematopoietic 
cancer risk and peak exposures.\278\ A recent National Institute of 
Occupational Safety and Health (NIOSH) study of garment workers also 
found increased risk of death due to leukemia among workers exposed to 
formaldehyde.\279\ Extended follow-up of a cohort of British chemical 
workers did not find evidence of an increase in nasopharyngeal or 
lymphohematopoietic cancers, but a continuing statistically significant 
excess in lung cancers was reported.\280\ Recently, the IARC re-
classified formaldehyde as a human carcinogen (Group 1).\281\
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    \275\ U.S. EPA (1987) Assessment of Health Risks to Garment 
Workers and Certain Home Residents from Exposure to Formaldehyde, 
Office of Pesticides and Toxic Substances, April 1987.
    \276\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; 
Blair, A. 2003. Mortality from lymphohematopeotic malignancies among 
workers in formaldehyde industries. Journal of the National Cancer 
Institute 95: 1615-1623.
    \277\ Hauptmann, M.; Lubin, J. H.; Stewart, P. A.; Hayes, R. B.; 
Blair, A. 2004. Mortality from solid cancers among workers in 
formaldehyde industries. American Journal of Epidemiology 159: 1117-
1130.
    \278\ Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Stewart, P. 
A.; Hayes, R. B.; Hoover, R. N.; Hauptmann, M. 2009. Mortality from 
lymphohematopoietic malignancies among workers in formaldehyde 
industries: The National Cancer Institute cohort. J. National Cancer 
Inst. 101: 751-761.
    \279\ Pinkerton, L. E. 2004. Mortality among a cohort of garment 
workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 
193-200.
    \280\ Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended 
follow-up of a cohort of British chemical workers exposed to 
formaldehyde. J National Cancer Inst. 95:1608-1615.
    \281\ International Agency for Research on Cancer (IARC). 2006. 
Formaldehyde, 2-Butoxyethanol and 1-tert-Butoxypropan-2-ol. Volume 
88. (in preparation), World Health Organization, Lyon, France.
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    Formaldehyde exposure also causes a range of noncancer health 
effects, including irritation of the eyes (burning and watering of the 
eyes), nose and throat. Effects from repeated exposure in humans 
include respiratory tract irritation, chronic bronchitis and nasal 
epithelial lesions such as metaplasia and loss of cilia. Animal studies 
suggest that formaldehyde may also cause airway inflammation--including 
eosinophil infiltration into the airways. There are several studies 
that suggest that formaldehyde may increase the risk of asthma--
particularly in the young.282 283
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    \282\ Agency for Toxic Substances and Disease Registry (ATSDR). 
1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. 
Department of Health and Human Services, Public Health Service. 
http://www.atsdr.cdc.gov/toxprofiles/tp111.html.
    \283\ WHO (2002) Concise International Chemical Assessment 
Document 40: Formaldehyde. Published under the joint sponsorship of 
the United Nations Environment Programme, the International Labour 
Organization, and the World Health Organization, and produced within 
the framework of the Inter-Organization Programme for the Sound 
Management of Chemicals. Geneva.
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iv. Acetaldehyde
    Acetaldehyde is classified in EPA's IRIS database as a probable 
human carcinogen, based on nasal tumors in rats, and is considered 
toxic by the inhalation, oral, and intravenous routes.\284\ 
Acetaldehyde is reasonably anticipated to be a human carcinogen by the 
U.S. DHHS in the 11th Report on Carcinogens and is classified as 
possibly carcinogenic to humans (Group 2B) by

[[Page 49598]]

the IARC.285 286 EPA is currently conducting a reassessment 
of cancer risk from inhalation exposure to acetaldehyde. The primary 
noncancer effects of exposure to acetaldehyde vapors include irritation 
of the eyes, skin, and respiratory tract.\287\ In short-term (4 week) 
rat studies, degeneration of olfactory epithelium was observed at 
various concentration levels of acetaldehyde 
exposure.288 289 Data from these studies were used by EPA to 
develop an inhalation reference concentration. Some asthmatics have 
been shown to be a sensitive subpopulation to decrements in functional 
expiratory volume (FEV1 test) and bronchoconstriction upon acetaldehyde 
inhalation.\290\ The agency is currently conducting a reassessment of 
the health hazards from inhalation exposure to acetaldehyde.
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    \284\ U.S. EPA. 1991. Integrated Risk Information System File of 
Acetaldehyde. Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0290.htm.
    \285\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at: 
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932.
    \286\ International Agency for Research on Cancer (IARC). 1999. 
Re-evaluation of some organic chemicals, hydrazine, and hydrogen 
peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of 
Chemical to Humans, Vol. 71. Lyon, France.
    \287\ U.S. EPA. 1991. Integrated Risk Information System File of 
Acetaldehyde. This material is available electronically at http://www.epa.gov/iris/subst/0290.htm.
    \288\ Appleman, L. M., R. A. Woutersen, V. J. Feron, R. N. 
Hooftman, and W. R. F. Notten. 1986. Effects of the variable versus 
fixed exposure levels on the toxicity of acetaldehyde in rats. J. 
Appl. Toxicol. 6: 331-336.
    \289\ Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982. 
Inhalation toxicity of acetaldehyde in rats. I. Acute and subacute 
studies. Toxicology. 23: 293-297.
    \290\ Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Matsuda, 
T. 1993. Aerosolized acetaldehyde induces histamine-mediated 
bronchoconstriction in asthmatics. Am. Rev. Respir. Dis.148(4 Pt 1): 
940-3.
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v. Acrolein
    Acrolein is extremely acrid and irritating to humans when inhaled, 
with acute exposure resulting in upper respiratory tract irritation, 
mucus hypersecretion and congestion. Levels considerably lower than 1 
ppm (2.3 mg/m3) elicit subjective complaints of eye and 
nasal irritation and a decrease in the respiratory 
rate.291 292 Lesions to the lungs and upper respiratory 
tract of rats, rabbits, and hamsters have been observed after 
subchronic exposure to acrolein. Based on animal data, individuals with 
compromised respiratory function (e.g., emphysema, asthma) are expected 
to be at increased risk of developing adverse responses to strong 
respiratory irritants such as acrolein. This was demonstrated in mice 
with allergic airway-disease by comparison to non-diseased mice in a 
study of the acute respiratory irritant effects of acrolein.\293\ The 
intense irritancy of this carbonyl has been demonstrated during 
controlled tests in human subjects, who suffer intolerable eye and 
nasal mucosal sensory reactions within minutes of exposure.\294\
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    \291\ Weber-Tschopp, A; Fischer, T; Gierer, R; et al. (1977) 
Experimentelle reizwirkungen von Acrolein auf den Menschen. Int Arch 
Occup Environ Hlth 40(2):117-130. In German
    \292\ Sim, VM; Pattle, RE. (1957) Effect of possible smog 
irritants on human subjects. J Am Med Assoc 165(15):1908-1913.
    \293\ Morris JB, Symanowicz PT, Olsen JE, et al. 2003. Immediate 
sensory nerve-mediated respiratory responses to irritants in healthy 
and allergic airway-diseased mice. J Appl Physiol 94(4):1563-1571.
    \294\ Sim VM, Pattle RE. Effect of possible smog irritants on 
human subjects JAMA165: 1980-2010, 1957.
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    EPA determined in 2003 that the human carcinogenic potential of 
acrolein could not be determined because the available data were 
inadequate. No information was available on the carcinogenic effects of 
acrolein in humans and the animal data provided inadequate evidence of 
carcinogenicity.\295\ The IARC determined in 1995 that acrolein was not 
classifiable as to its carcinogenicity in humans.\296\
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    \295\ U.S. EPA. 2003. Integrated Risk Information System File of 
Acrolein. Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
at http://www.epa.gov/iris/subst/0364.htm.
    \296\ International Agency for Research on Cancer (IARC). 1995. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 63, Dry cleaning, some chlorinated solvents and other 
industrial chemicals, World Health Organization, Lyon, France.
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vi. Polycyclic Organic Matter (POM)
    POM is generally defined as a large class of organic compounds 
which have multiple benzene rings and a boiling point greater than 100 
degrees Celsius. Many of the compounds included in the class of 
compounds known as POM are classified by EPA as probable human 
carcinogens based on animal data. One of these compounds, naphthalene, 
is discussed separately below. Polycyclic aromatic hydrocarbons (PAHs) 
are a subset of POM that contain only hydrogen and carbon atoms. A 
number of PAHs are known or suspected carcinogens. Recent studies have 
found that maternal exposures to PAHs (a subclass of POM) in a 
population of pregnant women were associated with several adverse birth 
outcomes, including low birth weight and reduced length at birth, as 
well as impaired cognitive development at age three.297 298 
EPA has not yet evaluated these recent studies.
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    \297\ Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect 
of transplacental exposure to environmental pollutants on birth 
outcomes in a multiethnic population. Environ Health Perspect. 111: 
201-205.
    \298\ Perera, F.P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; Tang, 
D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; Kinney, 
P. (2006) Effect of prenatal exposure to airborne polycyclic 
aromatic hydrocarbons on neurodevelopment in the first 3 years of 
life among inner-city children. Environ Health Perspect 114: 1287-
1292.
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vii. Naphthalene
    Naphthalene is found in small quantities in gasoline and diesel 
fuels. Naphthalene emissions have been measured in larger quantities in 
both gasoline and diesel exhaust compared with evaporative emissions 
from mobile sources, indicating it is primarily a product of 
combustion. EPA released an external review draft of a reassessment of 
the inhalation carcinogenicity of naphthalene based on a number of 
recent animal carcinogenicity studies.\299\ The draft reassessment 
completed external peer review.\300\ Based on external peer review 
comments received, additional analyses are being undertaken. This 
external review draft does not represent official agency opinion and 
was released solely for the purposes of external peer review and public 
comment. Once EPA evaluates public and peer reviewer comments, the 
document will be revised. The National Toxicology Program listed 
naphthalene as ``reasonably anticipated to be a human carcinogen'' in 
2004 on the basis of bioassays reporting clear evidence of 
carcinogenicity in rats and some evidence of carcinogenicity in 
mice.\301\ California EPA has released a new risk assessment for 
naphthalene, and the IARC has reevaluated naphthalene and re-classified 
it as Group 2B: possibly carcinogenic to humans.\302\ Naphthalene also 
causes a number of chronic non-cancer effects in animals, including

[[Page 49599]]

abnormal cell changes and growth in respiratory and nasal tissues.\303\
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    \299\ U. S. EPA. 2004. Toxicological Review of Naphthalene 
(Reassessment of the Inhalation Cancer Risk), Environmental 
Protection Agency, Integrated Risk Information System, Research and 
Development, National Center for Environmental Assessment, 
Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0436.htm.
    \300\ Oak Ridge Institute for Science and Education. (2004). 
External Peer Review for the IRIS Reassessment of the Inhalation 
Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=84403.
    \301\ National Toxicology Program (NTP). (2004). 11th Report on 
Carcinogens. Public Health Service, U.S. Department of Health and 
Human Services, Research Triangle Park, NC. Available from: http://ntp-server.niehs.nih.gov.
    \302\ International Agency for Research on Cancer (IARC). 
(2002). Monographs on the Evaluation of the Carcinogenic Risk of 
Chemicals for Humans. Vol. 82. Lyon, France.
    \303\ U. S. EPA. 1998. Toxicological Review of Naphthalene, 
Environmental Protection Agency, Integrated Risk Information System, 
Research and Development, National Center for Environmental 
Assessment, Washington, DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0436.htm.
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viii. Other Air Toxics
    In addition to the compounds described above, other compounds in 
gaseous hydrocarbon and PM emissions from vehicles will be affected by 
this proposed action. Mobile source air toxic compounds that would 
potentially be impacted include ethylbenzene, polycyclic organic 
matter, propionaldehyde, toluene, and xylene. Information regarding the 
health effects of these compounds can be found in EPA's IRIS 
database.\304\
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    \304\ U.S. EPA Integrated Risk Information System (IRIS) 
database is available at: www.epa.gov/iris.
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4. Environmental Effects of Non-GHG Pollutants
a. Visibility
    Visibility can be defined as the degree to which the atmosphere is 
transparent to visible light. Airborne particles degrade visibility by 
scattering and absorbing light. Visibility is important because it has 
direct significance to people's enjoyment of daily activities in all 
parts of the country. Individuals value good visibility for the well-
being it provides them directly, where they live and work and in places 
where they enjoy recreational opportunities. Visibility is also highly 
valued in significant natural areas such as national parks and 
wilderness areas and special emphasis is given to protecting visibility 
in these areas. For more information on visibility, see the final 2004 
PM AQCD as well as the 2005 PM Staff Paper.305 306
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    \305\ U.S. EPA. (2004). Air Quality Criteria for Particulate 
Matter (AQCD). Volume I Document No. EPA600/P-99/002aF and Volume II 
Document No. EPA600/P-99/002bF. Washington, DC: U.S. Environmental 
Protection Agency. Retrieved on March 18, 2009 from http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=87903.
    \306\ U.S. EPA. (2005). Review of the National Ambient Air 
Quality Standard for Particulate Matter: Policy Assessment of 
Scientific and Technical Information, OAQPS Staff Paper. EPA-452/R-
05-005. Washington, DC: U.S. Environmental Protection Agency.
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    EPA is pursuing a two-part strategy to address visibility. First, 
to address the welfare effects of PM on visibility, EPA has set 
secondary PM2.5 standards which act in conjunction with the 
establishment of a regional haze program. In setting this secondary 
standard, EPA has concluded that PM2.5 causes adverse 
effects on visibility in various locations, depending on PM 
concentrations and factors such as chemical composition and average 
relative humidity. Second, section 169 of the Clean Air Act provides 
additional authority to address existing visibility impairment and 
prevent future visibility impairment in the 156 national parks, forests 
and wilderness areas categorized as mandatory class I Federal areas (62 
FR 38680-81, July 18, 1997).\307\ In July 1999, the regional haze rule 
(64 FR 35714) was put in place to protect the visibility in mandatory 
class I Federal areas. Visibility can be said to be impaired in both 
PM2.5 nonattainment areas and mandatory class I Federal 
areas.
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    \307\ These areas are defined in section 162 of the Act as those 
national parks exceeding 6,000 acres, wilderness areas and memorial 
parks exceeding 5,000 acres, and all international parks which were 
in existence on August 7, 1977.
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b. Plant and Ecosystem Effects of Ozone
    Elevated ozone levels contribute to environmental effects, with 
impacts to plants and ecosystems being of most concern. Ozone can 
produce both acute and chronic injury in sensitive species depending on 
the concentration level and the duration of the exposure. Ozone effects 
also tend to accumulate over the growing season of the plant, so that 
even low concentrations experienced for a longer duration have the 
potential to create chronic stress on vegetation. Ozone damage to 
plants includes visible injury to leaves and impaired photosynthesis, 
both of which can lead to reduced plant growth and reproduction, 
resulting in reduced crop yields, forestry production, and use of 
sensitive ornamentals in landscaping. In addition, the impairment of 
photosynthesis, the process by which the plant makes carbohydrates (its 
source of energy and food), can lead to a subsequent reduction in root 
growth and carbohydrate storage below ground, resulting in other, more 
subtle plant and ecosystems impacts.
    These latter impacts include increased susceptibility of plants to 
insect attack, disease, harsh weather, interspecies competition and 
overall decreased plant vigor. The adverse effects of ozone on forest 
and other natural vegetation can potentially lead to species shifts and 
loss from the affected ecosystems, resulting in a loss or reduction in 
associated ecosystem goods and services. Lastly, visible ozone injury 
to leaves can result in a loss of aesthetic value in areas of special 
scenic significance like national parks and wilderness areas. The final 
2006 ozone AQCD presents more detailed information on ozone effects on 
vegetation and ecosystems.
c. Atmospheric Deposition
    Wet and dry deposition of ambient particulate matter delivers a 
complex mixture of metals (e.g., mercury, zinc, lead, nickel, aluminum, 
cadmium), organic compounds (e.g., POM, dioxins, furans) and inorganic 
compounds (e.g., nitrate, sulfate) to terrestrial and aquatic 
ecosystems. The chemical form of the compounds deposited depends on a 
variety of factors including ambient conditions (e.g., temperature, 
humidity, oxidant levels) and the sources of the material. Chemical and 
physical transformations of the compounds occur in the atmosphere as 
well as the media onto which they deposit. These transformations in 
turn influence the fate, bioavailability and potential toxicity of 
these compounds. Atmospheric deposition has been identified as a key 
component of the environmental and human health hazard posed by several 
pollutants including mercury, dioxin and PCBs.\308\
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    \308\ U.S. EPA (2000) Deposition of Air Pollutants to the Great 
Waters: Third Report to Congress. Office of Air Quality Planning and 
Standards. EPA-453/R-00-0005. This document is available in Docket 
EPA-HQ-OAR-2003-0190.
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    Adverse impacts on water quality can occur when atmospheric 
contaminants deposit to the water surface or when material deposited on 
the land enters a water body through runoff. Potential impacts of 
atmospheric deposition to water bodies include those related to both 
nutrient and toxic inputs. Adverse effects to human health and welfare 
can occur from the addition of excess nitrogen via atmospheric 
deposition. The nitrogen-nutrient enrichment contributes to toxic algae 
blooms and zones of depleted oxygen, which can lead to fish kills, 
frequently in coastal waters. Deposition of heavy metals or other 
toxins may lead to the human ingestion of contaminated fish, human 
ingestion of contaminated water, damage to the marine ecology, and 
limits to recreational uses. Several studies have been conducted in 
U.S. coastal waters and in the Great Lakes Region in which the role of 
ambient PM deposition and runoff is 
investigated.309 310 311 312 313
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    \309\ U.S. EPA (2004) National Coastal Condition Report II. 
Office of Research and Development/Office of Water. EPA-620/R-03/
002. This document is available in Docket EPA-HQ-OAR-2003-0190.
    \310\ Gao, Y., E.D. Nelson, M.P. Field, et al. 2002. 
Characterization of atmospheric trace elements on PM2.5 
particulate matter over the New York-New Jersey harbor estuary. 
Atmos. Environ. 36: 1077-1086.
    \311\ Kim, G., N. Hussain, J.R. Scudlark, and T.M. Church. 2000. 
Factors influencing the atmospheric depositional fluxes of stable 
Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. Chem. 36: 65-79.
    \312\ Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. Dry 
deposition of airborne trace metals on the Los Angeles Basin and 
adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 
11-24.
    \313\ Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 2002. 
Surficial sediment contamination in Lakes Erie and Ontario: A 
comparative analysis. J. Great Lakes Res. 28(3): 437-450.

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[[Page 49600]]

    Atmospheric deposition of nitrogen and sulfur contributes to 
acidification, altering biogeochemistry and affecting animal and plant 
life in terrestrial and aquatic ecosystems across the U.S. The 
sensitivity of terrestrial and aquatic ecosystems to acidification from 
nitrogen and sulfur deposition is predominantly governed by geology. 
Prolonged exposure to excess nitrogen and sulfur deposition in 
sensitive areas acidifies lakes, rivers and soils. Increased acidity in 
surface waters creates inhospitable conditions for biota and affects 
the abundance and nutritional value of preferred prey species, 
threatening biodiversity and ecosystem function. Over time, acidifying 
deposition also removes essential nutrients from forest soils, 
depleting the capacity of soils to neutralize future acid loadings and 
negatively affecting forest sustainability. Major effects include a 
decline in sensitive forest tree species, such as red spruce (Picea 
rubens) and sugar maple (Acer saccharum), and a loss of biodiversity of 
fishes, zooplankton, and macro invertebrates.
    In addition to the role nitrogen deposition plays in acidification, 
nitrogen deposition also causes ecosystem nutrient enrichment leading 
to eutrophication that alters biogeochemical cycles. Excess nitrogen 
also leads to the loss of nitrogen sensitive lichen species as they are 
outcompeted by invasive grasses as well as altering the biodiversity of 
terrestrial ecosystems, such as grasslands and meadows. For a broader 
explanation of the topics treated here, refer to the description in 
Chapter 7 of the DRIA.
    Adverse impacts on soil chemistry and plant life have been observed 
for areas heavily influenced by atmospheric deposition of nutrients, 
metals and acid species, resulting in species shifts, loss of 
biodiversity, forest decline and damage to forest productivity. 
Potential impacts also include adverse effects to human health through 
ingestion of contaminated vegetation or livestock (as in the case for 
dioxin deposition), reduction in crop yield, and limited use of land 
due to contamination.
    Atmospheric deposition of pollutants can reduce the aesthetic 
appeal of buildings and culturally important articles through soiling, 
and can contribute directly (or in conjunction with other pollutants) 
to structural damage by means of corrosion or erosion. Atmospheric 
deposition may affect materials principally by promoting and 
accelerating the corrosion of metals, by degrading paints, and by 
deteriorating building materials such as concrete and limestone. 
Particles contribute to these effects because of their electrolytic, 
hygroscopic, and acidic properties, and their ability to adsorb 
corrosive gases (principally sulfur dioxide). The rate of metal 
corrosion depends on a number of factors, including the deposition rate 
and nature of the pollutant; the influence of the metal protective 
corrosion film; the amount of moisture present; variability in the 
electrochemical reactions; the presence and concentration of other 
surface electrolytes; and the orientation of the metal surface.
d. Environmental Effects of Air Toxics
    Fuel combustion emissions contribute to ambient levels of 
pollutants that contribute to adverse effects on vegetation. Volatile 
organic compounds (VOCs), some of which are considered air toxics, have 
long been suspected to play a role in vegetation damage.\314\ In 
laboratory experiments, a wide range of tolerance to VOCs has been 
observed.\315\ Decreases in harvested seed pod weight have been 
reported for the more sensitive plants, and some studies have reported 
effects on seed germination, flowering and fruit ripening. Effects of 
individual VOCs or their role in conjunction with other stressors 
(e.g., acidification, drought, temperature extremes) have not been well 
studied. In a recent study of a mixture of VOCs including ethanol and 
toluene on herbaceous plants, significant effects on seed production, 
leaf water content and photosynthetic efficiency were reported for some 
plant species.\316\
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    \314\ U.S. EPA. 1991. Effects of organic chemicals in the 
atmosphere on terrestrial plants. EPA/600/3-91/001.
    \315\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343.
    \316\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343.
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    Research suggests an adverse impact of vehicle exhaust on plants, 
which has in some cases been attributed to aromatic compounds and in 
other cases to nitrogen oxides.317 318 319 The impacts of 
VOCs on plant reproduction may have long-term implications for 
biodiversity and survival of native species near major roadways. Most 
of the studies of the impacts of VOCs on vegetation have focused on 
short-term exposure and few studies have focused on long-term effects 
of VOCs on vegetation and the potential for metabolites of these 
compounds to affect herbivores or insects.
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    \317\ Viskari E-L. 2000. Epicuticular wax of Norway spruce 
needles as indicator of traffic pollutant deposition. Water, Air, 
and Soil Pollut. 121:327-337.
    \318\ Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and 
transformation of benzene and toluene by plant leaves. Ecotox. 
Environ. Safety 37:24-29.
    \319\ Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D 
Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions 
for the spruce Pciea abies. Environ. Pollut. 48:235-243.
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5. Air Quality Impacts of Non-GHG Pollutants
a. Current Levels of PM2.5, Ozone, CO and Air Toxics
    This proposal may have impacts on levels of PM2.5, 
ozone, CO and air toxics. Nationally, levels of PM2.5, 
ozone, CO and air toxics are declining.320 321 However, in 
2005 EPA designated 39 nonattainment areas for the 1997 
PM2.5 National Ambient Air Quality Standard (NAAQS) (70 FR 
943, January 5, 2005). These areas are composed of 208 full or partial 
counties with a total population exceeding 88 million. The 1997 
PM2.5 NAAQS was recently revised and the 2006 24-hour 
PM2.5 NAAQS became effective on December 18, 2006. The 
numbers above likely underestimate the number of counties that are not 
meeting the PM2.5 NAAQS because the nonattainment areas 
associated with the more stringent 2006 24-hour PM2.5 NAAQS 
have not yet been designated. Area designations for the 2006 24-hour 
PM2.5 NAAQS are expected to be promulgated in 2009 and 
become effective 90 days after publication in the Federal Register.
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    \320\ U.S. EPA (2008) National Air Quality Status and Trends 
through 2007. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. Publication No. EPA 454/R-08-006. http://epa.gov/airtrends/2008/index.html.
    \321\ U.S. EPA (2007) Final Regulatory Impact Analysis: Control 
of Hazardous Air Pollutants from Mobile Sources, Office of 
Transportation and Air Quality, Ann Arbor, MI, Publication No. 
EPA420-R-07-002. http://www.epa.gov/otaq/toxics.htm.
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    In addition, the U.S. EPA has recently amended the ozone NAAQS (73 
FR 16436, March 27, 2008). That final 2008 ozone NAAQS rule set forth 
revisions to the previous 1997 NAAQS for ozone to provide increased 
protection of public health and welfare. As of June 5, 2009, there are 
55 areas designated as

[[Page 49601]]

nonattainment for the 1997 8-hour ozone NAAQS, comprising 290 full or 
partial counties with a total population of approximately 132 million 
people. These numbers do not include the people living in areas where 
there is a future risk of failing to maintain or attain the 1997 8-hour 
ozone NAAQS. The numbers above likely underestimate the number of 
counties that are not meeting the ozone NAAQS because the nonattainment 
areas associated with the more stringent 2008 8-hour ozone NAAQS have 
not yet been designated.
    The proposed vehicle standards may also impact levels of ambient 
CO, a criteria pollutant (see Table III.G-1 above for co-pollutant 
emission impacts). As of June 5, 2009 there are approximately 479,000 
people living in a portion of Clark Co., NV which is currently the only 
area in the country that is designated as nonattainment for CO.\322\
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    \322\ Carbon Monoxide Nonattainment Area Summary: http://www.epa.gov/air/oaqps/greenbk/cnsum.html.
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    Further, the majority of Americans continue to be exposed to 
ambient concentrations of air toxics at levels which have the potential 
to cause adverse health effects.\323\ The levels of air toxics to which 
people are exposed vary depending on where people live and work and the 
kinds of activities in which they engage, as discussed in detail in 
U.S. EPA's recent mobile source air toxics rule.\324\
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    \323\ U.S. Environmental Protection Agency (2007). Control of 
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 
8434, February 26, 2007.
    \324\ U.S. Environmental Protection Agency (2007). Control of 
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 
8434, February 26, 2007.
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b. Impacts of Proposed Standards on Future Ambient PM2.5, 
Ozone, CO and Air Toxics
    Full-scale photochemical air quality modeling is necessary to 
accurately project levels of PM2.5, ozone, CO and air 
toxics. For the final rule, a national-scale air quality modeling 
analysis will be performed to analyze the impacts of the vehicle 
standards on PM2.5, ozone, and selected air toxics (i.e., 
benzene, formaldehyde, acetaldehyde, acrolein and 1,3-butadiene). The 
length of time needed to prepare the necessary emissions inventories, 
in addition to the processing time associated with the modeling itself, 
has precluded us from performing air quality modeling for this 
proposal.
    Section III.G.1 of the preamble presents projections of the changes 
in criteria pollutant and air toxics emissions due to the proposed 
vehicle standards; the basis for those estimates is set out in Chapter 
5 of the DRIA. The atmospheric chemistry related to ambient 
concentrations of PM2.5, ozone and air toxics is very 
complex, and making predictions based solely on emissions changes is 
extremely difficult. However, based on the magnitude of the emissions 
changes predicted to result from the proposed vehicle standards, EPA 
expects that there will be an improvement in ambient air quality, 
pending a more comprehensive analysis for the final rule.
    For the final rule, EPA intends to use a 2005-based Community 
Multi-scale Air Quality (CMAQ) modeling platform as the tool for the 
air quality modeling. The CMAQ modeling system is a comprehensive 
three-dimensional grid-based Eulerian air quality model designed to 
estimate the formation and fate of oxidant precursors, primary and 
secondary PM concentrations and deposition, and air toxics, over 
regional and urban spatial scales (e.g. over the contiguous 
U.S.).325 326 327 The CMAQ model is a well-known and well-
established tool and is commonly used by EPA for regulatory analyses, 
for instance the recent ozone NAAQS proposal, and by States in 
developing attainment demonstrations for their State Implementation 
Plans.\328\ The CMAQ model (version 4.6) was peer-reviewed in February 
of 2007 for EPA as reported in ``Third Peer Review of CMAQ Model,'' and 
the EPA Office of Research and Development (ORD) peer review report 
which includes version 4.7 is currently being finalized.\329\
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    \325\ U.S. Environmental Protection Agency, Byun, D.W., and 
Ching, J.K.S., Eds, 1999. Science algorithms of EPA Models-3 
Community Multiscale Air Quality (CMAQ modeling system, EPA/600/R-
99/030, Office of Research and Development).
    \326\ Byun, D.W., and Schere, K.L., 2006. Review of the 
Governing Equations, Computational Algorithms, and Other Components 
of the Models-3 Community Multiscale Air Quality (CMAQ) Modeling 
System, J. Applied Mechanics Reviews, 59 (2), 51-77.
    \327\ Dennis, R.L., Byun, D.W., Novak, J.H., Galluppi, K.J., 
Coats, C.J., and Vouk, M.A., 1996. The next generation of integrated 
air quality modeling: EPA's Models-3, Atmospheric Environment, 30, 
1925-1938.
    \328\ U.S. EPA (2007). Regulatory Impact Analysis of the 
Proposed Revisions to the National Ambient Air Quality Standards for 
Ground-Level Ozone. EPA document number 442/R-07-008, July 2007.
    \329\ Aiyyer, A., Cohan, D., Russell, A., Stockwell, W., 
Tanrikulu, S., Vizuete, W., Wilczak, J., 2007. Final Report: Third 
Peer Review of the CMAQ Model. p. 23.
---------------------------------------------------------------------------

    CMAQ includes many science modules that simulate the emission, 
production, decay, deposition and transport of organic and inorganic 
gas-phase and particle-phase pollutants in the atmosphere. EPA intends 
to use the most recent CMAQ version (version 4.7), which was officially 
released by EPA's Office of Research and Development (ORD) in December 
2008 and reflects updates to earlier versions in a number of areas to 
improve the underlying science. These include (1) enhanced secondary 
organic aerosol (SOA) mechanism to include chemistry of isoprene, 
sesquiterpene, and aged in-cloud biogenic SOA in addition to terpene; 
(2) improved vertical convective mixing; (3) improved heterogeneous 
reaction involving nitrate formation; and (4) an updated gas-phase 
chemistry mechanism, Carbon Bond 05 (CB05), with extensions to model 
explicit concentrations of air toxic species as well as chlorine and 
mercury. This mechanism, CB05-toxics, also computes concentrations of 
species that are involved in aqueous chemistry and that are precursors 
to aerosols.

H. What Are the Estimated Cost, Economic, and Other Impacts of the 
Proposal?

    In this section, EPA presents the costs and impacts of EPA's 
proposed GHG program. It is important to note that NHTSA's CAFE 
standards and EPA's GHG standards will both be in effect, and each will 
lead to increases in average fuel economy and CO2 emissions 
reductions. The two agencies' standards comprise the National Program, 
and this discussion of costs and benefits of EPA's GHG standard does 
not change the fact that both the CAFE and GHG standards, jointly, are 
the source of the benefits and costs of the National Program.
    This section outlines the basis for assessing the benefits and 
costs of these standards and provides estimates of these costs and 
benefits. Some of these effects are private, meaning that they affect 
consumers and producers directly in their sales, purchases, and use of 
vehicles. These private effects include the costs of the technology, 
fuel savings, and the benefits of additional driving and reduced 
refueling. Other costs and benefits affect people outside the markets 
for vehicles and their use; these effects are termed external costs, 
because they affect people external to the market. The external effects 
include the climate impacts, the effects on non-GHG pollutants, and the 
effects on traffic, accidents, and noise due to additional driving. The 
sum of the private and external benefits and costs is the net social 
benefits of the program. There is some debate about the role of private 
benefits in assessing the benefits and costs of the program: If 
consumers have full information and perfect foresight in their vehicle 
purchase decisions, it is possible that they have

[[Page 49602]]

already considered these benefits in their vehicle purchase decisions. 
If so, then the inclusion of private benefits in the net benefits 
calculation may be inappropriate. If these conditions do not hold, then 
the private benefits may be a part of the net benefits. Section III.H.1 
discusses this issue more fully.
    EPA's proposed program costs consist of the vehicle program costs 
(costs of complying with the vehicle CO2 standards, taking 
into account FFV credits through 2015, the temporary lead-time 
alternative allowance standard program (TLAASP), full car/truck 
trading, and the A/C credit program), along with the fuel savings 
associated with reduced fuel usage resulting from the proposed program. 
These proposed program costs also include external costs associated 
with noise, congestion, accidents, time spent refueling vehicles, and 
energy security impacts. EPA also presents the cost-effectiveness of 
the proposed standards and our analysis of the expected economy-wide 
impacts. The projected monetized benefits of reducing GHG emissions and 
co-pollutant health and environmental impacts are also presented. EPA 
also presents our estimates of the impact on vehicle miles traveled and 
the impacts associated with those miles as well as other societal 
impacts of the proposed program, including energy security impacts.
    The total monetized benefits (excluding fuel savings) under the 
proposed program are projected to be $21 to $54 billion in 2030, 
assuming a 3 percent discount rate and depending on the value used for 
the social cost of carbon. The costs of the proposed program in 2030 
are estimated to be approximately $18 billion for new vehicle 
technology less $90 billion in savings realized by consumers through 
fewer fuel expenditures (calculated using pre-tax fuel prices).
    EPA has undertaken an analysis of the economy-wide impacts of the 
proposed GHG tailpipe standards as an exploratory exercise that EPA 
believes could provide additional insights into the potential impacts 
of the proposal.\330\ These results were not a factor regarding the 
appropriateness of the proposed GHG tailpipe standards. It is important 
to note that the results of this modeling exercise are dependent on the 
assumptions associated with how consumers will respond to increases in 
higher vehicle costs and improved vehicle fuel economy as a result of 
the proposal. Section III.H.1 discusses the underlying distinctions and 
implications of the role of consumer response in economic impacts.
---------------------------------------------------------------------------

    \330\ See Memorandum to Docket, ``Economy-Wide Impacts of 
Proposed Greenhouse Gas Tailpipe Standards,'' September 14, 2009 
(Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    Further information on these and other aspects of the economic 
impacts of our proposed rule are summarized in the following sections 
and are presented in more detail in the DRIA for this rulemaking. EPA 
requests comment on all aspects of the cost, savings, and benefits 
analysis presented here and in the DRIA. EPA also requests comment on 
the inputs used in these analyses as described in the Draft Joint TSD.
1. Conceptual Framework for Evaluating Consumer Impacts
    For this proposed rule, EPA projects significant private gains to 
consumers in three major areas: (1) Reductions in spending on fuel, (2) 
time saved due to less refueling, and (3) welfare gains from additional 
driving that results from the rebound effect. In combination, these 
private savings, mostly from fuel savings, appear to outweigh by a 
large margin the costs of the program, even without accounting for 
externalities.
    Admittedly, these findings pose a conundrum. On the one hand, 
consumers are expected to gain significantly from the proposed rules, 
as the increased cost of fuel efficient cars appears to be far smaller 
than the fuel savings (assuming modest discount rates). Yet fuel 
efficient cars are currently offered for sale, and consumers' 
purchasing decisions may suggest a preference for lower fuel economy 
than the proposed rule mandates. Assuming full information and perfect 
foresight, standard economic theory suggests that the private gains to 
consumers, large as they are, must therefore be accompanied by a 
consumer welfare loss. This calculation assumes that consumers 
accurately predict all the benefits they will get from a new vehicle, 
even if they underestimated fuel savings at the time of purchase. Even 
if there is some such loss, EPA believes that under realistic 
assumptions, the private gains from the proposed rule, together with 
the social gains (in the form of reduction of externalities), 
significantly outweigh the costs. But EPA seeks comments on the 
underlying issue.
    The central conundrum has been referred to as the Energy Paradox in 
this setting (and in several others).\331\ In short, the problem is 
that consumers appear not to purchase products that are in their 
economic self-interest. There are strong theoretical reasons why this 
might be so.\332\ Consumers might be myopic and hence undervalue the 
long-term; they might lack information or a full appreciation of 
information even when it is presented; they might be especially averse 
to the short-term losses associated with energy efficient products (the 
behavioral phenomenon of ``loss aversion''); even if consumers have 
relevant knowledge, the benefits of energy efficient vehicles might not 
be sufficiently salient to them at the time of purchase. A great deal 
of work in behavioral economics identifies factors of this sort, which 
help account for the Energy Paradox.\333\ This point holds in the 
context of fuel savings (the main focus here), but it applies equally 
to the other private benefits, including reductions in refueling time 
and additional driving.\334\
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    \331\ Jaffe, A.B., & Stavins, R.N. (1994). The Energy Paradox 
and the Diffusion of Conservation Technology. Resource and Energy 
Economics, 16(2), 91-122.
    \332\ For an overview, see id.
    \333\ Id.; Thaler, Richard. Quasi-Rational Economics. New York: 
Russell Sage, 1993.
    \334\ For example, it might be maintained that at the time of 
purchase, consumers take full account of the time potentially saved 
by fuel-efficient cars, but it might also be questioned whether they 
have adequate information to do so, or whether that factor is 
sufficiently salient to play the proper role in purchasing 
decisions.
---------------------------------------------------------------------------

    Considerable research suggests that the Energy Paradox is real and 
significant due to consumers' inability to value future fuel savings 
appropriately. For example, Sanstad and Howarth (1994) argue that 
consumers optimize behavior without full information by resorting to 
imprecise but convenient rules of thumb. Larrick and Soll (2008) find 
evidence that consumers do not understand how to translate changes in 
miles-per-gallon into fuel savings (a concern that EPA is continuing to 
attempt to address).\335\ If these arguments are valid, then there will 
be significant gains to consumers of the government mandating 
additional fuel economy.
---------------------------------------------------------------------------

    \335\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818; Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.'' 
Science 320: 1593-1594.
---------------------------------------------------------------------------

    The evidence from consumer vehicle choice models indicates a huge 
range of estimates for consumers' willingness to pay for additional 
fuel economy. Because consumer surplus estimates from consumer vehicle 
choice models depend critically on this value, EPA would consider any 
consumer surplus estimates of the effect of our rule from such models 
to be unreliable. In addition, the predictive ability of consumer 
vehicle choice models may be limited. While vehicle choice models

[[Page 49603]]

are based on sales of existing vehicles, vehicle models are likely to 
change, both independently and in response to this proposed rule; the 
models may not predict well in response to these changes. Instead, EPA 
compares the value of the fuel savings associated with this rule with 
the increase in technology costs. EPA will continue its efforts to 
review the literature, but, given the known difficulties, EPA has not 
conducted an analysis using these models for this proposal.
    Consumer vehicle choice models (referred to as ``market shift'' 
models by NHTSA in Section IV.C.4.c) are a tool that attempts to 
estimate how consumers decide what vehicles they buy. The models 
typically take into consideration both household characteristics (such 
as income, family size, and age) and vehicle characteristics (including 
a vehicle's power, price, and fuel economy). These models are often 
used to examine how a consumer's vehicle purchase decision is affected 
by a change in vehicle or personal characteristics. Although these 
models focus on the consumer, some have also linked consumer choice 
models with information on vehicle technologies and costs, to estimate 
an integrated system of consumer and auto maker response.
    The outputs from consumer vehicle choice models typically include 
the market shares of each category of vehicle in the model. In 
addition, consumer vehicle choice models are often used to estimate the 
effect of market or regulatory changes on consumer surplus. Consumer 
surplus is the benefit that a consumer gets over and above the market 
price paid for the good. For instance, if a consumer is willing to pay 
up to $30,000 for a car but is able to negotiate a price of $25,000, 
the $5,000 difference is consumer surplus. Information on consumer 
surplus can be used in benefit-cost analysis to measure whether 
consumers are likely to consider themselves better or worse off due to 
the changes.
    Consumer vehicle choice modeling has not previously been applied in 
Federal regulatory analysis of fuel economy, and EPA has not used a 
consumer vehicle choice model in its analysis of the effects of this 
proposed rule. EPA has not done so, to this point, due to concern over 
the wide variation in the methods and results of existing models, as 
well as some of the limitations of existing applications of consumer 
choice modeling. Our preliminary review of the literature indicates 
that these models vary in a number of dimensions, including data 
sources used, modeling methods, vehicle characteristics included in the 
analysis, and the research questions for which they were designed. 
These dimensions are likely to affect the models' results and their 
interpretation. In addition, their ability to incorporate major changes 
in the vehicle fleet appears unproven.
    One problem for this rule is the variation in the value that 
consumers place on fuel economy in their vehicle purchase decisions. A 
number of consumer vehicle choice models make the assumption that auto 
producers provide as much fuel economy in their vehicles as consumers 
are willing to purchase, and consumers are satisfied with the current 
combinations of vehicle fuel economy and price in the marketplace.\336\ 
If this assumption is true, then consumers will not benefit from 
required improvements in fuel economy, even if the fuel savings that 
they receive exceed the additional costs from the fuel-saving 
technology. Other vehicle choice models, in contrast, find that 
consumers are willing to pay more for additional fuel economy than the 
costs to auto producers of installing that technology.\337\ If this 
result is true, then both consumers and producers would benefit from 
increased fuel economy. This result leaves open the question why auto 
producers do not follow the market incentive to provide more fuel 
economy, and why consumers do not seek out more fuel-efficient 
vehicles.
---------------------------------------------------------------------------

    \336\ E.g., Kleit, Andrew N. (2004). ``Impacts of Long-Range 
Increases in the Fuel Economy (CAFE) Standard.'' Economic Inquiry 
42(2): 279-294 (Docket EPA-HQ-OAR-2009-0472); Austin, David, and 
Terry Dinan (2005). ``Clearing the Air: The Costs and Consequences 
of Higher CAFE Standards and Increased Gasoline Taxes.'' Journal of 
Environmental Economics and Management 50: 562-582 (Docket EPA-HQ-
OAR-2009-0472); Klier, Thomas, and Joshua Linn (2008). ``New Vehicle 
Characteristics and the Cost of the Corporate Average Fuel Economy 
Standard,'' working paper. http://www.chicagofed.org/publications/workingpapers/wp2008_13.pdf (Docket EPA-HQ-OAR-2009-0472); 
Jacobsen, Mark. ``Evaluating U.S. Fuel Economy Standards In a Model 
with Producer and Household Heterogeneity,'' http://
www.econ.ucsd.edu/~m3jacobs/Jacobsen--CAFE.pdf, accessed 5/11/09 
(Docket EPA-HQ-OAR-2009-0472).
    \337\ E.g., Gramlich, Jacob (2008). ``Gas Prices and Endogenous 
Product Selection in the U.S. Automobile Industry,'' http://www.econ.yale.edu/seminars/apmicro/am08/gramlich-081216.pdf, 
accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472); McManus, Walter M. 
(2007). ``The Impact of Attribute-Based Corporate Average Fuel 
Economy (CAFE) Standards: Preliminary Findings.'' University of 
Michigan Transportation Research Institute paper UMTRI-2007-31 
(Docket EPA-HQ-OAR-2009-0472); McManus, W. and R. Kleinbaum (2009). 
``Fixing Detroit: How Far, How Fast, How Fuel Efficient.'' Working 
Paper, Transportation Research Institute, University of Michigan 
(Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    Whether consumers and producers will benefit from improved fuel 
economy depends on the value of improved fuel economy to consumers. 
There may be a difference between the fuel savings that consumers would 
receive from improved fuel economy, and the amount that consumers would 
be willing to spend on a vehicle to get improved fuel economy. A 1988 
review of consumers' willingness to pay for improved fuel economy found 
estimates that varied by more than an order of magnitude: for a $1 per 
year reduction in vehicle operating costs, consumers would be willing 
to spend between $0.74 and $25.97 in increased vehicle price.\338\ For 
comparison, the present value of saving $1 per year on fuel for 15 
years at a 3% discount rate is $11.94, while a 7% discount rate 
produces a present value of $8.78. Thus, this study finds that 
consumers may be willing to pay either far too much or far too little 
for the fuel savings they will receive.
---------------------------------------------------------------------------

    \338\ Greene, David L., and Jin-Tan Liu (1988). ``Automotive 
Fuel Economy Improvements and Consumers' Surplus.'' Transportation 
Research Part A 22A(3): 203-218 (Docket EPA-HQ-OAR-2009-0472). The 
study actually calculated the willingness to pay for reduced vehicle 
operating costs, of which vehicle fuel economy is a major component.
---------------------------------------------------------------------------

    Although EPA has not found an updated survey of these values, a few 
examples suggest that the existing consumer vehicle choice models still 
demonstrate wide variation in estimates of how much people are willing 
to pay for fuel savings. For instance, Espey and Nair (2005) and 
McManus (2006) find that consumers are willing to pay around $600 for 
one additional mile per gallon.\339\ In contrast, Gramlich (2008) finds 
that consumers' willingness to pay for an increase from 25 mpg to 30 
mpg varies between $4,100 (for luxury cars when gasoline costs $2/
gallon) to $20,560 (for SUVs when gasoline costs $3.50/gallon).\340\
---------------------------------------------------------------------------

    \339\ Espey, Molly, and Santosh Nair (2005). ``Automobile Fuel 
Economy: What is it Worth?'' Contemporary Economic Policy 23(3): 
317-323 (Docket EPA-HQ-OAR-2009-0472); McManus, Walter M. (2006). 
``Can Proactive Fuel Economy Strategies Help Automakers Mitigate 
Fuel-Price Risks?'' University of Michigan Transportation Research 
Institute (Docket EPA-HQ-OAR-2009-0472).
    \340\ Gramlich, Jacob (2008). ``Gas Prices and Endogenous 
Product Selection in the U.S. Automobile Industry,'' http://www.econ.yale.edu/seminars/apmicro/am08/gramlich-081216.pdf, 
accessed 5/11/09 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    As noted, lack of information is one possible reason for the 
variation. Consumers face difficulty in predicting the fuel savings 
that they are likely to get from a vehicle, for a number of reasons. 
For instance, the calculation of fuel savings is complex, and consumers

[[Page 49604]]

may not make it correctly.\341\ In addition, future fuel price (a major 
component of fuel savings) is highly uncertain. Consumer fuel savings 
also vary across individuals, who travel different amounts and have 
different driving styles. Studies regularly show that fuel economy 
plays a role in consumers' vehicle purchases, but modeling that role 
may still be in development.\342\
---------------------------------------------------------------------------

    \341\ Turrentine, T. and K. Kurani (2007). ``Car Buyers and Fuel 
Economy?'' Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009-
0472); Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.'' 
Science 320: 1593-1594 (Docket EPA-HQ-OAR-2009-0472).
    \342\ Busse, Meghan R., Christopher R. Knittel, and Florian 
Zettelmeyer (2009). ``Pain at the Pump: How Gasoline Prices Affect 
Automobile Purchasing in New and Used Markets,'' Working paper 
(accessed 6/30/09), available at http://www.econ.ucdavis.edu/faculty/knittel/papers/gaspaper_latest.pdf (Docket EPA-HQ-OAR-2009-
0472).
---------------------------------------------------------------------------

    If there is a difference between fuel savings and consumers' 
willingness to pay for fuel savings, the next question is, which is the 
appropriate measure of consumer benefit? Fuel savings measure the 
actual monetary value that consumers will receive after purchasing a 
vehicle; the willingness to pay for fuel economy measures the value 
that, before a purchase, consumers place on additional fuel economy. As 
noted, there are a number of reasons that consumers may incorrectly 
estimate the benefits that they get from improved fuel economy, 
including risk or loss aversion, poor ability to estimate savings, and 
a lack of salience of fuel economy savings.
    Considerable evidence suggests that consumers discount future 
benefits more than the government when evaluating energy efficiency 
gains. The Energy Information Agency (1996) has used discount rates as 
high as 111 percent for water heaters and 120 percent for electric 
clothes dryers.\343\ In the transportation sector, evidence also points 
to high private discount rates: Kubik (2006) conducts a representative 
survey that finds consumers are impatient or myopic (e.g., use a high 
discount rate) with regard to vehicle fuel savings.\344\ On average, 
consumers indicated that fuel savings would have to pay back the 
additional cost in only 2.9 years to persuade them to buy a higher 
fuel-economy vehicle. EPA also incorporate a relatively short ``payback 
period'' into OMEGA to evaluate and order technologies that can be used 
to increase fuel economy, assuming that buyers value the resulting fuel 
savings over the first five years of a new vehicle's lifetime. This 
assumption is based on the current average term of consumer loans to 
finance the purchase of new vehicles. That said, there is no consensus 
in the literature on what the private discount rate is or should be in 
this context.
---------------------------------------------------------------------------

    \343\ Energy Information Administration, U.S. Department of 
Energy (1996). Issues in Midterm Analysis and Forecasting 1996, DOE/
EIA-0607(96), Washington, DC., http://www.osti.gov/bridge/purl.cover.jsp?purl=/366567-BvCFp0/webviewable/, accessed 7/7/09.
    \344\ Kubik, M. (2006). Consumer Views on Transportation and 
Energy. Second Edition. Technical Report: National Renewable Energy 
Laboratory.
---------------------------------------------------------------------------

    One possibility is that the discounting framework may not be a good 
model for consumer decision-making and for determining consumer welfare 
regarding fuel economy. Buying a vehicle involves trading off among 
dozens of vehicle characteristics, including price, vehicle class, 
safety, performance, and even audio systems and cupholders. Fuel 
economy is only one of these attributes, and its role in consumer 
vehicle purchase decisions is not well understood (see DRIA Section 
8.1.2 for further discussion). As noted above, if consumers do not 
fully consider fuel economy at the time of vehicle purchase, then the 
fuel savings from this rule provide a realized benefit to consumers 
after purchase. There are two distinct ideas at work here: one is that 
efficiency improvements change the nature of the cost of the car, 
requiring higher up-front vehicle costs while enabling lower long-run 
fuel costs; the other is that while consumers may benefit from the 
lower long-run fuel costs, they may also experience some loss in 
welfare on account of the possible change in vehicle mix.
    A second problem with use of consumer vehicle choice models, as 
they now stand, is that they are even less reliable in the face of 
significant changes otherwise occurring in fleet composition. One 
attempt to analyze the effect of the oil shock of 1973 on consumer 
vehicle choice found that, after two years, the particular model did 
not predict well due to changes in the vehicle fleet.\345\ It is likely 
that, in the next few years, many of the vehicles that will be offered 
for sale will change. In coming years, new vehicles will be developed, 
and existing vehicles will be redesigned. For instance, over the next 
few years, new vehicles that have both high fuel economy and high 
safety factors, in combinations that consumers have not previously been 
offered, are likely to appear in the market. Models based on the 
existing vehicle fleet may not do well in predicting consumers' choices 
among the new vehicles offered. Given that consumer vehicle choice 
models appear to be less effective in predicting vehicle choices when 
the vehicles are likely to change, EPA is reluctant to use the models 
for this proposed rulemaking.
---------------------------------------------------------------------------

    \345\ Berry, Steven, James Levinsohn, and Ariel Pakes (July 
1995). ``Automobile Prices in Market Equilibrium,'' Econometrica 
63(4): 841-940 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    In sum, the estimates of consumer surplus from consumer vehicle 
choice models depend heavily on the value to consumers of improved fuel 
economy, a value for which estimates are highly varied. In addition, 
the predictive ability of consumer vehicle choice models may be limited 
as consumers face new vehicle choices that they previously did not 
have.
    Nonetheless, because there are potential advantages to using 
consumer vehicle choice models if these difficulties can be addressed, 
EPA plans to continue our investigation and evaluation of consumer 
vehicle choice models. This effort includes further review of existing 
consumer vehicle choice models and the estimates of consumers' 
willingness to pay for increased fuel economy. In addition, EPA is 
developing capacity to examine the factors that may affect the results 
of consumer vehicle choice models, and to explore their impact on 
analysis of regulatory scenarios.
    A detailed discussion of the state of the art of consumer choice 
modeling is provided in the DRIA. For this rulemaking, EPA is not able 
to estimate the consumer welfare loss which may accompany the actual 
fuel savings from the proposal, and so any such loss must remain 
unquantified. EPA seeks comments on how to assess these difficult 
questions in the future.
2. Costs Associated With the Vehicle Program
    In this section EPA presents our estimate of the costs associated 
with the proposed vehicle program. The presentation here summarizes the 
costs associated with the new vehicle technology expected to be added 
to meet the proposed GHG standards, including hardware costs to comply 
with the proposed A/C credit program. The analysis summarized here 
provides our estimate of incremental costs on a per vehicle basis and 
on an annual total basis.
    The presentation here summarizes the outputs of the OMEGA model 
that was discussed in some detail in Section III.D of this preamble. 
For details behind the analysis such as the OMEGA model inputs and the 
estimates of costs associated with individual technologies, the reader 
is directed to Chapters 1 and 2 of the DRIA, and Chapter 3 of the Draft 
Joint TSD. For more detail on the

[[Page 49605]]

outputs of the OMEGA model and the overall vehicle program costs 
summarized here, the reader is directed to Chapters 4 and 7 of the 
DRIA.
    With respect to the cost estimates for vehicle technologies, EPA 
notes that, because these estimates relate to technologies which are in 
most cases already available, these cost estimates are technically 
robust. EPA notes further that, in all instances, its estimates are 
within the range of estimates in the most widely-utilized sources and 
studies. In that way, EPA believes that we have been conservative in 
estimating the vehicle hardware costs associated with this proposal.
    With respect to the aggregate cost estimations presented in Section 
III.H.2.b, EPA notes that there are a number of areas where the results 
of our analysis may be conservative and, in general, EPA believes we 
have directionally overestimated the costs of compliance with these 
proposed standards, especially in not accounting for the full range of 
credit opportunities available to manufacturers. For example, some cost 
saving programs are considered in our analysis, such as full car/truck 
trading, while others are not, such as cross-manufacturer trading and 
advanced technology credits.
a. Vehicle Compliance Costs Associated With the Proposed CO2 
Standards
    For the technology and vehicle package costs associated with adding 
new CO2-reducing technology to vehicles, EPA began with 
EPA's 2008 Staff Report and NHTSA's 2011 CAFE FRM both of which 
presented costs generated using existing literature, meetings with 
manufacturers and parts suppliers, and meetings with other experts in 
the field of automotive cost estimation.\346\ EPA has updated some of 
those technology costs with new information from our contract with FEV, 
through further discussion with NHTSA, and by converting from 2006 
dollars to 2007 dollars using the GDP price deflator. The estimated 
costs presented here represent the incremental costs associated with 
this proposal relative to what the future vehicle fleet would be 
expected to look like absent this proposed rule. A more detailed 
description of the factors considered in our reference case is 
presented in Section III.D.
---------------------------------------------------------------------------

    \346\ ``EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon 
Dioxide Emissions,'' EPA 420-R-08-008; NHTSA 2011 CAFE FRM is at 74 
FR 14196; both documents are contained in Docket EPA-HQ-OAR-2009-
0472.
---------------------------------------------------------------------------

    The estimates of vehicle compliance costs cover the years of 
implementation of the program--2012 through 2016. EPA has also 
estimated compliance costs for the years following implementation so 
that we can shed light on the long term--2022 and later--cost impacts 
of the proposal.\347\ EPA used the year 2022 here because our short-
term and long-term markup factors described shortly below are applied 
in five year increments with the 2012 through 2016 implementation span 
and the 2017 through 2021 span both representing the short-term. Some 
of the individual technology cost estimates are presented in brief in 
Section III.D, and account for both the direct and indirect costs 
incurred in the automobile manufacturing and dealer industries (for a 
complete presentation of technology costs, please refer to Chapter 3 of 
the Draft Joint TSD). To account for the indirect costs, EPA has 
applied an indirect cost markup (ICM) factor to all of our direct costs 
to arrive at the estimated technology cost.\348\ The ICM factors used 
range from 1.11 to 1.64 in the short-term (2012 through 2021), 
depending on the complexity of the given technology, to account for 
differences in the levels of R&D, tooling, and other indirect costs 
that would be incurred. Once the program has been fully implemented, 
some of the indirect costs would no longer be attributable to these 
proposed standards and, as such, a lower ICM factor is applied to 
direct costs in years following full implementation. The ICM factors 
used range from 1.07 to 1.39 in the long-term (2022 and later) 
depending on the complexity of the given technology.\349\ Note that the 
short-term ICMs are used in the 2012 through 2016 years of 
implementation and continue through 2021. EPA does this since the 
proposed standards are still being implemented during the 2012 through 
2016 model years. Therefore, EPA considers the five year period 
following full implementation also to be short-term.
---------------------------------------------------------------------------

    \347\ Note that the assumption made here is that the standards 
proposed would continue to apply for years beyond 2016 so that new 
vehicles sold in model years 2017 and later would continue to incur 
costs as a result of this rule. Those costs are estimated to get 
lower in 2022 because some of the indirect costs attributable to 
this proposal in the years prior to 2022 would be eliminated in 2022 
and later.
    \348\ Alex Rogozhin et al., Automobile Industry Retail Price 
Equivalent and Indirect Cost Multipliers. Prepared for EPA by RTI 
International and Transportation Research Institute, University of 
Michigan. EPA-420-R-09-003, February 2009 (Docket EPA-HQ-OAR-2009-
0472).
    \349\ Gloria Helfand and Todd Sherwood, ``Documentation of the 
Development of Indirect Cost Multipliers for Three Automotive 
Technologies,'' Office of Transportation and Air Quality, USEPA, 
August 2009 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    The argument has been made that the ICM approach may be more 
appropriate for regulatory cost estimation than the more traditional 
retail price equivalent, or RPE, markup. The RPE is based on the 
historical relationship between direct costs and consumer prices; it is 
intended to reflect the average markup over time required to sustain 
the industry as a viable operation. Unlike the RPE approach, the ICM 
focuses more narrowly on the changes that are required in direct 
response to regulation-induced vehicle design changes which may not 
directly influence all of the indirect costs that are incurred in the 
normal course of business. For example, an RPE markup captures all 
indirect costs including costs such as the retirement benefits of 
retired employees. However, the retirement benefits for retired 
employees are not expected to change as a result of a new GHG 
regulation and, therefore, those indirect costs should not increase in 
relation to newly added hardware in response to a regulation. So, under 
the ICM approach, if a newly added piece of technology has an 
incremental direct cost of $1, its direct plus indirect costs should 
not be $1 multiplied by an RPE markup of say 1.5, or $1.50, but rather 
something less since the manufacturer is not paying more for retired-
employee retirement benefits as a direct result of adding the new piece 
of technology. Further, as noted above, the indirect cost multiplier 
can be adjusted for different levels of technological complexity. For 
example, a move to low rolling resistance tires is less complex than 
converting a gasoline vehicle to a plug-in hybrid. Therefore, the 
incremental indirect costs for the tires should be lower in magnitude 
than those for the plug-in hybrid. For the analysis underlying these 
proposed standards, the agencies have based our estimates on the ICM 
approach, but EPA notes that discussion continues about the use of the 
RPE approach and the ICM approach for safety and environmental 
regulations. We discuss our ICM factors and the complexity levels used 
in our analysis in more detail in Chapter 3 of the Draft Joint TSD and 
EPA requests comment on the approach described there as well as the 
general concepts of both the ICM and RPE approaches.
    EPA has also considered the impacts of manufacturer learning on the 
technology cost estimates. Consistent with past EPA rulemakings, EPA 
has estimated that some costs would decline by 20 percent with each of 
the first two doublings of production beginning with the first year of 
implementation. These

[[Page 49606]]

volume-based cost declines--which EPA calls ``volume'' based learning--
take place after manufacturers have had the opportunity to find ways to 
improve upon their manufacturing processes or otherwise manufacture 
these technologies in a more efficient way. After two 20 percent cost 
reduction steps, the cost reduction learning curve flattens out 
considerably as only minor improvements in manufacturing techniques and 
efficiencies remain to be had. By then, costs decline roughly three 
percent per year as manufacturers and suppliers continually strive to 
reduce costs. These time-based cost declines--which EPA calls ``time'' 
based learning--take place at a rate of three percent per year. EPA has 
considered learning impacts on most but not all of the technologies 
expected to be used because some of the expected technologies are 
already used rather widely in the industry and, presumably, learning 
impacts have already occurred. EPA has considered volume-based learning 
for only a handful of technologies that EPA considers to be new or 
emerging technologies such as the hybrids and electric vehicles. For 
most technologies, EPA has considered them to be more established given 
their current use in the fleet and, hence, we have applied the lower 
time based learning. We have more discussion of our learning approach 
and the technologies to which we have applied which type of learning in 
the Draft Joint TSD.
    The technology cost estimates discussed in Section III.D and 
detailed in Chapter 3 of the Draft Joint TSD are used to build up 
package cost estimates which are then used as inputs to the OMEGA 
model. EPA discusses our packages and package costs in Chapter 1 of the 
DRIA. The model determines what level of CO2 improvement is 
required considering the reference case for each manufacturer's fleet. 
The vehicle compliance costs are the outputs of the model and take into 
account FFV credits through 2015, TLAASP, full car/truck trading, and 
the A/C credit program. Table III.H.2-1 presents the fleet average 
incremental vehicle compliance costs for this proposal. As the table 
indicates, 2012-2016 costs increase every year as the standards become 
more stringent. Costs per car and per truck then remain stable through 
2021 while cost per vehicle (car/truck combined) decline slightly as 
the fleet mix trends slowly to increasing car sales. In 2022, costs per 
car and per truck decline as the long-term ICM kicks in because some 
indirect costs are no longer considered attributable to the proposed 
program. Costs per car and per truck remain constant thereafter while 
the cost per vehicle declines slightly as the fleet continues to trend 
toward cars. By 2030, projections of fleet mix changes become static 
and the cost per vehicle remains constant. EPA has a more detailed 
presentation of vehicle compliance costs on a manufacturer by 
manufacturer basis in the DRIA.

 Table III.H.2-1--Industry Average Vehicle Compliance Costs Associated With the Proposed Tailpipe CO2 Standards
                                           [$/vehicle in 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                  $/vehicle (car
                          Calendar year                                $/car          $/truck         & truck
                                                                                                     combined)
----------------------------------------------------------------------------------------------------------------
2012............................................................             374             358             368
2013............................................................             531             539             534
2014............................................................             663             682             670
2015............................................................             813             886             838
2016............................................................             968           1,213           1,050
2017............................................................             968           1,213           1,047
2018............................................................             968           1,213           1,044
2019............................................................             968           1,213           1,042
2020............................................................             968           1,213           1,040
2021............................................................             968           1,213           1,039
2022............................................................             890           1,116             955
2030............................................................             890           1,116             953
2040............................................................             890           1,116             953
2050............................................................             890           1,116             953
----------------------------------------------------------------------------------------------------------------

b. Annual Costs of the Proposed Vehicle Program
    The costs presented here represent the incremental costs for newly 
added technology to comply with the proposed program. Together with the 
projected increases in car and light-truck sales, the increases in per-
vehicle average costs shown in Table III.H.2-1 above result in the 
total annual costs reported in Table III.H.2-2 below. Note that the 
costs presented in Table III.H.2-2 do not include the savings that 
would occur as a result of the improvements to fuel consumption. Those 
impacts are presented in Section III.H.4.

  Table III.H.2-2--Quantified Annual Costs Associated With the Proposed
                             Vehicle Program
                       [$Millions of 2007 dollars]
------------------------------------------------------------------------
                                                            Quantified
                          Year                             annual costs
------------------------------------------------------------------------
2012....................................................          $5,400
2013....................................................          $8,400
2014....................................................         $10,900
2015....................................................         $13,900
2016....................................................         $17,500
2020....................................................         $18,000
2030....................................................         $17,900
2040....................................................         $19,300
2050....................................................         $20,900
NPV, 3%.................................................        $390,000
NPV, 7%.................................................        $216,600
------------------------------------------------------------------------

3. Cost per Ton of Emissions Reduced
    EPA has calculated the cost per ton of GHG (CO2-
equivalent, or CO2e) reductions associated with this 
proposal using the above costs and the emissions reductions described 
in Section III.F. More detail on the costs, emission reductions, and 
the cost per ton can be found in the DRIA and Draft Joint TSD. EPA has 
calculated the cost per metric ton of GHG emissions reductions in the 
years 2020, 2030, 2040, and 2050 using the annual vehicle compliance 
costs and emission reductions for each of those years. The value in 
2050 represents the long-term cost per ton of the emissions reduced. 
Note that EPA has not included the savings associated with

[[Page 49607]]

reduced fuel consumption, nor any of the other benefits of this 
proposal in the cost per ton calculations. If EPA were to include fuel 
savings in the cost estimates, the cost per ton would be less than $0, 
since the estimated value of fuel savings outweighs these costs. With 
regard to the proposed CH4 and N2O standards, 
since these standards would be emissions caps designed to ensure 
manufacturers do not backslide from current levels, EPA has not 
estimated costs associated with the standards (since the standards 
would not require any change from current practices nor does EPA 
estimate they would result in emissions reductions).
    The results for CO2e costs per ton under the proposed 
vehicle program are shown in Table III.H.3-1.

                  Table III.H.3-1--Annual Cost Per Metric Ton of CO2e Reduced, in $2007 Dollars
----------------------------------------------------------------------------------------------------------------
                                                                                   CO2e  Reduced
                              Year                                   Cost \a\        (million      Cost per ton
                                                                    ($millions)    metric tons)
----------------------------------------------------------------------------------------------------------------
2020............................................................         $18,000             170            $110
2030............................................................          17,900             320              60
2040............................................................          19,300             420              50
2050............................................................          20,900             520              40
----------------------------------------------------------------------------------------------------------------
\a\ Costs here include vehicle compliance costs and do not include any fuel savings (discussed in Section
  III.H.4) or other benefits of this proposal (discussed in Sections III.H.6 through III.H 10).

4. Reduction in Fuel Consumption and Its Impacts
a. What Are the Projected Changes in Fuel Consumption?
    The proposed CO2 standards would result in significant 
improvements in the fuel efficiency of affected vehicles. Drivers of 
those vehicles would see corresponding savings associated with reduced 
fuel expenditures. EPA has estimated the impacts on fuel consumption 
for both the proposed tailpipe CO2 standards and the 
proposed A/C credit program. To do this, fuel consumption is calculated 
using both current CO2 emission levels and the proposed 
CO2 standards. The difference between these estimates 
represents the net savings from the proposed CO2 standards. 
Note that the total number of miles that vehicles are driven each year 
is different under each of the control case scenarios than in the 
reference case due to the ``rebound effect,'' which is discussed in 
Section III.H.4.c.
    The expected impacts on fuel consumption are shown in Table 
III.H.4-1. The gallons shown in the tables reflect impacts from the 
proposed CO2 standards, including the proposed A/C credit 
program, and include increased consumption resulting from the rebound 
effect.

    Table III.H.4-1--Fuel Consumption Impacts of the Proposed Vehicle
                    Standards and A/C Credit Programs
                            [Million gallons]
------------------------------------------------------------------------
                             Year                                Total
------------------------------------------------------------------------
2012.........................................................        530
2013.........................................................      1,320
2014.........................................................      2,410
2015.........................................................      3,910
2016.........................................................      5,930
2020.........................................................     13,350
2030.........................................................     26,180
2040.........................................................     33,930
2050.........................................................     42,570
------------------------------------------------------------------------

b. What Are the Fuel Savings to the Consumer?
    Using the fuel consumption estimates presented in Section 
III.H.4.a, EPA can calculate the monetized fuel savings associated with 
the proposed CO2 standards. To do this, we multiply reduced 
fuel consumption in each year by the corresponding estimated average 
fuel price in that year, using the reference case taken from the AEO 
2009.\350\ AEO is the government consensus estimate used by NHTSA and 
many other government agencies to estimate the projected price of fuel. 
EPA has included all fuel taxes in these estimates since these are the 
prices paid by consumers. As such, the savings shown reflect savings to 
the consumer. These results are shown in Table III.H.4-2. Note that EPA 
presents the monetized fuel savings using pre-tax fuel prices in 
Section III.H.10. The fuel savings based on pre-tax fuel prices reflect 
the societal savings in contrast to the consumer savings presented in 
Table III.H.4-2. Also in Section III.H.10, EPA presents the benefit-
cost of the proposal and, for that reason, present the fuel impacts as 
negative costs of the program while here EPA presents them as positive 
savings.
---------------------------------------------------------------------------

    \350\ Energy Information Administration, Supplemental tables to 
the Annual Energy Outlook 2009, Updated Reference Case with American 
Recovery and Reinvestment Act. Available http://www.eia.doe.gov/oiaf/aeo/supplement/stimulus/regionalarra.html. April 2009.

 Table III.H.4-2--Estimated Fuel Consumption Savings to the Consumer \a\
                       [Millions of 2007 dollars]
------------------------------------------------------------------------
                      Calendar year                            Total
------------------------------------------------------------------------
2012....................................................          $1,400
2013....................................................           3,800
2014....................................................           7,200
2015....................................................          12,400
2016....................................................          19,400
2020....................................................          48,400
2030....................................................         100,000
2040....................................................         136,800
2050....................................................         181,000
NPV, 3%.................................................       1,850,200
NPV, 7%.................................................         826,900
------------------------------------------------------------------------
\a\ Fuel consumption savings calculated using taxed fuel prices. Fuel
  consumption impacts using pre-tax fuel prices are presented in Section
  III.H.10 as negative costs of the vehicle program

    As shown in Table III.H.4-2, EPA is projecting that consumers would 
realize very large fuel savings as a result of the standards contained 
in this proposal. There are several ways to view this value. Some, as 
demonstrated below in Section III.H.5, view these fuel savings as a 
reduction in the cost of owning a vehicle, whose full benefits 
consumers realize. This approach assumes that, regardless how consumers 
in fact make their decisions on how much fuel economy to purchase, they 
will gain these fuel savings. Another view says that consumers do not 
necessarily value fuel savings as equal to the results of this 
calculation. Instead, consumers may either undervalue or overvalue fuel 
economy relative to these savings, based

[[Page 49608]]

on their personal preferences. This issue is discussed further in 
Section III.H.5 and in Chapter 8 of the DRIA.
c. VMT Rebound Effect
    The fuel economy rebound effect refers to the fraction of fuel 
savings expected to result from an increase in vehicle fuel economy--
particularly one required by higher fuel efficiency standards--that is 
offset by additional vehicle use. The increase in vehicle use occurs 
because higher fuel economy reduces the fuel cost of driving, which is 
typically the largest single component of the monetary cost of 
operating a vehicle, and vehicle owners respond to this reduction in 
operating costs by driving slightly more.
    For this proposal, EPA is using an estimate of 10% for the rebound 
effect. This value is based on the most recent time period analyzed in 
the Small and Van Dender 2007 paper,\351\ and falls within the range of 
the larger body of historical work on the rebound effect.\352\ Recent 
work by David Greene on the rebound effect for light-duty vehicles in 
the U.S. further supports the hypothesis that the rebound effect is 
decreasing over time.\353\ If we were to use a dynamic estimate of the 
future rebound effect, our analysis shows that the rebound effect could 
be in the range of 5% or lower.\354\ The rebound effect is also 
discussed in Section II.F of the preamble; the TSD, Section 4.2.5, 
reviews the relevant literature and discusses in more depth the 
reasoning for the rebound values used here.
---------------------------------------------------------------------------

    \351\ Small, K. and K. Van Dender, 2007a. ``Fuel Efficiency and 
Motor Vehicle Travel: The Declining Rebound Effect'', The Energy 
Journal, vol. 28, no. 1, pp. 25-51 (Docket EPA-HQ-OAR-2009-0472).
    \352\ Sorrell, S. and J. Dimitropoulos, 2007. ``UKERC Review of 
Evidence for the Rebound Effect, Technical Report 2: Econometric 
Studies'', UKERC/WP/TPA/2007/010, UK Energy Research Centre, London, 
October (Docket EPA-HQ-OAR-2009-0472).
    \353\ Report by Kenneth A. Small of University of California at 
Irvine to EPA, ``The Rebound Effect from Fuel Efficiency Standards: 
Measurement and Projection to 2030'', June 12, 2009 (Docket EPA-HQ-
OAR-2009-0472).
    \354\ Report by David Greene of Oak Ridge National Laboratory to 
EPA, ``Rebound 2007: Analysis of National Light-Duty Vehicle Travel 
Statistics,'' March 24, 2009 (Docket EPA-HQ-OAR-2009-0472). Note, 
this report has been submitted for peer review. Completion of the 
peer review process is expected prior to the final rule.
---------------------------------------------------------------------------

    EPA also invites comments on other alternatives for estimating the 
rebound effect. As one illustration, variation in the price per gallon 
of gasoline directly affects the per-mile cost of driving, and drivers 
may respond just as they would to a change in the cost of driving 
resulting from a change in fuel economy, by varying the number of miles 
they drive. Because vehicles' fuel economy is fixed in the short run, 
variation in the number of miles driven in response to changes in fuel 
prices will be reflected in changes in gasoline consumption. Under the 
assumption that drivers respond similarly to changes in the cost of 
driving whether they are caused by variation in fuel prices or fuel 
economy, the short-run price elasticity of demand for gasoline--which 
measures the sensitivity of gasoline consumption to changes in its 
price per gallon--may provide some indication about the magnitude of 
the rebound effect itself. EPA invites comment on the extent to which 
the short run elasticity of demand for gasoline with respect to its 
price can provide useful information about the size of the rebound 
effect. Specifically, we seek comment on whether it would be 
appropriate to use the price elasticity of demand for gasoline, or 
other alternative approaches, to guide the choice of a value for the 
rebound effect.
5. Impacts on U.S. Vehicle Sales and Payback Period
a. Vehicle Sales Impacts
    The methodology EPA used for estimating the impact on vehicle sales 
is relatively straightforward, but makes a number of simplifying 
assumptions. According to the literature, the price elasticity of 
demand for vehicles is commonly estimated to be -1.0.\355\ In other 
words, a one percent increase in the price of a vehicle would be 
expected to decrease sales by one percent, holding all other factors 
constant. For our estimates, EPA calculated the effect of an increase 
in vehicle costs due to the proposed standards and assume that 
consumers will face the full increase in costs, not an actual 
(estimated) change in vehicle price. (The estimated increases in 
vehicle cost due to the rule are discussed in Section III.H.2) This is 
a conservative methodology, since an increase in cost may not pass 
fully into an increase in market price in an oligopolistic industry 
such as the automotive sector.\356\ EPA also notes that we have not 
used these estimated sales impacts in the OMEGA Model.
---------------------------------------------------------------------------

    \355\ Kleit A.N., 1990. ``The Effect of Annual Changes in 
Automobile Fuel Economy Standards.'' Journal of Regulatory Economics 
2: 151-172 (Docket EPA-HQ-OAR-2009-0472); McCarthy, Patrick S., 
1996. ``Market Price and Income Elasticities of New Vehicle 
Demands.'' Review of Economics and Statistics 78: 543-547 (Docket 
EPA-HQ-OAR-2009-0472); Goldberg, Pinelopi K., 1998. ``The Effects of 
the Corporate Average Fuel Efficiency Standards in the U.S.,'' 
Journal of Industrial Economics 46(1): 1-33 (Docket EPA-HQ-OAR-2009-
0472).
    \356\ See, for instance, Gron, Ann, and Deborah Swenson, 2000. 
``Cost Pass-Through in the U.S. Automobile Market,'' Review of 
Economics and Statistics 82: 316-324 (Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    Although EPA uses the one percent price elasticity of demand for 
vehicles as the basis for our vehicle sales impact estimates, we 
assumed that the consumer would take into account both the higher 
vehicle purchasing costs as well as some of the fuel savings benefits 
when deciding whether to purchase a new vehicle. Therefore, the 
incremental cost increase of a new vehicle would be offset by reduced 
fuel expenditures over a certain period of time (i.e., the ``payback 
period''). For the purposes of this rulemaking, EPA used a five-year 
payback period, which is consistent with the length of a typical new 
light-duty vehicle loan.\357\ This approach may not accurately reflect 
the role of fuel savings in consumers' purchase decisions, as the 
discussion in Section III.H.1 suggests. If consumers consider fuel 
savings in a different fashion than modeled here, then this approach 
will not accurately reflect the impact of this rule on vehicle sales.
---------------------------------------------------------------------------

    \357\ There is not a consensus in the literature on how 
consumers consider fuel economy in their vehicle purchases. Results 
are inconsistent, possibly due to fuel economy not being a major 
focus of many of the studies. Espey, Molly, and Santosh Nair (1995, 
``Automobile Fuel Economy: What Is It Worth?'' Contemporary Economic 
Policy 23: 317-323, (Docket EPA-HQ-OAR-2009-0472) find that their 
results are consistent with consumers using the lifetime of the 
vehicle, not just the first five years, in their fuel economy 
purchase decisions. This result suggests that the five-year time 
horizon used here may be an underestimate.
---------------------------------------------------------------------------

    This increase in costs has other effects on consumers as well: If 
vehicle prices increase, consumers will face higher insurance costs and 
sales tax, and additional finance costs if the vehicle is bought on 
credit. In addition, the resale value of the vehicles will increase. 
EPA estimates that, with corrections for these factors, the effect on 
consumer expenditures of the cost of the new technology should be 0.932 
times the cost of the technology at a 3% discount rate, and 0.892 times 
the cost of the technology at a 7% discount rate. The details of this 
calculation are in the DRIA, Chapter 8.l.
    Once the cost estimates are adjusted for these additional factors, 
the fuel cost savings associated with the rule, discussed in Section 
III.H.4, are subtracted to get the net effect on consumer expenditures 
for a new vehicle. With the assumed elasticity of demand of -1, the 
percent change in this ``effective price,'' estimated as the adjusted 
increase in cost, is equal to the negative of the percent change in 
vehicle purchases. The net effect of this calculation is in Table 
III.H.5-1 and Table III.H.5-2.

[[Page 49609]]

    The estimates provided in Table III.H.5-1 and Table III.H.5-2 are 
meant to be illustrative rather than a definitive prediction. When 
viewed at the industry-wide level, they give a general indication of 
the potential impact on vehicle sales. As shown below, the overall 
impact is positive and growing over time for both cars and trucks, 
because the estimated value of fuel savings exceeds the costs of 
meeting the higher standards. If, however, consumers do not take fuel 
savings and other costs into account as modeled here when they purchase 
vehicles, the results presented here may not reflect actual impacts on 
vehicle sales.

                         Table III.H.5-1--Vehicle Sales Impacts Using a 3% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                            Change in car                      Change in truck
                                                sales        Percent change         sales        Percent change
----------------------------------------------------------------------------------------------------------------
2012....................................            66,600               0.7            27,300               0.5
2013....................................            93,300               0.9           161,300               2.8
2014....................................           134,400               1.3           254,400               4.4
2015....................................           236,300               2.2           368,400               6.5
2016....................................           375,400               3.4           519,000               9.4
----------------------------------------------------------------------------------------------------------------

    Table III.H.5-1 shows the impacts on new vehicle sales using a 3% 
discount rate. The fuel savings are always higher than the technology 
costs. Although both cars and trucks show very small effects initially, 
over time vehicle sales become increasingly positive, as increased fuel 
prices make improved fuel economy more desirable. The increases in 
sales for trucks are larger than the increases for trucks (except in 
2012) in both absolute numbers and percentage terms.

                       Table III.H.5-2--New Vehicle Sales Impacts Using a 7% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                          Change in car                       Change in truck
                                              sales         Percent change         sales         Percent change
----------------------------------------------------------------------------------------------------------------
2012..................................            61,900                0.7            25,300                0.5
2013..................................            86,600                0.9            60,000                1
2014..................................           125,200                1.2           122,900                2.1
2015..................................           221,400                2             198,100                3.5
2016..................................           353,100                3.2           291,500                5.3
----------------------------------------------------------------------------------------------------------------

    Table III.H.5-2 shows the impacts on new vehicle sales using a 7% 
interest rate. While a 7% interest rate shows slightly lower impacts 
than using a 3% discount rate, the results are qualitatively similar to 
those using a 3% discount rate. Sales increase for every year. For both 
cars and trucks, sales become increasingly positive over time, as 
higher fuel prices make improved fuel economy more valuable. The car 
market grows more than the truck market in absolute numbers, but less 
on a percentage basis.
    The effect of this rule on the use and scrappage of older vehicles 
will be related to its effects on new vehicle prices, the fuel 
efficiency of new vehicle models, and the total sales of new vehicles. 
If the value of fuel savings resulting from improved fuel efficiency to 
the typical potential buyer of a new vehicle outweighs the average 
increase in new models' prices, sales of new vehicles will rise, while 
scrappage rates of used vehicles will increase slightly. This will 
cause the ``turnover'' of the vehicle fleet--that is, the retirement of 
used vehicles and their replacement by new models--to accelerate 
slightly, thus accentuating the anticipated effect of the rule on 
fleet-wide fuel consumption and CO2 emissions. However, if 
potential buyers value future fuel savings resulting from the increased 
fuel efficiency of new models at less than the increase in their 
average selling price, sales of new vehicles will decline, as will the 
rate at which used vehicles are retired from service. This effect will 
slow the replacement of used vehicles by new models, and thus partly 
offset the anticipated effects of the proposed rules on fuel use and 
emissions.
    Because the agencies are uncertain about how the value of projected 
fuel savings from the proposed rules to potential buyers will compare 
to their estimates of increases in new vehicle prices, we have not 
attempted to estimate explicitly the effects of the rule on scrappage 
of older vehicles and the turnover of the vehicle fleet. We seek 
comment on the methods that might be used to estimate the effect of the 
proposed rule on the scrappage and use of older vehicles as part of the 
analysis to be conducted for the final rule.
    A detailed discussion of the vehicle sales impacts methodology is 
provided in the DRIA. EPA invites comments on this approach to 
estimating the vehicle sales impacts of this proposal.
b. Consumer Payback Period and Lifetime Savings on New Vehicle 
Purchases
    Another factor of interest is the payback period on the purchase of 
a new vehicle that complies with the proposed standards. In other 
words, how long would it take for the expected fuel savings to outweigh 
the increased cost of a new vehicle? For example, a new 2016 MY vehicle 
is estimated to cost $1,050 more (on average, and relative to the 
reference case vehicle) due to the addition of new GHG reducing 
technology (see Section III.D.6 for details on this cost estimate). 
This new technology will result in lower fuel consumption and, 
therefore, savings in fuel expenditures (see Section III.F.1 for 
details on fuel savings). But how many months or years would pass 
before the fuel savings exceed the upfront cost of $1,050?
    Table III.H.5-3 provides the answer to this question for a vehicle 
purchaser who pays for the new vehicle upfront in cash (we discuss 
later in this section the payback period for consumers who finance the 
new vehicle purchase with a loan). The table uses annual miles driven 
(vehicle miles traveled, or VMT) and survival rates consistent with the 
emission and benefits analyses

[[Page 49610]]

presented in Chapter 4 of the draft joint TSD. The control case 
includes rebound VMT but the reference case does not, consistent with 
other parts of the analysis. Also included are fuel savings associated 
with A/C controls (in the control case only), but the expected A/C-
related maintenance savings are not included. The likely A/C-related 
maintenance savings are discussed in Chapter 2 of EPA's draft RIA. 
Further, this analysis does not include other societal impacts such as 
the value of increased driving, or noise, congestion and accidents 
since the focus is meant to be on those factors consumers consider most 
while in the showroom considering a new car purchase. Car/truck fleet 
weighting is handled as described in Chapter 1 of the draft joint TSD. 
As can be seen in the table, it will take under 3 years (2 years and 8 
months at a 3% discount rate, 2 years and 10 months at a 7% discount 
rate) for the cumulative discounted fuel savings to exceed the upfront 
increase in vehicle cost. More detail on this analysis can be found in 
Chapter 8 of EPA's draft RIA.

                   Table III.H.5-3--Payback Period on a 2016 MY New Vehicle Purchase via Cash
                                                 [2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                 Cumulative        Cumulative
            Year of ownership                 Increased        Annual fuel     discounted fuel   discounted fuel
                                          vehicle cost \a\     savings \b\      savings at 3%     savings at 7%
----------------------------------------------------------------------------------------------------------------
1.......................................            $1,128              $443              $436              $428
2.......................................  ................               444               860               829
3.......................................  ................               443             1,272             1,203
4.......................................  ................               434             1,663             1,546
----------------------------------------------------------------------------------------------------------------
\a\ Increased cost of the proposed rule is $1,050; the value here includes nationwide average sales tax of 5.3%
  and increased insurance premiums of 1.98%; both of these percentages are discussed in Section 8.1.1 of EPA's
  draft RIA.
\b\ Calculated using AEO 2009 reference case fuel price including taxes.

    However, most people purchase a new vehicle using credit rather 
than paying cash up front. The typical car loan today is a five year, 
60 month loan. As of August 24, 2009, the national average interest 
rate for a 5 year new car loan was 7.41 percent. If the increased 
vehicle cost is spread out over 5 years at 7.41 percent, the analysis 
would look like that shown in Table III.H.5-4. As can be seen in this 
table, the fuel savings immediately outweigh the increased payments on 
the car loan, amounting to $162 in discounted net savings (3% discount 
rate) saved in the first year and similar savings for the next two 
years before reduced VMT starts to cause the fuel savings to fall. 
Results are similar using a 7% discount rate. This means that for every 
month that the average owner is making a payment for the financing of 
the average new vehicle their monthly fuel savings would be greater 
than the increase in the loan payments. This amounts to a savings on 
the order of $9 to $14 per month throughout the duration of the 5 year 
loan. Note that in year six when the car loan is paid off, the net 
savings equal the fuel savings (as would be the case for the remaining 
years of ownership).

                  Table III.H.5-4--Payback Period on a 2016 MY New Vehicle Purchase via Credit
                                                 [2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                   Annual            Annual
            Year of ownership                 Increased        Annual fuel     discounted net    discounted net
                                          vehicle cost \a\     savings \b\      savings at 3%     savings at 7%
----------------------------------------------------------------------------------------------------------------
1.......................................              $278              $443              $162              $159
2.......................................               278               444               158               150
3.......................................               278               443               153               139
4.......................................               278               434               141               123
5.......................................               278               423               127               107
6.......................................                 0               403               343               278
----------------------------------------------------------------------------------------------------------------
\a\ This uses the same increased cost as Table III.H.4-3 but spreads it out over 5 years assuming a 5 year car
  loan at 7.41 percent.
\b\ Calculated using AEO 2009 reference case fuel price including taxes.

    The lifetime fuel savings and net savings can also be calculated 
for those who purchase the vehicle using cash and for those who 
purchase the vehicle with credit. This calculation applies to the 
vehicle owner who retains the vehicle for its entire life and drives 
the vehicle each year at the rate equal to the national projected 
average. The results are shown in Table III.H.5-5. In either case, the 
present value of the lifetime net savings is greater than $3,200 at a 
3% discount rate, or $2,400 at a 7% discount rate.

[[Page 49611]]



               Table III.H.5-5--Lifetime Discounted Net Savings on a 2016 MY New Vehicle Purchase
                                                 [2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                                                Increased         Lifetime          Lifetime
                      Purchase option                          discounted      discounted fuel   discounted net
                                                              vehicle cost       savings \b\         savings
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Cash......................................................            $1,128            $4,558            $3,446
Credit \a\................................................             1,293             4,558             3,265
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Cash......................................................             1,128             3,586             2,495
Credit \a\................................................             1,180             3,586             2,406
----------------------------------------------------------------------------------------------------------------
\a\ Assumes a 5 year loan at 7.41 percent.
\b\ Fuel savings here were calculated using AEO 2009 reference case fuel price including taxes.

    Note that throughout this consumer payback discussion, the average 
number of vehicle miles traveled per year has been used. Drivers who 
drive more miles than the average would incur fuel related savings more 
quickly and, therefore, the payback would come sooner. Drivers who 
drive fewer miles than the average would incur fuel related savings 
more slowly and, therefore, the payback would come later.
6. Benefits of Reducing GHG Emissions
a. Introduction
    This proposal is designed to reduce greenhouse gas (GHG) emissions 
from light-duty vehicles. This section provides monetized estimates of 
some of the economic benefits of this proposal's projected GHG 
emissions reductions.\358\ The total benefit estimates were calculated 
by multiplying a marginal dollar value (i.e., cost per ton) of carbon 
emissions, also referred to as ``social cost of carbon'' (SCC), by the 
anticipated level of emissions reductions in tons. We request comment 
on the approach used to estimate the set of SCC values used for this 
coordinated proposal as well as the other options considered.
---------------------------------------------------------------------------

    \358\ The marginal and total benefit estimates presented in this 
section are limited to the impacts that can be monetized. Section 
III.F.2 of this preamble discusses the physical impacts of climate 
change, some of which are not monetized and are therefore omitted 
from the monetized benefits discussed here.
---------------------------------------------------------------------------

    The estimates presented here are interim values. EPA and other 
agencies will continue to explore the underlying assumptions and 
issues.
    As discussed below, the interim dollar estimates of the SCC 
represent a partial accounting of climate change impacts. The 
quantitative account presented here is accompanied by a qualitative 
appraisal of climate-related impacts presented elsewhere in this 
proposal. For example, Section III.F.2 of the preamble presents a 
summary of the impacts and risks of climate change projected in the 
absence of actions to mitigate GHG emissions. Section III.F.2 is based 
on EPA documents that synthesize major findings from the best available 
scientific assessments of the scientific literature that have gone 
through rigorous and transparent peer review, including the major 
assessment reports of both the Intergovernmental Panel on Climate 
Change (IPCC) and the U.S. Climate Change Science Program.\359\
---------------------------------------------------------------------------

    \359\ U.S. Environmental Protection Agency, ``Advance Notice of 
Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act, 
Technical Support Document on Benefits of Reducing GHG Emissions,'' 
June 2008. See www.regulations.gov and search for ID ``EPA-HQ-OAR-
2008-0138-0078.''
---------------------------------------------------------------------------

    The rest of this preamble section will provide the basis for the 
interim SCC values, and the estimates of the total climate-related 
benefits of the proposed rule that follow from these interim values.
b. Derivation of Interim Social Cost of Carbon Values
    The ``social cost of carbon'' (SCC) is intended to be a monetary 
measure of the incremental damage resulting from carbon dioxide 
(CO2) emissions, including (but not limited to) net 
agricultural productivity loss, human health effects, property damages 
from sea level rise, and changes in ecosystem services. Any effort to 
quantify and to monetize the consequences associated with climate 
change will raise serious questions of science, economics, and ethics. 
But with full regard for the limits of both quantification and 
monetization, the SCC can be used to provide an estimate of the social 
benefits of reductions in GHG emissions.
    For at least three reasons, any particular figure will be 
contestable. First, scientific and economic knowledge about the impacts 
of climate change continues to grow. With new and better information 
about relevant questions, including the cost, burdens, and possibility 
of adaptation, current estimates will inevitably change over time. 
Second, some of the likely and potential damages from climate change--
for example, the loss of endangered species--are generally not included 
in current SCC estimates. These omissions may turn out to be 
significant, in the sense that they may mean that the best current 
estimates are too low. As noted by the IPCC Fourth Assessment Report, 
``It is very likely that globally aggregated figures underestimate the 
damage costs because they cannot include many non-quantifiable 
impacts.'' \360\ Third, when economic efficiency criteria, under 
specific assumptions, are juxtaposed with ethical considerations, the 
outcome may be controversial.\361\ These ethical considerations, 
including those involving the treatment of future generations, should 
and will also play a role in judgments about the SCC (see in particular 
the discussion of the discount rate, below).
---------------------------------------------------------------------------

    \360\ IPCC WGII. 2007. Climate Change 2007--Impacts, Adaptation 
and Vulnerability Contribution of Working Group II to the Fourth 
Assessment Report of the IPCC. See EPA Docket, EPA-HQ-OAR-2009-0472.
    \361\ See, e.g., Discounting and Intergenerational Equity (Paul 
Portney and John P. Weyant eds. 1999).
---------------------------------------------------------------------------

    To date, SCC estimates presented in recent regulatory documents 
have varied within and among agencies, including DOT, DOE, and EPA. For 
example, a regulation proposed by DOT in 2008 assumed a value of $7 per 
metric ton CO2 (2006$) for 2011 emission reductions (with a 
range of $0-14 for sensitivity analysis; see EPA Docket, EPA-HQ-OAR-
2009-0472).\362\

[[Page 49612]]

A regulation proposed by DOE in 2009 used a range of $0-$20 (2007$). 
Both of these ranges were designed to reflect the value of damages to 
the United States resulting from carbon emissions, or the ``domestic'' 
SCC. In the final MY2011 CAFE EIS, DOT used both a domestic SCC value 
of $2/tCO2 and a global SCC value of $33/tCO2 
(with sensitivity analysis at $80/tCO2) (in 2006 dollars for 
2007 emissions), increasing at 2.4% per year thereafter. The final 
MY2011 CAFE rule also presented a range from $2 to $80/tCO2 
(see EPA Docket, EPA-HQ-OAR-2009-0472, for the MY2011 EIS and final 
rule). EPA's Advance Notice of Proposed Rulemaking for Greenhouse Gases 
discussed the benefits of reducing GHG emissions and identified what it 
described as ``very preliminary'' SCC estimates ``subject to revision'' 
that spanned three orders of magnitude. EPA's global mean values were 
$68 and $40/tCO2 for discount rates of 2% and 3% 
respectively (in 2006 real dollars for 2007 emissions).\363\
---------------------------------------------------------------------------

    \362\ For the purposes of this discussion, we present all values 
of the SCC as the cost per metric ton of CO2 emissions. 
Some discussions of the SCC in the literature use an alternative 
presentation of a dollar per metric ton of carbon. The standard 
adjustment factor is 3.67, which means, for example, that a SCC of 
$10 per ton of CO2 would be equivalent to a cost of 
$36.70 for a ton of carbon emitted. Unless otherwise indicated, a 
``ton'' refers to a metric ton.
    \363\ 73 FR 44416 (July 30, 2008). EPA, ``Advance Notice of 
Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act, 
Technical Support Document on Benefits of Reducing GHG Emissions,'' 
June 2008. www.regulations.gov. Search for ID ``EPA-HQ-OAR-2008-
0318-0078.
---------------------------------------------------------------------------

    The current Administration has worked to develop a transparent 
methodology for selecting a set of interim SCC estimates to use in 
regulatory analyses until a more comprehensive characterization of the 
SCC is developed. This discussion proposes a set of values for the 
interim social cost of carbon resulting from this methodology. It 
should be emphasized that the analysis here is preliminary. This 
proposed joint rulemaking presents SCC estimates that reflect the 
Administration's current understanding of the relevant literature and 
will be used for the short-term while an interagency group develops a 
more comprehensive characterization of the distribution of SCC values 
for future economic and regulatory analyses. The interim values should 
not be viewed as an expectation about the results of the longer-term 
process. The Administration is seeking comment in this proposed rule on 
all of the scientific, economic, and ethical issues before establishing 
improved estimates for use in future rulemakings.
    The outcomes of the Administration's process to develop interim 
values are judgments in favor of (a) global rather than domestic 
values, (b) an annual growth rate of 3%, and (c) interim global SCC 
estimates for 2007 (in 2007 dollars) of $56, $34, $20, $10, and $5 per 
ton of CO2. The proposed figures are based on the following 
judgments.
i. Global and Domestic Measures
    Because of the distinctive nature of the climate change problem, we 
present both a global SCC and a fraction of that value that represents 
impacts that may occur within the borders of the U.S. alone, or a 
``domestic'' SCC, but fix our attention on the global measure. This 
approach represents a departure from past practices, which relied, for 
the most part, on domestic measures. As a matter of law, both global 
and domestic values are permissible; the relevant statutory provisions 
are ambiguous and allow selection of either measure.\364\
---------------------------------------------------------------------------

    \364\ It is true that Federal statutes are presumed not to have 
extraterritorial effect, in part to ensure that the laws of the 
United States respect the interests of foreign sovereigns. But use 
of a global measure for the SCC does not give extraterritorial 
effect to Federal law and hence does not intrude on such interests.
---------------------------------------------------------------------------

    It is true that under OMB guidance, analysis from the domestic 
perspective is required, while analysis from the international 
perspective is optional. The domestic decisions of one nation are not 
typically based on a judgment about the effects of those decisions on 
other nations. But the climate change problem is highly unusual in the 
sense that it involves (a) a global public good in which (b) the 
emissions of one nation may inflict significant damages on other 
nations and (c) the United States is actively engaged in promoting an 
international agreement to reduce worldwide emissions.
    In these circumstances, we believe that the global measure is 
preferred. Use of a global measure reflects the reality of the problem 
and is consistent with the continuing efforts of the United States to 
ensure that emissions reductions occur in many nations.
    Domestic SCC values are also presented. The development of a 
domestic SCC is greatly complicated by the relatively few region- or 
country-specific estimates of the SCC in the literature. One potential 
source of estimates comes from EPA's ANPR Benefits TSD, using the 
Climate Framework for Uncertainty, Negotiation and Distribution (FUND) 
model.\365\ The resulting estimates suggest that the ratio of domestic 
to global benefits varies with key parameter assumptions. With a 3% 
discount rate, for example, the U.S. benefit is about 6% of the global 
benefit of GHG reductions for the ``central'' (mean) FUND results, 
while, for the corresponding ``high'' estimates associated with a 
higher climate sensitivity and lower global economic growth, the U.S. 
benefit is less than 4% of the global benefit. With a 2% discount rate, 
the U.S. share is about 2-5% of the global estimate. Comments are 
requested on whether the share of U.S. SCC is correlated with the 
discount rate.
---------------------------------------------------------------------------

    \365\ 73 FR 44416 (July 30, 2008). EPA, ``Advance Notice of 
Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act, 
Technical Support Document on Benefits of Reducing GHG Emissions,'' 
June 2008. www.regulations.gov. Search for ID ``EPA-HQ-OAR-2008-
0318-0078.
---------------------------------------------------------------------------

    Based on this available evidence, an interim domestic SCC value 
equal to 6% of the global damages is proposed. This figure is around 
the middle of the range of available estimates cited above. It is 
recognized that the 6% figure is approximate and highly speculative. 
Alternative approaches will be explored before establishing improved 
values for future rulemakings. However, it should be noted that it is 
difficult to apportion global benefits to different regions. For 
example, impacts outside the U.S. border can have significant welfare 
implications for U.S. populations (e.g. tourism, disaster relief) and 
if not included, these omissions will lead to an underestimation of the 
``domestic'' SCC. We request comment on this issue.
ii. Filtering Existing Analyses
    There are numerous SCC estimates in the existing literature, and it 
is reasonable to make use of those estimates in order to produce a 
figure for current use. A starting point is provided by the meta-
analysis in Richard Tol, 2008.\366\ With that starting point, the 
Administration proposes to ``filter'' existing SCC estimates by using 
those that (1) are derived from peer-reviewed studies; (2) do not 
weight the monetized damages to one country more than those in other 
countries; (3) use a ``business as usual'' climate scenario; and (4) 
are based on the most recent published version of each of the three 
major integrated assessment models (IAMs): FUND, Policy Analysis for 
the Greenhouse Effect (PAGE), and DICE.
---------------------------------------------------------------------------

    \366\ Richard Tol, The Social Cost of Carbon: Trends, Outliers, 
and Catastrophes, Economics: The Open-Access, Open-Assessment E-
Journal, Vol. 2, 2008-25. http://www.economics-ejournal.org/economics/journalarticles/2008-25 (2008). See also EPA Docket, EPA-
HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    Proposal (1) is based on the view that those studies that have been 
subject to peer review are more likely to be reliable than those that 
have not. Proposal (2) avoids treating the citizens of one nation (or 
different citizens within the U.S.) differently on the basis

[[Page 49613]]

of income considerations, which some may find controversial and in any 
event would significantly complicate that analysis. In addition, that 
approach is consistent with the potential compensation tests of Kaldor 
(1939) and Hicks (1940), which form the conceptual foundations of 
benefit-cost analysis and use unweighted sums of willingness to pay. 
Finally, this is the approach used in rulemakings across a variety of 
settings and consequently keeps USG policy consistent across contexts.
    Proposal (3) stems from the judgment that as a general rule, the 
proper way to assess a policy decision is by comparing the 
implementation of the policy against a counterfactual state where the 
policy is not implemented. In addition, our expectation is that most 
policies to be evaluated using these interim SCC estimates will 
constitute sufficiently small changes to the larger economy to make it 
safe to assume that the marginal benefits of emissions reductions will 
not change between the baseline and policy scenarios.
    Proposal (4) is based on four complementary judgments. First, the 
FUND, PAGE, and DICE models now stand as the most comprehensive and 
reliable efforts to measure the economic damages from climate change. 
Second, the latest versions of the three IAMs are likely to reflect the 
most recent evidence and learning, and hence they are presumed to be 
superior to those that preceded them.\367\
---------------------------------------------------------------------------

    \367\ However, it is acknowledged that the most recently 
published results do not necessarily repeat prior modeling exercises 
with an updated model, so valuable information may be lost, for 
instance, estimates of the SCC using specific climate sensitivities 
or economic scenarios. In addition, although some older model 
versions were used to produce estimates between 1996 and 2001, there 
have been no significant modeling paradigm changes since 1996.
---------------------------------------------------------------------------

    Third, any effort to choose among them, or to reject one in favor 
of the others, would be difficult to defend at the present time. In the 
absence of a clear reason to choose among them, it is reasonable to 
base the SCC on all of them. Fourth, in light of the uncertainties 
associated with the SCC, a range of values is more representative and 
the additional information offered by different models should be taken 
into account.
iii. Use a Model-Weighted Average of the Estimates at Each Discount 
Rate
    We have just noted that at this time, a strong reason to prefer any 
of the three major IAMs (FUND, PAGE, and DICE) over the others has not 
been identified. To address the concern that certain models not be 
given unequal weight relative to the others, the estimates are based on 
an equal weighting of the means of the estimates from each of the 
models. Among estimates that remain after applying the filter, we begin 
by taking the average of all estimates within a model. The estimated 
SCC is then calculated as the average of the three model-specific 
averages. This approach is used to ensure that models with a greater 
number of published results do not exert unequal weight on the interim 
SCC estimates.
    It should be noted, however, that the resulting set of SCC 
estimates does not provide information about variability among or 
within models except in so far as they have different discounting 
assumptions. Comment is sought on whether model-weighting averaging of 
published estimates is appropriate for developing interim SCC 
estimates.
iv. Apply a 3% Annual Growth Rate to the Chosen SCC Values
    SCC is expected to increase over time, because future emissions are 
expected to produce larger incremental damages as physical and economic 
systems become more stressed as the magnitude of climate change 
increases. Indeed, an implied growth rate in the SCC can be produced by 
most of the models that estimate economic damages caused by increased 
GHG emissions in future years. But neither the rate itself nor the 
information necessary to derive its implied value is commonly reported. 
In light of the limited amount of debate thus far about the appropriate 
growth rate of the SCC, applying a rate of 3% per year seems 
appropriate at this stage. This value is consistent with the range 
recommended by IPCC (2007) and close to the latest published estimate 
(Hope 2008) (see EPA Docket, EPA-HQ-OAR-2009-0472, for both citations).
(1) Discount Rates
    For estimation of the benefits associated with the mitigation of 
climate change, one of the most complex issues involves the appropriate 
discount rate. OMB's current guidance offers a detailed discussion of 
the relevant issues and calls for discount rates of 3% and 7%. It also 
permits a sensitivity analysis with low rates (1-3%) for 
intergenerational problems: ``If your rule will have important 
intergenerational benefits or costs you might consider a further 
sensitivity analysis using a lower but positive discount rate in 
addition to calculating net benefits using discount rates of 3 and 7 
percent.'' \368\
---------------------------------------------------------------------------

    \368\ See OMB Circular A-4, pp. 35-36, citing Portney and 
Weyant, eds. (1999), Discounting and Intergenerational Equity, 
Resources for the Future, Washington, DC. See EPA Docket, EPA-HQ-
OAR-2009-0472.
---------------------------------------------------------------------------

    The choice of a discount rate, especially over long periods of 
time, raises highly contested and exceedingly difficult questions of 
science, economics, philosophy, and law. See, e.g., William Nordhaus, 
The Challenge of Global Warming (2008); Nicholas Stern, The Economics 
of Climate Change (2008); Discounting and Intergenerational Equity 
(Paul Portney and John Weyant eds. 1999), in the EPA Docket, EPA-HQ-
OAR-2009-0472. Under imaginable assumptions, decisions based on cost-
benefit analysis with high discount rates might harm future 
generations--at least if investments are not made for the benefit of 
those generations. See Robert Lind, Analysis for Intergenerational 
Discounting, id. at 173, 176-177 (1999), in the EPA Docket, EPA-HQ-OAR-
2009-0472. It is not clear that future generations would be willing to 
trade environmental quality for consumption at the same rate as the 
current generations. It is also possible that the use of low discount 
rates for particular projects might itself harm future generations, by 
diverting resources from private or public sector investments with 
higher rates of return for future generations. In the context of 
climate change, questions of intergenerational equity are especially 
important.
    Because of the substantial length of time in which CO2 
and other GHG emissions reside in the atmosphere, choosing a high 
discount rate could result in irreversible changes in CO2 
concentrations, and possibly irreversible climate changes (unless 
substantial reductions in short-lived climate forcing emissions are 
achieved). Even if these changes are reversible, delaying mitigation 
efforts could result in substantially higher costs of stabilizing 
CO2 concentrations. On the other hand, using too low a 
discount rate in benefit-cost analysis may suggest some potentially 
economically unwarranted investments in mitigation. It is also possible 
that the use of low discount rates for particular projects might itself 
harm future generations, by ensuring that resources are not used in a 
way that would greatly benefit them. We invite comment on the methods 
used to select discount rates for application in deriving SCC values, 
and in particular, application of the Newell and Pizer work on 
uncertainty in discount rates in developing the SCC used in evaluating 
the climate-related benefits of this proposal. Comments are requested 
on the use of the rates discussed in this preamble and on alternative 
rates. We

[[Page 49614]]

also invite comment on how to best address the ethical and policy 
concerns in the context of selecting the appropriate discount rate.
    Reasonable arguments support the use of a 3% discount rate. First, 
that rate is among the two figures suggested by OMB guidance, and hence 
it fits with existing national policy. Second, it is standard to base 
the discount rate on the compensation that people receive for delaying 
consumption, and the 3% is close to the risk-free rate of return, 
proxied by the return on long term inflation-adjusted U.S. Treasury 
Bonds, as of this writing. Although these rates are currently closer to 
2.5%, the use of 3% provides an adjustment for the liquidity premium 
that is reflected in these bonds' returns. However, this approach does 
not adjust for the significantly longer time horizon associated with 
climate change impacts. It could also be argued that the discount rate 
should be lower than 3% if the benefits of climate mitigation policies 
tend to be higher than expected in time periods when the returns to 
investments in rest of the economy are lower than normal.
    At the same time, others would argue that a 5% discount rate can be 
supported. The argument relies on several assumptions. First, this rate 
can be justified by reference to the level of compensation for delaying 
consumption, because it fits with market behavior with respect to 
individuals' willingness to trade-off consumption across periods as 
measured by the estimated post-tax average real returns to risky 
private investments (e.g., the S&P 500). In the climate setting, the 5% 
discount rate may be preferable to the riskless rate because the 
benefits to mitigation are not known with certainty. In principal, the 
correct discount rate would reflect the variance in payoff from climate 
mitigation policy and the correlation between the payoffs of the policy 
and the broader economy.\369\
---------------------------------------------------------------------------

    \369\ Specifically, if the benefits of the policy are highly 
correlated with the returns from the broader economy, then the 
market rate should be used to discount the benefits. If the benefits 
are uncorrelated with the broader economy the long term government 
bond rate should be applied. Furthermore, if the benefits are 
negatively correlated with the broader economy, a rate less than 
that on long term government bonds should be used (Lind, 1982 pp. 
89-90).
---------------------------------------------------------------------------

    Second, 5%, and not 3%, is roughly consistent with estimates 
implied by inputs to the theoretically derived Ramsey equation 
presented below, which specifies the optimal time path for consumption. 
That equation specifies the optimal discount rate as the sum of two 
components. The first term (the product of the elasticity of the 
marginal utility of consumption and the growth rate of consumption) 
reflects the fact that consumption in the future is likely to be higher 
than consumption today, so diminishing marginal utility implies that 
the same monetary damage will cause a smaller reduction of utility in 
the future. Standard estimates of this term from the economics 
literature are in the range of 3%-5%.\370\ The second component 
reflects the possibility that a lower weight should be placed on 
utility in the future, to account for social impatience or extinction 
risk, which is specified by a pure rate of time preference (PRTP). A 
common estimate of the PRTP is 2%, though some observers believe that a 
principle of intergenerational equity suggests that the PRTP should be 
close to zero. It follows that discount rate of 5% is near the middle 
of the range of values that are able to be derived from the Ramsey 
equation.\371\
---------------------------------------------------------------------------

    \370\ For example, see: Arrow KJ, Cline WR, Maler K-G, 
Munasinghe M, Squitieri R, Stiglitz JE. 1996. Intertemporal equity, 
discounting, and economic efficiency. Chapter 4 in Economic and 
Social Dimensions of Climate Change: Contribution of Working Group 
III to the Second Assessment Report, Summary for Policy Makers. 
Cambridge: Cambridge University Press; Dasgupta P. 2008. Discounting 
climate change. Journal of Risk and Uncertainty 37:141-169; Hoel M, 
Sterner T. 2007. Discounting and relative prices. Climatic Change 
84:265-280; Nordhaus WD. 2008. A Question of Balance: Weighing the 
Options on Global Warming Policies. New Haven, CT: Yale University 
Press; Stern N. 2008. The economics of climate change. The American 
Economic Review 98(2):1-37. See EPA Docket, EPA-HQ-OAR-2009-0472.
    \371\ Sterner and Persson (2008) note that a consistent 
treatment of the marginal utility of consumption would require that 
if higher discount rates are justified by the diminishing marginal 
utility of consumption, e.g., a dollar of damages is worth less to 
future generations because they have greater income, then so-called 
equity weights should be used to account for the higher value that 
countries with lower income would place on a dollar of damages 
relative to the U.S. This is a consistent and logical outcome of 
application of the Ramsey framework. Because the distribution of 
climate change related damages is expected to be skewed towards 
developing nations with lower incomes, this can have significant 
implications for estimates of total global SCC if the Ramsey 
framework is used to derive discount rates. See EPA Docket, EPA-HQ-
OAR-2009-0472 for Sterner and Persson (2008).
---------------------------------------------------------------------------

    It is recognized that the arguments above--for use of market 
behavior and the Ramsey equation--face objections in the context of 
climate change, and of course there are alternative approaches. In 
light of climate change, it is possible that consumption in the future 
will not be higher than consumption today, and if so, the Ramsey 
equation will suggest a lower figure. The historical evidence is 
consistent with rising consumption over time.\372\
---------------------------------------------------------------------------

    \372\ However, because climate change impacts may be outside the 
bounds of historical evidence, predictions about future growth in 
consumption based on past experience may be inaccurate.
---------------------------------------------------------------------------

    Some critics contend that using observed interest rates for inter-
generational decisions imposes current preferences on future 
generations. For intergenerational equity, they argue that the discount 
rate should be below market rates to correct for market distortions and 
inefficiencies in intergenerational transfers of wealth (which are 
presumed to compensate future generations for damage), and to treat 
generations equitably based on ethical principles (see Broome 2008 in 
the EPA Docket, EPA-HQ-OAR-2009-0472).\373\
---------------------------------------------------------------------------

    \373\ For relevant discussion, see Arrow, K.J., W.R. Cline, K-G 
Maler, M. Munasinghe, R. Squiteri, J.E.Stiglitz, 1996. 
``Intertemporal equity, discounting and economic efficiency,'' in 
Climate Change 1995: Economic and Social Dimensions of Climate 
Change, Contribution of Working Group III to the Second Assessment 
Report of the Intergovernmental Panel on Climate Change. See also 
Weitzman, M.L., 1999, in Portney P.R. and Weyant J.P. (eds.), 
Discounting and Intergenerational Equity, Resources for the Future, 
Washington, DC. See EPA Docket, EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    Additionally, some analyses attempt to deal with uncertainty with 
respect to interest rates over time. We explore below how this might be 
done.\374\
---------------------------------------------------------------------------

    \374\ Richard Newell and William Pizer, Discounting the distant 
future: how much do uncertain rates increase valuations? J. Environ. 
Econ. Manage. 46 (2003) 52-71. See EPA Docket, EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

(2) Proposed Interim Estimates
    The application of the methodology outlined above yields interim 
estimates of the SCC that are reported in Table III.H.6-1. These 
estimates are reported separately using 3% and 5% discount rates. The 
cells are empty in rows 10 and 11, because these studies did not report 
estimates of the SCC at a 3% discount rate. The model-weighted means 
are reported in the final or summary row; they are $34 per 
tCO2 at a 3% discount rate and $5 per tCO2 with a 
5% discount rate.

[[Page 49615]]



   Table III.H.6-1--Global Social Cost of Carbon (SCC) Estimates ($/tCO2 in 2007 (2007$)), Based on 3% and 5%
                                               Discount Rates \a\
----------------------------------------------------------------------------------------------------------------
                                 Model             Study \b\         Climate Scenario        3%           5%
----------------------------------------------------------------------------------------------------------------
1........................  FUND.............  Anthoff et al. 2009  FUND default.......            6           -1
2........................  FUND.............  Anthoff et al. 2009  SRES A1b...........            1           -1
3........................  FUND.............  Anthoff et al. 2009  SRES A2............            9           -1
4........................  FUND.............  Link and Tol 2004..  No THC.............           12            3
5........................  FUND.............  Link and Tol 2004..  THC continues......           12            2
6........................  FUND.............  Guo et al. 2006....  Constant PRTP......            5           -1
7........................  FUND.............  Guo et al. 2006....  Gollier discount 1.           14            0
8........................  FUND.............  Guo et al. 2006....  Gollier discount 2.            7           -1
                                                                   FUND Mean..........         8.47            0
9........................  PAGE.............  Wahba & Hope 2006..  A2-scen............           59            7
10.......................  PAGE.............  Hope 2006..........  ...................  ...........            7
11.......................  DICE.............  Nordhaus 2008......  ...................  ...........            8
Summary..................                                          Model-weighted Mean           34            5
----------------------------------------------------------------------------------------------------------------
\a\ The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus
  (2008), Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND,
  PAGE, or DICE and use business-as-usual climate scenarios.375 376 All values are based on the best available
  information from the underlying studies about the base year and year dollars, rather than the Tol (2008)
  assumption that all estimates included in his review are 1995 values in 1995$. All values were updated to 2007
  using a 3% annual growth rate in the SCC, and adjusted for inflation using GDP deflator.
\b\ See EPA Docket, EPA-HQ-OAR-2009-0472, for each study.

    In this proposal, benefits of reducing GHG emissions have been 
estimated using global SCC values of $34 and $5 as these represent the 
estimates associated with the 3% and 5% discount rates, 
respectively.\377\ The 3% and 5% estimates have independent appeal and 
at this time a clear preference for one over the other is not 
warranted. Thus, we have also included--and centered our current 
attention on--the average of the estimates associated with these 
discount rates, which is $20. (Based on the $20 global value, the 
approximate domestic fraction of these benefits would be $1.20 per ton 
of CO2 assuming that domestic benefits are 6% of the global 
benefits.)
---------------------------------------------------------------------------

    \375\ Most of the estimates in Table 1 rely on climate scenarios 
developed by the Intergovernmental Panel on Climate Change (IPCC). 
The IPCC published a new set of scenarios in 2000 for use in the 
Third Assessment Report (Special Report on Emissions Scenarios--
SRES). The SRES scenarios define four narrative storylines: A1, A2, 
B1 and B2, describing the relationships between the forces driving 
greenhouse gas and aerosol emissions and their evolution during the 
21st century for large world regions and globally. Each storyline 
represents different demographic, social, economic, technological, 
and environmental developments that diverge in increasingly 
irreversible ways. The storylines are summarized in the SRES report 
(Nakicenovic et al., 2000; see also http://sedac.ciesin.columbia.edu/ddc/sres/) (see EPA Docket, EPA-HQ-OAR-
2009-0472). Although they were intended to represent BAU scenarios, 
at this point in time the B1 and B2 storylines are widely viewed as 
representing policy cases rather than business-as-usual projections, 
estimates derived from these scenarios to be less appropriate for 
use in benefit-cost analysis. They are therefore excluded.
    \376\ Guo et al. (2006) report estimates based on two Gollier 
discounting schemes. The Gollier discounting assumes complex 
specifications about individual utility functions and risk 
preferences. After various conditions are satisfied, declining 
social discount rates emerge. Gollier Discounting Scheme 1 employs a 
certainty-equivalent social rate of time preference (SRTP) derived 
by assuming the regional growth rate is equally likely to be 1% 
above or below the original forecast growth rate. Gollier 
Discounting Scheme 2 calculates a certainty-equivalent social rate 
of time preference (SRTP) using five possible growth rates, and 
applies the new SRTP instead of the original. Hope (2008) conducts 
Monte Carlo analysis on the PRTP component of the discount rate. The 
PRTP is modeled as a triangular distribution with a min value of 1%/
yr, a most likely value of 2%/yr, and a max value of 3%/yr. See EPA 
Docket, EPA-HQ-OAR-2009-0472 for the studies.
    \377\ It should be noted that reported discount rates may not be 
consistently derived across models or specific applications of 
models: While the discount rate may be identical, it may reflect 
different assumptions about the individual components of the Ramsey 
equation identified earlier.
---------------------------------------------------------------------------

    The distinctions between sets of estimates generated using 
different discount rates are due only in part to discount rate 
differences, because the models and parameters used to generate the 
estimates in the sets associated with different discount rates also 
vary.
    It is true that there is uncertainty about interest rates over long 
time horizons. Recognizing that point, Newell and Pizer (2003) have 
made a careful effort to adjust for that uncertainty (see EPA Docket, 
EPA-HQ-OAR-2009-0472). The Newell-Pizer approach models discount rate 
uncertainty as something that evolves over time.\378\ This is a 
different way to model discount rate uncertainty than the approach 
outlined above, which assumes there is a single discount rate with 
equal probability of 3% and 5%. Since Newell and Pizer (2003) is a 
relatively recent contribution to the literature, estimates based on 
this method are included with the aim of soliciting comment.
---------------------------------------------------------------------------

    \378\ In contrast, an alternative approach based on Weitzman 
(2001) would assume that there is a constant discount rate that is 
uncertain and represented by a probability distribution. The Newell 
and Pizer, and Weitzman approaches are relatively recent 
contributions and we invite comment on the advantages and 
disadvantages of each. See EPA Docket, EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    Table III.H.6-2 reports on the application of the Newell-Pizer 
adjustments. The precise numbers depend on the assumptions about the 
data generating process that governs interest rates. Columns (1a) and 
(1b) assume that ``random walk'' model best describes the data and uses 
3% and 5% discount rates, respectively. Columns (2a) and (2b) repeat 
this, except that it assumes a ``mean-reverting'' process. While the 
empirical evidence does not rule out a mean-reverting model, Newell and 
Pizer find stronger empirical support for the random walk model. EPA 
solicits comment on these and other models for representing the 
variation in interest rates over time.

[[Page 49616]]



  Table III.H.6-2--Global Social Cost of Carbon (SCC) Estimates ($ per metric ton CO2 in 2007 (2007$)) a, Using
                     Newell & Pizer (2003) Adjustment for Future Discount Rate Uncertainty b
----------------------------------------------------------------------------------------------------------------
                                                                                 Random-walk     Mean-reverting
                                                                                    model             model
                             Model          Study \c\      Climate  scenario -----------------------------------
                                                                              3% (1a)  5% (1b)  3% (2a)  5% (2b)
----------------------------------------------------------------------------------------------------------------
1.....................  FUND..........  Anthoff et al.     FUND default.....       10        0        7       -1
                                         2009.
2.....................  FUND..........  Anthoff et al.     SRES A1b.........        2        0        1       -1
                                         2009.
3.....................  FUND..........  Anthoff et al.     SRES A2..........       15        0       10       -1
                                         2009.
4.....................  FUND..........  Link and Tol 2004  No THC...........       21        6       13        4
5.....................  FUND..........  Link and Tol 2004  THC continues....       21        4       13        2
6.....................  FUND..........  Guo et al. 2006..  Constant PRTP....        9        0        6       -1
7.....................  FUND..........  Guo et al. 2006..  Gollier discount        14        0       14        0
                                                            1.
8.....................  FUND..........  Guo et al. 2006..  Gollier discount         7       -1        7       -1
                                                            2.
                                                           FUND Mean........       12        1        9        0
9.....................  PAGE..........  Wahba & Hope 2006  A2-scen..........      100       13       65        8
10....................  PAGE..........  Hope 2006........  .................  .......       13  .......        8
11....................  DICE..........  Nordhaus 2008....  .................  .......       15  .......        9
Summary...............                                     Model-weighted          56       10       37        6
                                                            Mean.
----------------------------------------------------------------------------------------------------------------
\a\ The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus
  (2008), Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND,
  PAGE, or DICE and use business-as-usual climate scenarios. All values are based on the best available
  information from the underlying studies about the base year and year dollars, rather than the Tol (2008)
  assumption that all estimates included in his review are 1995 values in 1995$. All values were updated to 2007
  using a 3% annual growth rate in the SCC, and adjusted for inflation using GDP deflator. See the Notes to
  Table III.H.6-1 for further details.
\b\ Assumes a starting discount rate of 3% or 5%. Newell and Pizer (2003) based adjustment factors are not
  applied to estimates from Guo et al. (2006) that use a different approach to account for discount rate
  uncertainty (rows 7-8).
Note that the correction factor from Newell and Pizer is based on the DICE model. The proper adjustment may
  differ for other integrated assessment models that produce different time schedules of marginal damages. We
  would expect this difference to be minor.
\c\ See EPA Docket, EPA-HQ-OAR-2009-0472, for each study.

    The resulting estimates of the social cost of carbon are 
necessarily greater. When the adjustments from the random walk model 
are applied, the estimates of the social cost of carbon are $10 and $56 
per ton of CO2, with the 5% and 3% discount rates, 
respectively. The application of the mean-reverting adjustment yields 
estimates of $6 and $37. Relying on the random walk model, analyses are 
also conducted with the value of the SCC set at $10 and $56.
(3) Caveats
    There are at least four caveats to the approach outlined above.
    First, and as noted, the existing IAMs do not currently 
individually account for and assign value to all of the important 
physical and other impacts of climate change that are recognized in the 
climate change literature.\379\ The impacts of climate change are 
expected to be widespread, diverse, and heterogeneous. In addition, the 
exact magnitude of these impacts is uncertain, because of the inherent 
randomness in the Earth's atmospheric processes, the U.S. and global 
economies, and the behaviors of current and future populations. To this 
extent, as emphasized by the IPCC, SCC estimates are ``very likely'' 
underestimated.\380\ In addition, the SCC approach also likely 
underestimates the value of GHG reductions because the marginal values 
apply only to CO2 emissions, which have different impacts 
than non-CO2 emissions because of variances in atmospheric 
lifetimes and radiative forcing.\381\ Although it is likely that our 
capability to quantify and monetize impacts will improve with time, it 
is also likely that even in future applications, a number of 
potentially significant benefits categories will remain unmonetized. In 
order to capture the benefits of mitigation these non-monetized 
benefits should be discussed along with monetized benefits based on the 
SCC.
---------------------------------------------------------------------------

    \379\ Examples of impacts that are difficult to monetize, and 
have generally not been included in SCC estimates, include risks 
from extreme weather (death, disease, agricultural damage, and other 
economic damage from droughts, floods and wildfires) and possible 
long-term catastrophic events, such as collapse of the West 
Antarctic ice sheet or the release of large amounts of methane from 
melting permafrost.
    \380\ IPCC WGII. 2007. Climate Change 2007--Impacts, Adaptation 
and Vulnerability Contribution of Working Group II to the Fourth 
Assessment Report of the IPCC. See EPA Docket, EPA-HQ-OAR-2009-0472.
    \381\ Radiative forcing is the change in the balance between 
solar radiation entering the atmosphere and the Earth's radiation 
going out. On average, a positive radiative forcing tends to warm 
the surface of the Earth while negative forcing tends to cool the 
surface. Greenhouse gases have a positive radiative forcing because 
they absorb and emit heat. See http://www.epa.gov/climatechange/science/recentac.html for more general information about GHGs and 
climate science. See EPA Docket, EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    Second, in the opposite direction, it is unlikely that the damage 
estimates adequately account for the directed technological change that 
climate change will cause. In particular, climate change will increase 
the return on investment to develop technologies that allow individuals 
to cope with climate change. For example, it is likely that scientists 
will develop crops that are better able to withstand high temperatures. 
In this respect, the current estimates may overstate the likely 
quantified damages, though the costs associated with the investments in 
adaptive technologies must also be considered (technologies must also 
be included in the calculations, as the benefits should reflect net 
welfare changes to society).
    Third, there has been considerable recent discussion of the risk of 
catastrophic impacts and of how best to account for worst-case 
scenarios. Recent work by Weitzman (2009) specifies some conditions 
under which the possibility of catastrophe would undermine the use of 
IAMs and conventional cost-benefit analysis.\382\ This research 
requires further exploration before its generality is known and the 
proper way to incorporate it into regulatory reviews is understood. We 
also request comments on approaches for measuring the premium 
associated with reductions in

[[Page 49617]]

climate-related risks such as catastrophic events.
---------------------------------------------------------------------------

    \382\ Weitzman, Martin, 2009. On Modeling and Interpreting the 
Economics of Catastrophic Climate Change. Review of Economics and 
Statistics 9(1): 1-19. See EPA Docket, EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    Fourth, it is also worth noting that the SCC estimates are only 
relevant for incremental policies relative to the projected baselines, 
which capture business-as-usual scenarios. To evaluate non-marginal 
changes, such as might occur if the U.S. acts in tandem with other 
nations, it might be necessary to go beyond the simple expedient of 
using the SCC along the BAU path. This approach would require 
explicitly calculating the total benefits in a move from the BAU 
scenario to the policy scenario, without imposing the restriction that 
the marginal benefit remains constant over this range.
(4) Other options
    The Administration considered other interim SCC options in addition 
to the approach described above; we request comment on each of them. 
One alternative option was to bring in SCC estimates in studies 
published after 1995, rather than limiting the estimates to those in 
studies relying on the most recent published version of each of the 
three major integrated assessment models: PAGE, FUND, and DICE. 
Although some older model versions (and old versions of other models) 
were used to produce estimates between 1996 and 2001, it appears that 
there have been no significant modeling paradigm changes since 1996.
    Another option was to select a range of SCC values for separate 
discount rates. For example, sensitivity analysis could be conducted at 
the lowest and highest SCC values reported in the filtered set of 
estimates for each discount rate considered. If considering SCC 
estimates from studies published after 1995 and a discount rate of 2 
percent, this option would result in a range of SCC values of $5/t-
CO2 to $260/t-CO2 (2007 emissions in 2007 
dollars); at a 3 percent discount rate, the range would be $0 to $58/t-
CO2.
    Finally, we considered the possibility that different assumptions 
under the Ramsey framework, such as placing approximately equal weight 
on the welfare of current and future generations, would imply a lower 
discount rate, such as 2%. The Newell and Pizer (2003) method applied 
to recent long-term risk free rates would likewise be approximately 
consistent with a certainty equivalent rate of 2%.\383\
---------------------------------------------------------------------------

    \383\ Specifically, Newell and Pizer (2003) found that modeling 
of uncertainty in economic growth causes the effective discount rate 
to decline over time. When starting at a 4% discount rate, the 
effective discount rate is 2% at 100 years and 1% at 200 years. See 
EPA Docket, EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

(5) Ongoing SCC Development
    As noted, this is an emphatically interim SCC value. The judgments 
described here will be subject to further scrutiny and exploration.
c. Application of Interim SCC Estimates to GHG Emissions Reductions 
From This Proposed Rule
    The strategy underlying these joint proposals--to coordinate 
Federal efforts to reduce GHGs--warrants consideration when assessing 
the benefits. To be sure, while no single rule or action can 
independently achieve the deep worldwide emissions reductions necessary 
to halt and reverse the growth of GHGs. But the combined effects of 
multiple strategies to reduce GHG emissions domestically and abroad 
could make a major difference in the climate change impacts experienced 
by future generations.\384\
---------------------------------------------------------------------------

    \384\ The Supreme Court recognized in Massachusetts v. EPA that 
a single action will not on its own achieve all needed GHG 
reductions, noting that ``[a]gencies, like legislatures, do not 
generally resolve massive problems in one fell regulatory swoop.'' 
See Massachusetts v. EPA, 549 U.S. at 524 (2007). See EPA Docket, 
EPA-HQ-OAR-2009-0472.
---------------------------------------------------------------------------

    The projected net GHG emissions reductions associated with the 
proposal reflect an incremental change to projected total global 
emissions. Therefore, as shown in Section III.F.3, the projected global 
climate signal will be small but discernible--an incrementally lower 
projected distribution of global mean surface temperatures.
    Given that the climate response is projected to be a marginal 
change relative to the baseline climate, we estimate the marginal value 
of changes in climate change impacts over time and use this value to 
measure the monetized marginal benefits of the GHG emissions reductions 
projected for this proposal.
    Accordingly, EPA and NHTSA have used the set of interim, global SCC 
values described above to estimate the benefits of these coordinated 
proposals. The interim SCC values, which reflect the Administration's 
interim interpretation of the current literature, are $5 (based on a 5% 
discount rate), $10 (5% using Newell-Pizer adjustment), $20 (average 
SCC value from the average SCC estimates based on 5% and 3%), $34 (3%), 
and $56 (3% using Newell-Pizer adjustment), in 2007 dollars, and are 
based on a CO2 emissions change of 1 metric ton in 2007. 
Table III.H.6-3 presents the interim SCC values in other years in 2007 
dollars. These values are presented as one of many considerations that 
will inform the Administration's action on this proposed rule.

                                                          Table III.H.6-3--Interim SCC Schedule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Interim SCC schedule (2007$) \a\
---------------------------------------------------------------------------------------------------------------------------------------------------------
                Discount rate assumption                       2007            2015            2020            2030            2040            2050
--------------------------------------------------------------------------------------------------------------------------------------------------------
5%......................................................              $5              $7              $8             $10             $14             $18
5% (Newell-Pizer) \b\...................................              10              13              15              20              27              37
Average SCC Values from 3% and 5%.......................              20              25              29              39              52              70
3%......................................................              34              43              50              67              90             120
3% (Newell-Pizer) \b\...................................              56              72              83             110             150             200
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The SCC values are dollar-year and emissions-year specific. These values are presented in 2007$, for individual year of emissions. To determine
  values for years not presented in the table, use a 3% growth rate. SCC values represent only a partial accounting for climate impacts.
\b\ SCC values are adjusted based on Newell and Pizer (2003) to account to future uncertainty in discount rates. See EPA Docket, EPA-HQ-OAR-2009-0472.

    Tables III.H.6-4 to III.H.6-6 provide the annual benefits for each 
year impacted by the proposed rule. As discussed above, marginal 
benefits of GHG reductions are projected to grow over time. The tables 
below summarize the total benefits for the lifetime of the rule, which 
are calculated by using the five interim SCC values.
    Total monetized benefits in each specific year are calculated by

[[Page 49618]]

multiplying the marginal benefits estimates per metric ton of 
CO2 (the SCC) from Table III.H.6-3 by the reductions in 
CO2 for that year. Table III.H.6-5 approximates the total 
monetized benefits for non-CO2 GHGs by multiplying the SCC 
value by the reductions in non-CO2 GHGs for that year. 
Marginal benefit estimates per metric ton of non-CO2 GHGs 
are currently unavailable, but work is on-going to monetize benefits 
related to the mitigation of other non-CO2 GHGs. Inclusion 
of these benefits is planned for the final rule.

                                        Table III.H.6-4--Monetized GHG Benefits of Vehicle Program, CO2 Emissions
                                                                     [Million 2007$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Emissions                                     Discount rate
                                                             reduction   -------------------------------------------------------------------------------
                          Year                               (million                       3% (Newell-     Average SCC                     5% (Newell-
                                                           metric tons)         3%            Pizer)      from 3% and 5%        5%            Pizer)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015....................................................            43.2          $1,900          $3,100          $1,100            $280            $560
2020....................................................             146           7,300          12,000           4,200           1,100           2,200
2030....................................................             289          19,000          32,000          11,000           2,900           5,900
2040....................................................             375          34,000          56,000          19,000           5,100          10,000
2050....................................................             470          57,000          95,000          33,000           8,600          17,000
--------------------------------------------------------------------------------------------------------------------------------------------------------


                            Table III.H.6-5--Monetized GHG Benefits of Vehicle Program, Non-CO2 Emissions in CO2-equivalents
                                                                     [Million 2007$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Emissions                                     Discount rate
                                                             reduction   -------------------------------------------------------------------------------
                          Year                               (million                       3% (Newell-     Average SCC                     5% (Newell-
                                                           metric tons)         3%            Pizer)      from 3% and 5%        5%            Pizer)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015....................................................            5.86            $250            $400            $150             $38             $76
2020....................................................            17.7             880           1,500             510             130             270
2030....................................................            35.3           2,400           3,900           1,400             360             700
2040....................................................            42.7           3,800           6,400           2,200             580           1,200
2050....................................................            48.2           5,800           9,700           3,400             880           1,800
--------------------------------------------------------------------------------------------------------------------------------------------------------


                     Table III.H.6-6--Monetized GHG Benefits of Vehicle Program, Total CO2 and Non-CO2 Emissions in CO2-equivalents
                                                                   [Million 2007$] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Emissions                                     Discount rate
                                                             reduction   -------------------------------------------------------------------------------
                          Year                               (million                       3% (Newell-     Average SCC                     5% (Newell-
                                                           metric tons)         3%            Pizer)      from 3% and 5%        5%            Pizer)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015....................................................            49.1          $2,100          $3,500          $1,200            $320            $640
2020....................................................             165           8,200          14,000           4,700           1,200           2,500
2030....................................................             325          22,000          36,000          12,000           3,300           6,600
2040....................................................             417          38,000          63,000          22,000           5,700          11,000
2050....................................................             518          63,000         100,000          36,000           9,500          19,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Numbers may not add exactly from Tables III.H.6-4 and III.H.6-5 due to rounding.

7. Non-Greenhouse Gas Health and Environmental Impacts
    This section presents EPA's analysis of the non-GHG health and 
environmental impacts that can be expected to occur as a result of the 
proposed light-duty vehicle GHG rule. GHG emissions are predominantly 
the byproduct of fossil fuel combustion processes that also produce 
criteria and hazardous air pollutants. The vehicles that are subject to 
the proposed standards are also significant sources of mobile source 
air pollution such as direct PM, NOX, VOCs and air toxics. 
The proposed standards would affect exhaust emissions of these 
pollutants from vehicles. They would also affect emissions from 
upstream sources related to changes in fuel consumption. Changes in 
ambient ozone, PM2.5, and air toxics that would result from 
the proposed standards are expected to affect human health in the form 
of premature deaths and other serious human health effects, as well as 
other important public health and welfare effects.
    It is important to quantify the health and environmental impacts 
associated with the proposed standard because a failure to adequately 
consider these ancillary co-pollutant impacts could lead to an 
incorrect assessment of their net costs and benefits. Moreover, co-
pollutant impacts tend to accrue in the near term, while any effects 
from reduced climate change mostly accrue over a time frame of several 
decades or longer.
    EPA typically quantifies and monetizes the health and environmental 
impacts related to both PM and ozone in its regulatory impact analyses 
(RIAs), when possible. However, EPA was unable to do so in time for 
this proposal. EPA attempts to make emissions and air quality modeling 
decisions early in the analytical process so that we can complete the 
photochemical air quality

[[Page 49619]]

modeling and use that data to inform the health and environmental 
impacts analysis. Resource and time constraints precluded the Agency 
from completing this work in time for the proposal. Instead, EPA is 
using PM-related benefits-per-ton values as an interim approach to 
estimating the PM-related benefits of the proposal. EPA also provides a 
complete characterization of the health and environmental impacts that 
will be quantified and monetized for the final rulemaking.
    This section is split into two sub-sections: the first presents the 
PM-related benefits-per-ton values used to monetize the PM-related co-
benefits associated with the proposal; the second explains what PM- and 
ozone-related health and environmental impacts EPA will quantify and 
monetize in the analysis for the final rule. EPA bases its analyses on 
peer-reviewed studies of air quality and health and welfare effects and 
peer-reviewed studies of the monetary values of public health and 
welfare improvements, and is generally consistent with benefits 
analyses performed for the analysis of the final Ozone National Ambient 
Air Quality Standard (NAAQS) and the final PM NAAQS analysis, as well 
as the recent Portland Cement National Emissions Standards for 
Hazardous Air Pollutants (NESHAP) RIA (U.S. EPA, 2009a), and 
NO2 NAAQS (U.S.> EPA, 2009b).385 386 387 388
---------------------------------------------------------------------------

    \385\ U.S. Environmental Protection Agency. (2008). Final Ozone 
NAAQS Regulatory Impact Analysis. Prepared by: Office of Air and 
Radiation, Office of Air Quality Planning and Standards. March.
    \386\ U.S. Environmental Protection Agency. October 2006. Final 
Regulatory Impact Analysis (RIA) for the Proposed National Ambient 
Air Quality Standards for Particulate Matter. Prepared by: Office of 
Air and Radiation.
    \387\ U.S. Environmental Protection Agency (U.S. EPA). 2009a. 
Regulatory Impact Analysis: National Emission Standards for 
Hazardous Air Pollutants from the Portland Cement Manufacturing 
Industry. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. April. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementria_4-20-09.pdf.
    \388\ U.S. Environmental Protection Agency (U.S. EPA). 2009b. 
Proposed NO2 NAAQS Regulatory Impact Analysis (RIA). 
Office of Air Quality Planning and Standards, Research Triangle 
Park, NC. April. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/proposedno2ria.pdf.
---------------------------------------------------------------------------

    Though EPA is characterizing the changes in emissions associated 
with toxic pollutants, we will not be able to quantify or monetize the 
human health effects associated with air toxic pollutants for either 
the proposal or the final rule analyses. Please refer to Section III.G 
for more information about the air toxics emissions impacts associated 
with the proposed standards.
a. Economic Value of Reductions in Criteria Pollutants
    As described in Section III.G, the proposed standards would reduce 
emissions of several criteria and toxic pollutants and precursors. In 
this analysis, EPA estimates the economic value of the human health 
benefits associated with reducing PM2.5 exposure. Due to 
analytical limitations, this analysis does not estimate benefits 
related to other criteria pollutants (such as ozone, NO2 or 
SO2) or toxics pollutants, nor does it monetize all of the 
potential health and welfare effects associated with PM2.5.
    This analysis uses a ``benefit-per-ton'' method to estimate a 
selected suite of PM2.5-related health benefits described 
below. These PM2.5 benefit-per-ton estimates provide the 
total monetized human health benefits (the sum of premature mortality 
and premature morbidity) of reducing one ton of directly emitted 
PM2.5, or its precursors (such as NOX, 
SOX, and VOCs), from a specified source. Ideally, the human 
health benefits would be estimated based on changes in ambient 
PM2.5 as determined by full-scale air quality modeling. 
However, this modeling was not possible in the timeframe for this 
proposal.
    The dollar-per-ton estimates used in this analysis are provided in 
Table III.H.7-1. In the summary of costs and benefits, Section III.H.10 
of this preamble, EPA presents the monetized value of PM-related 
improvements associated with the proposal.

  Table III.H.7-1--Benefits-per-ton Values (2007$) Derived Using the ACS Cohort Study for PM-related Premature
                          Mortality (Pope et al., 2002) \a\ and a 3% Discount Rate \b\
----------------------------------------------------------------------------------------------------------------
                                         All sources \d\        Stationary (non-EGU)         Mobile sources
                                   --------------------------          sources         -------------------------
             Year \c\                                        --------------------------
                                        SOX          VOC                      Direct        NOX         Direct
                                                                  NOX         PM2.5                     PM2.5
----------------------------------------------------------------------------------------------------------------
2015..............................      $28,000       $1,200       $4,700     $220,000       $4,900     $270,000
2020..............................       31,000        1,300        5,100      240,000        5,300      290,000
2030..............................       36,000        1,500        6,100      280,000        6,400      350,000
2040..............................       43,000        1,800        7,200      330,000        7,600      420,000
----------------------------------------------------------------------------------------------------------------
\a\ The benefit-per-ton estimates presented in this table are based on an estimate of premature mortality
  derived from the ACS study (Pope et al., 2002). If the benefit-per-ton estimates were based on the Six Cities
  study (Laden et al., 2006), the values would be approximately 145% (nearly two-and-a-half times) larger.
\b\ The benefit-per-ton estimates presented in this table assume a 3% discount rate in the valuation of
  premature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used,
  the values would be approximately 9% lower.
\c\ Benefit-per-ton values were estimated for the years 2015, 2020, and 2030. For 2040, EPA and NHTSA
  extrapolated exponentially based on the growth between 2020 and 2030.
\d\ Note that the benefit-per-ton value for SOX is based on the value for Stationary (Non-EGU) sources; no SOX
  value was estimated for mobile sources. The benefit-per-ton value for VOCs was estimated across all sources.

    The benefit per-ton technique has been used in previous analyses, 
including EPA's recent Ozone National Ambient Air Quality Standards 
(NAAQS) RIA (U.S. EPA, 2008a),\389\ Portland Cement National Emissions 
Standards for Hazardous Air Pollutants (NESHAP) RIA (U.S. EPA, 
2009a),\390\ and NO2 NAAQS (U.S. EPA, 2009b).\391\

[[Page 49620]]

Table III.H.7-2 shows the quantified and unquantified PM2.5-
related co-benefits captured in those benefit-per-ton estimates.
---------------------------------------------------------------------------

    \389\ U.S. Environmental Protection Agency (U.S. EPA). 2008a. 
Regulatory Impact Analysis, 2008 National Ambient Air Quality 
Standards for Ground-level Ozone, Chapter 6. Office of Air Quality 
Planning and Standards, Research Triangle Park, NC. March. Available 
at http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneriachapter6.pdf.
    \390\ U.S. Environmental Protection Agency (U.S. EPA). 2009a. 
Regulatory Impact Analysis: National Emission Standards for 
Hazardous Air Pollutants from the Portland Cement Manufacturing 
Industry. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. April. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementria_4-20-09.pdf.
    \391\ U.S. Environmental Protection Agency (U.S. EPA). 2009b. 
Proposed NO2 NAAQS Regulatory Impact Analysis (RIA). 
Office of Air Quality Planning and Standards, Research Triangle 
Park, NC. April. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/proposedno2ria.pdf.

       Table III.H.7-2--Human Health and Welfare Effects of PM2.5
------------------------------------------------------------------------
                              Quantified and
   Pollutant/ effect       monetized in primary    Unquantified effects
                                estimates               changes in
------------------------------------------------------------------------
PM2.5..................  Adult premature          Subchronic bronchitis
                          mortality                cases
                         Bronchitis: chronic and  Low birth weight
                          acute                   Pulmonary function
                         Hospital admissions:     Chronic respiratory
                          respiratory and          diseases other than
                          cardiovascular           chronic bronchitis
                         Emergency room visits    Non-asthma respiratory
                          for asthma               emergency room visits
                         Nonfatal heart attacks   Visibility
                          (myocardial             Household soiling
                          infarction)
                         Lower and upper
                          respiratory illness
                         Minor restricted-
                          activity days
                         Work loss days
                         Asthma exacerbations
                          (asthmatic population)
                         Infant mortality
------------------------------------------------------------------------

    Consistent with the NO2 NAAQS,\392\ the benefits 
estimates utilize the concentration-response functions as reported in 
the epidemiology literature. To calculate the total monetized impacts 
associated with quantified health impacts, EPA applies values derived 
from a number of sources. For premature mortality, EPA applies a value 
of a statistical life (VSL) derived from the mortality valuation 
literature. For certain health impacts, such as chronic bronchitis and 
a number of respiratory-related ailments, EPA applies willingness-to-
pay estimates derived from the valuation literature. For the remaining 
health impacts, EPA applies values derived from current cost-of-illness 
and/or wage estimates.
---------------------------------------------------------------------------

    \392\ Although we summarize the main issues in this chapter, we 
encourage interested readers to see benefits chapter of the 
NO2 NAAQS for a more detailed description of recent 
changes to the PM benefits presentation and preference for the no-
threshold model.
---------------------------------------------------------------------------

    Readers interested in reviewing the complete methodology for 
creating the benefit-per-ton estimates used in this analysis can 
consult the Technical Support Document (TSD) \393\ accompanying the 
recent final ozone NAAQS RIA (U.S. EPA, 2008a). Readers can also refer 
to Fann et al. (2009) \394\ for a detailed description of the benefit-
per-ton methodology.\395\ A more detailed description of the benefit-
per-ton estimates is also provided in the Draft Joint TSD that 
accompanies this rulemaking.
---------------------------------------------------------------------------

    \393\ U.S. Environmental Protection Agency (U.S. EPA). 2008b. 
Technical Support Document: Calculating Benefit Per-Ton estimates, 
Ozone NAAQS Docket EPA-HQ-OAR-2007-0225-0284. Office of Air 
Quality Planning and Standards, Research Triangle Park, NC. March. 
Available on the Internet at http://www.regulations.gov.
    \394\ Fann, N. et al. (2009). The influence of location, source, 
and emission type in estimates of the human health benefits of 
reducing a ton of air pollution. Air Qual Atmos Health. Published 
online: 09 June, 2009.
    \395\ The values included in this report are different from 
those presented in the article cited above. Benefits methods change 
to reflect new information and evaluation of the science. Since 
publication of the June 2009 article, EPA has made two significant 
changes to its benefits methods: (1) We no longer assume that a 
threshold exists in PM-related models of health impacts; and (2) We 
have revised the Value of a Statistical Life to equal $6.3 million 
(year 2000$), up from an estimate of $5.5 million (year 2000$) used 
in the June 2009 report. Please refer to the following Web site for 
updates to the dollar-per-ton estimates: http://www.epa.gov/air/benmap/bpt.html.
---------------------------------------------------------------------------

    As described in the documentation for the benefit per-ton estimates 
cited above, national per-ton estimates were developed for selected 
pollutant/source category combinations. The per-ton values calculated 
therefore apply only to tons reduced from those specific pollutant/
source combinations (e.g., NO2 emitted from mobile sources; 
direct PM emitted from stationary sources). Our estimate of 
PM2.5 benefits is therefore based on the total direct 
PM2.5 and PM-related precursor emissions controlled by 
sector and multiplied by each per-ton value.
    The benefit-per-ton estimates are subject to a number of 
assumptions and uncertainties.
     They do not reflect local variability in population 
density, meteorology, exposure, baseline health incidence rates, or 
other local factors that might lead to an overestimate or underestimate 
of the actual benefits of controlling fine particulates. EPA will 
conduct full-scale air quality modeling for the final rulemaking in an 
effort to capture this variability.
     This analysis assumes that all fine particles, regardless 
of their chemical composition, are equally potent in causing premature 
mortality. This is an important assumption, because PM2.5 
produced via transported precursors emitted from stationary sources may 
differ significantly from direct PM2.5 released from diesel 
engines and other industrial sources, but no clear scientific grounds 
exist for supporting differential effects estimates by particle type.
     This analysis assumes that the health impact function for 
fine particles is linear within the range of ambient concentrations 
under consideration. Thus, the estimates include health benefits from 
reducing fine particles in areas with varied concentrations of 
PM2.5, including both regions that are in attainment with 
fine particle standard and those that do not meet the standard down to 
the lowest modeled concentrations.
     There are several health benefits categories that EPA was 
unable to quantify due to limitations associated with using benefits-
per-ton estimates, several of which could be substantial. Because the 
NOX and VOC emission reductions associated with this 
proposal are also precursors to ozone, reductions in NOX and 
VOC would also reduce ozone formation and the health effects associated 
with ozone exposure. Unfortunately, benefits-per-ton estimates do not 
exist due to issues associated with the complexity of the atmospheric 
air chemistry and nonlinearities associated with ozone formation. The 
PM-related benefits-per-ton estimates also do not include any human 
welfare or ecological benefits. Please refer to Chapter 7.3 of the RIA 
that accompanies this proposal for a description of the quantification 
and monetization of health impact for the FRM and a description of the 
unquantified co-pollutant benefits associated with this rulemaking.
     There are many uncertainties associated with the health 
impact functions used in this modeling effort. These include: Within-
study variability (the precision with which a given study estimates the 
relationship between air quality changes and health effects); across-
study variation (different published studies of the same pollutant/

[[Page 49621]]

health effect relationship typically do not report identical findings 
and in some instances the differences are substantial); the application 
of concentration-response functions nationwide (does not account for 
any relationship between region and health effect, to the extent that 
such a relationship exists); extrapolation of impact functions across 
population (we assumed that certain health impact functions applied to 
age ranges broader than that considered in the original epidemiological 
study); and various uncertainties in the concentration-response 
function, including causality and thresholds. These uncertainties may 
under- or over-estimate benefits.
     EPA has investigated methods to characterize uncertainty 
in the relationship between PM2.5 exposure and premature 
mortality. EPA's final PM2.5 NAAQS analysis provides a more 
complete picture about the overall uncertainty in PM2.5 
benefits estimates. For more information, please consult the 
PM2.5 NAAQS RIA (Table 5.5).
     The benefit-per-ton estimates used in this analysis 
incorporate projections of key variables, including atmospheric 
conditions, source level emissions, population, health baselines and 
incomes, technology. These projections introduce some uncertainties to 
the benefit per ton estimates.
     As described above, using the benefit-per-ton value 
derived from the ACS study (Pope et al., 2002) alone provides an 
incomplete characterization of PM2.5 benefits. When placed 
in the context of the Expert Elicitation results, this estimate falls 
toward the lower end of the distribution. By contrast, the estimated 
PM2.5 benefits using the coefficient reported by Laden in 
that author's reanalysis of the Harvard Six Cities cohort fall toward 
the upper end of the Expert Elicitation distribution results.
    As mentioned above, emissions changes and benefits-per-ton 
estimates alone are not a good indication of local or regional air 
quality and health impacts, as there may be localized impacts 
associated with the proposed rulemaking. Additionally, the atmospheric 
chemistry related to ambient concentrations of PM2.5, ozone 
and air toxics is very complex. Full-scale photochemical modeling is 
therefore necessary to provide the needed spatial and temporal detail 
to more completely and accurately estimate the changes in ambient 
levels of these pollutants and their associated health and welfare 
impacts. As discussed above, timing and resource constraints precluded 
from conducting a full-scale photochemical air quality modeling 
analysis in time for the NPRM. For the final rule, however, a national-
scale air quality modeling analysis will be performed to analyze the 
impacts of the standards on PM2.5, ozone, and selected air 
toxics. The benefits analysis plan for the final rulemaking is 
discussed in the next section.
b. Human Health and Environmental Benefits for the Final Rule
i. Human Health and Environmental Impacts
    To model the ozone and PM air quality benefits of the final rule, 
EPA will use the Community Multiscale Air Quality (CMAQ) model (see 
Section III.G.5.b for a description of the CMAQ model). The modeled 
ambient air quality data will serve as an input to the Environmental 
Benefits Mapping and Analysis Program (BenMAP).\396\ BenMAP is a 
computer program developed by EPA that integrates a number of the 
modeling elements used in previous RIAs (e.g., interpolation functions, 
population projections, health impact functions, valuation functions, 
analysis and pooling methods) to translate modeled air concentration 
estimates into health effects incidence estimates and monetized 
benefits estimates.
---------------------------------------------------------------------------

    \396\ Information on BenMAP, including downloads of the 
software, can be found at http://www.epa.gov/ttn/ecas/benmodels.html.
---------------------------------------------------------------------------

    Chapter 7.3 in the DRIA that accompanies this proposal lists the 
co-pollutant health effect exposure-response functions EPA will use to 
quantify the co-pollutant incidence impacts associated with the final 
light-duty vehicles standard. These include PM- and ozone-related 
premature mortality, chronic bronchitis, nonfatal heart attacks, 
hospital admissions (respiratory and cardiovascular), emergency room 
visits, acute bronchitis, minor restricted activity days, and days of 
work and school lost.
ii. Monetized Impacts
    To calculate the total monetized impacts associated with quantified 
health impacts, EPA applies values derived from a number of sources. 
For premature mortality, EPA applies a value of a statistical life 
(VSL) derived from the mortality valuation literature. For certain 
health impacts, such as chronic bronchitis and a number of respiratory-
related ailments, EPA applies willingness-to-pay estimates derived from 
the valuation literature. For the remaining health impacts, EPA applies 
values derived from current cost-of-illness and/or wage estimates. 
Chapter 7.3 in the DRIA that accompanies this proposal presents the 
monetary values EPA will apply to changes in the incidence of health 
and welfare effects associated with reductions in non-GHG pollutants 
that will occur when these GHG control strategies are finalized.
iii. Other Unquantified Health and Environmental Impacts
    In addition to the co-pollutant health and environmental impacts 
EPA will quantify for the analysis of the final standard, there are a 
number of other health and human welfare endpoints that EPA will not be 
able to quantify or monetize because of current limitations in the 
methods or available data. These impacts are associated with emissions 
of air toxics (including benzene, 1,3-butadiene, formaldehyde, 
acetaldehyde, acrolein, and ethanol), ambient ozone, and ambient 
PM2.5 exposures. Chapter 7.3 of the DRIA lists these 
unquantified health and environmental impacts.
    While there will be impacts associated with air toxic pollutant 
emission changes that result from the final standard, EPA will not 
attempt to monetize those impacts. This is primarily because currently 
available tools and methods to assess air toxics risk from mobile 
sources at the national scale are not adequate for extrapolation to 
incidence estimations or benefits assessment. The best suite of tools 
and methods currently available for assessment at the national scale 
are those used in the National-Scale Air Toxics Assessment (NATA). The 
EPA Science Advisory Board specifically commented in their review of 
the 1996 NATA that these tools were not yet ready for use in a 
national-scale benefits analysis, because they did not consider the 
full distribution of exposure and risk, or address sub-chronic health 
effects.\397\ While EPA has since improved the tools, there remain 
critical limitations for estimating incidence and assessing benefits of 
reducing mobile source air toxics. EPA continues to work to address 
these limitations; however, EPA does not anticipate having methods and 
tools available for national-scale application in time for the analysis 
of the final rules.\398\
---------------------------------------------------------------------------

    \397\ Science Advisory Board. 2001. NATA--Evaluating the 
National-Scale Air Toxics Assessment for 1996--an SAB Advisory. 
http://www.epa.gov/ttn/atw/sab/sabrev.html.
    \398\ In April, 2009, EPA hosted a workshop on estimating the 
benefits of reducing hazardous air pollutants. This workshop built 
upon the work accomplished in the June 2000 Science Advisory Board/
EPA Workshop on the Benefits of Reductions in Exposure to Hazardous 
Air Pollutants, which generated thoughtful discussion on approaches 
to estimating human health benefits from reductions in air toxics 
exposure, but no consensus was reached on methods that could be 
implemented in the near term for a broad selection of air toxics. 
Please visit http://epa.gov/air/toxicair/2009workshop.html for more 
information about the workshop and its associated materials.

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

[[Page 49622]]

8. Energy Security Impacts
    This proposal to reduce GHG emissions in light-duty vehicles 
results in improved fuel efficiency which, in turn, helps to reduce 
U.S. petroleum imports. A reduction of U.S. petroleum imports reduces 
both financial and strategic risks associated with a potential 
disruption in supply or a spike in cost of a particular energy source. 
This reduction in risk is a measure of improved U.S. energy security. 
This section summarizes our estimate of the monetary value of the 
energy security benefits of the proposed GHG vehicle standards against 
the reference case by estimating the impact of the expanded use of 
lower-GHG vehicle technologies on U.S. oil imports and avoided U.S. oil 
import expenditures. Additional discussion of this issue can be found 
in Chapter 5.1 of EPA's RIA and Section 4.2.8 of the TSD.
a. Implications of Reduced Petroleum Use on U.S. Imports
    In 2008, U.S. petroleum import expenditures represented 21% of 
total U.S. imports of all goods and services.\399\ In 2008, the U.S. 
imported 66% of the petroleum it consumed, and the transportation 
sector accounted for 70% of total U.S. petroleum consumption. This 
compares to approximately 37% of petroleum from imports and 55% 
consumption of petroleum in the transportation sector in 1975.\400\ It 
is clear that petroleum imports have a significant impact on the U.S. 
economy. Requiring lower-GHG vehicle technology in the U.S. is expected 
to lower U.S. petroleum imports.
---------------------------------------------------------------------------

    \399\ Source: U.S. Bureau of Economic Analysis, U.S. 
International Transactions Accounts Data, as shown on June 24, 2009.
    \400\ Source: U.S. Department of Energy, Annual Energy Review 
2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26, 
2009.
---------------------------------------------------------------------------

b. Energy Security Implications
    In order to understand the energy security implications of reducing 
U.S. petroleum imports, EPA has worked with Oak Ridge National 
Laboratory (ORNL), which has developed approaches for evaluating the 
economic costs and energy security implications of oil use. The energy 
security estimates provide below are based upon a methodology developed 
in a peer-reviewed study entitled, ``The Energy Security Benefits of 
Reduced Oil Use, 2006-2015,'' completed in March 2008. This recent 
study is included as part of the docket for this 
rulemaking.401 402
---------------------------------------------------------------------------

    \401\ Leiby, Paul N. ``Estimating the Energy Security Benefits 
of Reduced U.S. Oil Imports,'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2009-0472)
    \402\ The ORNL study ``The Energy Security Benefits of Reduced 
Oil Use, 2006-2015,'' completed in March 2008, is an update version 
of the approach used for estimating the energy security benefits of 
U.S. oil import reductions developed in an ORNL 1997 Report by 
Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, 
entitled ``Oil Imports: An Assessment of Benefits and Costs.'' 
(Docket EPA-HQ-OAR-2009-0472).
---------------------------------------------------------------------------

    When conducting this recent analysis, ORNL considered the economic 
cost of importing petroleum into the U.S. The economic cost of 
importing petroleum into the U.S. is defined to include two components 
in addition to the purchase price of petroleum itself. These are: (1) 
The higher costs for oil imports resulting from the effect of 
increasing U.S. import demand on the world oil price and on OPEC market 
power (i.e., the ``demand'' or ``monopsony'' costs); and (2) the risk 
of reductions in U.S. economic output and disruption of the U.S. 
economy caused by sudden disruptions in the supply of imported 
petroleum to the U.S. (i.e., macroeconomic disruption/adjustment 
costs). Maintaining a U.S. military presence to help secure stable oil 
supply from potentially vulnerable regions of the world was not 
included in this analysis because its attribution to particular 
missions or activities is difficult.
    For this proposal, ORNL further updated the energy security premium 
by incorporating the most recent oil price forecast in the in the 
Energy Information Administration's 2009 Annual Energy Outlook into its 
model. In order for the energy security premium estimated to be used in 
EPA's OMEGA model, ORNL developed energy security estimates for a 
number of different years; please refer to Table III.H.8-1 for this 
information for years 2015, 2020, 2030 and 2040,\403\ as well as a 
breakdown of the components of the energy security premium for each of 
these years. The components of the energy security premium and their 
values are discussed in detail in the TSD, Chapter 4.2.8.
---------------------------------------------------------------------------

    \403\ AEO 2009 forecasts energy market trends and values only to 
2030. The energy security premium estimates post-2030 were assumed 
to be the 2030 estimate.

                                  Table III.H.8-1--Energy Security Premium in 2015, 2020, 2030 and 2040 (2007$/Barrel)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Macroeconomic disruption/
                         Year (range)                                     Monopsony                 adjustment costs               Total mid-point
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015..........................................................         $11.79 ($4.26-$21.37)          $6.70 ($3.11-$10.67)         $18.49 ($9.80-$28.08)
2020..........................................................         $12.31 ($4.46-$22.53)          $7.62 ($3.77-$12.46)        $19.94 ($10.58-$30.47)
2030..........................................................         $10.57 ($3.84-$18.94)          $8.12 ($3.90-$13.04)        $18.69 ($10.52-$27.89)
2040..........................................................         $10.57 ($3.84-$18.94)          $8.12 ($3.90-$13.04)        $18.69 ($10.52-$27.89)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The literature on the energy security for the last two decades has 
routinely combined the monopsony and the macroeconomic disruption 
components when calculating the total value of the energy security 
premium. However, in the context of using a global value for the Social 
Cost of Carbon (SCC) the question arises: How should the energy 
security premium be used when some benefits from the proposed rule, 
such as the benefits of reducing greenhouse gas emissions, are 
calculated at a global level? Monopsony benefits represent avoided 
payments by the U.S. to oil producers in foreign countries that result 
from a decrease in the world oil price as the U.S. decreases its 
consumption of imported oil. Although there is clearly a benefit to the 
U.S. when considered from the domestic perspective, the decrease in 
price due to decreased demand in the U.S. also represents a loss of 
income to oil-producing countries. Given the redistributive nature of 
this effect, do the negative effects on other countries ``net out'' the 
positive impacts to the U.S.? If this is the case, then, the monopsony 
portion of the energy security premium should be excluded from the net 
benefits calculation for the rule.
    Based on this reasoning, EPA's estimates of net benefits for this 
proposal exclude the portion of energy

[[Page 49623]]

security benefits stemming from the U.S. exercising its monopsony power 
in oil markets. Thus, EPA only includes the macroeconomic disruption/
adjustment cost portion of the energy security premium.
    EPA invites comments on whether, when the global value for 
greenhouse gas reduction benefits is used, it may still be appropriate 
to include the monopsony benefits in net benefits calculation for the 
proposed rule. From one perspective, the global SCC is used in these 
calculations, not because the global net benefits of the rule are being 
computed (they are not), but rather because in the context of a global 
public good, the global marginal benefit is the correct domestic 
benefit against which domestic costs are to be compared. Similarly, 
energy security is inherently a domestic benefit. Thus, should the two 
benefits, if they are both viewed from this domestic perspective, be 
counted in the net benefits estimates for this rulemaking and more 
generally what are the overall implications of this approach to 
justifying regulation? If the monopsony benefits were included in this 
case, they could be significant.
    Total annual energy security benefits are derived from the 
estimated reductions in U.S. imports of finished petroleum products and 
crude oil using only the macroeconomic disruption/adjustment portion of 
the energy security premium. These values are shown in Table III.H.8-
2.\404\ The reduced oil estimates were derived from the OMEGA model, as 
explained in Section VI of this preamble. EPA used the same assumption 
that NHTSA used in its Corporate Average Fuel Economy and CAFE Reform 
for MY 2008-2011 Light Trucks proposal, which assumed each gallon of 
fuel saved reduces total U.S. imports of crude oil or refined products 
by 0.95 gallons.\405\
---------------------------------------------------------------------------

    \404\ Estimated reductions in U.S. imports of finished petroleum 
products and crude oil are 95% of 88 million barrels (MMB) in 2015, 
302 MMB in 2020, 592 MMB in 2030, and 767 MMB in 2040.
    \405\ Preliminary Regulatory Impacts Analysis, April 2008. Based 
on a detailed analysis of differences in fuel consumption, petroleum 
imports, and imports of refined petroleum products among the 
Reference Case, High Economic Growth, and Low Economic Growth 
Scenarios presented in the Energy Information Administration's 
Annual Energy Outlook 2007, NHTSA estimated that approximately 50 
percent of the reduction in fuel consumption is likely to be 
reflected in reduced U.S. imports of refined fuel, while the 
remaining 50 percent would be expected to be reflected in reduced 
domestic fuel refining. Of this latter figure, 90 percent is 
anticipated to reduce U.S. imports of crude petroleum for use as a 
refinery feedstock, while the remaining 10 percent is expected to 
reduce U.S. domestic production of crude petroleum. Thus on balance, 
each gallon of fuel saved is anticipated to reduce total U.S. 
imports of crude petroleum or refined fuel by 0.95 gallons.

  Table III.H.8-2--Total Annual Energy Security Benefits Using Only the
  Macroeconomic Disruption/Adjustment Component of the Energy Security
                  Premium in 2015, 2020, 2030 and 2040
                           [Billions of 2007$]
------------------------------------------------------------------------
                          Year                               Benefits
------------------------------------------------------------------------
2015....................................................           $0.59
2020....................................................            2.30
2030....................................................            4.81
2040....................................................            6.23
------------------------------------------------------------------------

9. Other Impacts
    There are other impacts associated with the proposed CO2 
emissions standards and associated reduced fuel consumption that vary 
with miles driven. Lower fuel consumption would, presumably, result in 
fewer trips to the filling station to refuel and, thus, time saved. The 
rebound effect, discussed in detail in Section III.H.4.c, produces 
additional benefits to vehicle owners in the form of consumer surplus 
from the increase in vehicle-miles driven, but may also increase the 
societal costs associated with traffic congestion, motor vehicle 
crashes, and noise. These effects are likely to be relatively small in 
comparison to the value of fuel saved as a result of the proposed 
standards, but they are nevertheless important to include. Table 
III.H.9-1 summarizes the other economic impacts. Please refer to 
Preamble Section II.F and the Draft Joint TSD that accompanies this 
proposal for more information about these impacts and how EPA and NHTSA 
use them in their analyses.

  Table III.H.9-1--Estimated Economic Externalities Associated With the Proposed Light-Duty Vehicle GHG Program
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
      Economic externalities            2020         2030         2040         2050       NPV, 3%      NPV, 7%
----------------------------------------------------------------------------------------------------------------
Value of Less Frequent Refueling..       $2,500       $4,900       $6,400       $8,000      $89,600      $41,000
Value of Increased Driving \a\....        4,900       10,000       13,600       18,000      184,700       82,700
Accidents, Noise, Congestion......       -2,400       -4,900       -6,300       -7,900      -88,200      -40,200
                                   -----------------------------------------------------------------------------
    Annual Quantified Benefits....        5,000       10,000       13,700       18,100      186,100       83,500
----------------------------------------------------------------------------------------------------------------
\a\ Calculated using post-tax fuel prices.

10. Summary of Costs and Benefits
    In this section EPA presents a summary of costs, benefits, and net 
benefits of the proposal. EPA presents fuel consumption impacts as 
negative costs of the vehicle program.
    Table III.H.10-1 shows the estimated annual societal costs of the 
vehicle program for the indicated calendar years. The table also shows 
the net present values of those costs for the calendar years 2012-2050 
using both a 3 percent and a seven percent discount rate. In this 
table, fuel savings are calculated using pre-tax fuel prices and are 
presented as negative costs associated with the vehicle program (rather 
than positive savings).
    Consumers are expected to receive the fuel savings presented here. 
The cost estimates for the fuel-saving technology are based on the 
assumptions that, to comply with the rule, no vehicle attributes will 
change except fuel economy and technology cost; that consumers will 
consider reduced fuel costs as a substitute for increased purchase 
price; and that consumers will not change the vehicles that they 
purchase. Instead, automakers are likely to redesign vehicles as part 
of their compliance strategies. If so, the redesigns may make the 
vehicles either less or more attractive to consumers. In

[[Page 49624]]

addition, consumers may choose to purchase different vehicles than they 
would in the absence of this rule. These changes may affect the 
satisfaction that consumers receive from their vehicles. Because of the 
unsettled state of the modeling of consumer choices (discussed in 
Section III.H.1 and in DRIA Section 8.1.2), this analysis does not 
measure these effects. To the extent that consumer satisfaction with 
vehicles may decline due to changes in vehicles other than fuel 
economy, or that consumers may take some of these fuel savings into 
account when they purchase their vehicles, the fuel savings may 
overstate the benefits of improved fuel economy to consumers.

                Table III.H.10-1--Estimated Societal Costs of the Light-Duty Vehicle GHG Program
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
           Social costs                 2020         2030         2040         2050       NPV, 3%      NPV, 7%
----------------------------------------------------------------------------------------------------------------
Vehicle Compliance Costs..........      $18,000      $17,900      $19,300      $20,900     $390,000     $216,600
Fuel Savings \a\..................      -43,100      -90,400     -125,000     -167,000   -1,677,600     -746,100
                                   -----------------------------------------------------------------------------
    Quantified Annual Costs.......      -25,100      -72,500     -105,700     -146,100   -1,287,600     -529,500
----------------------------------------------------------------------------------------------------------------
\a\ Calculated using pre-tax fuel prices.

    Table III.H.10-2 presents estimated annual societal benefits for 
the indicated calendar years. The table also shows the net present 
values of those benefits for the calendar years 2012-2050 using both a 
3 percent and a 7 percent discount rate. The table shows the benefits 
of reduced GHG emissions--and consequently the annual quantified 
benefits (i.e., total benefits)--for each of five interim SCC values 
considered by EPA. As discussed in Section III.H.6, there is a very 
high probability (very likely according to the IPCC) that the benefit 
estimates from GHG reductions are underestimates. One of the primary 
reasons is that models used to calculate SCC values do not include 
information about impacts that have not been quantified.
    In addition, the total GHG reduction benefits presented below 
likely underestimate the value of GHG reductions because they were 
calculated using the marginal values for CO2 emissions. The 
impacts of non-CO2 emissions vary from those of 
CO2 emissions because of differences in atmospheric 
lifetimes and radiative forcing.\406\ As a result, the marginal benefit 
values of non-CO2 GHG reductions and their growth rates over 
time will not be the same as the marginal benefits measured on a 
CO2-equivalent scale.\407\ Marginal benefit estimates per 
metric ton of non-CO2 GHGs are currently unavailable, but 
work is on-going to monetize benefits related to the mitigation of 
other non-CO2 GHGs.
---------------------------------------------------------------------------

    \406\ Radiative forcing is the change in the balance between 
solar radiation entering the atmosphere and the Earth's radiation 
going out. On average, a positive radiative forcing tends to warm 
the surface of the Earth while negative forcing tends to cool the 
surface. Greenhouse gases have a positive radiative forcing because 
they absorb and emit heat. See http://www.epa.gov/climatechange/science/recentac.html for more general information about GHGs and 
climate science.
    \407\ See IPCC WGII, 2007 for discussion about implications of 
different marginal impacts among the GHGs.

    Table III.H.10-2--Estimated Societal Benefits Associated With the Proposed Light-Duty Vehicle GHG Program
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
          Benefits                2020          2030          2040          2050         NPV, 3%       NPV, 7%
----------------------------------------------------------------------------------------------------------------
Reduced GHG Emissions at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%..................        $1,200        $3,300        $5,700        $9,500       $69,200       $28,600
    SCC 5% Newell-Pizer.....         2,500         6,600        11,000        19,000       138,400        57,100
    SCC from 3% and 5%......         4,700        12,000        22,000        36,000       263,000       108,500
    SCC 3%..................         8,200        22,000        38,000        63,000       456,900       188,500
    SCC 3% Newell-Pizer.....        14,000        36,000        63,000       100,000       761,400       314,200
PM2.5 Related Benefits a b c         1,400         3,000         4,600         6,700        59,800        26,300
Energy Security Impacts              2,300         4,800         6,200         7,800        85,800        38,800
 (price shock)..............
Reduced Refueling...........         2,500         4,900         6,400         8,000        89,600        41,000
Value of Increased Driving           4,900        10,000        13,600        18,000       184,700        82,700
 \d\........................
Accidents, Noise, Congestion        -2,400        -4,900        -6,300        -7,900       -88,200       -40,200
----------------------------------------------------------------------------------------------------------------
Quantified Annual Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%..................        $9,900       $21,100       $30,200       $42,100      $400,900      $177,200
    SCC 5% Newell-Pizer.....        11,200        24,400        35,500        51,600       470,100       205,700
    SCC from 3% and 5%......        13,400        29,800        46,500        68,600       594,700       257,100
    SCC 3%..................        16,900        39,800        62,500        95,600       788,600       337,100
    SCC 3% Newell-Pizer.....        22,700        53,800        87,500       132,600     1,093,100       462,800
----------------------------------------------------------------------------------------------------------------
\a\ Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the
  proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the final standards.

[[Page 49625]]

 
\b\ The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an
  estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton
  estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145%
  (nearly two-and-a-half times) larger.
\c\ The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table assume a 3%
  discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If
  a 7% discount rate had been used, the values would be approximately 9% lower.
\d\ Calculated using pre-tax fuel prices.

    Table III.H.10-3 presents estimated annual net benefits for the 
indicated calendar years. The table also shows the net present values 
of those net benefits for the calendar years 2012-2050 using both a 3 
percent and a 7 percent discount rate. The table includes the benefits 
of reduced GHG emissions--and consequently the annual net benefits--for 
each of five interim SCC values considered by EPA. As noted above, 
there is a very high probability (very likely according to the IPCC) 
that the benefit estimates from GHG reductions are underestimates 
because, in part, models used to calculate SCC values do not include 
information about impacts that have not been quantified.

    Table III.H.10-3--Quantified Net Benefits Associated With the Proposed Light-Duty Vehicle GHG Program a b
                                           [Millions of 2007 dollars]
----------------------------------------------------------------------------------------------------------------
                                  2020          2030          2040          2050         NPV, 3%       NPV, 7%
----------------------------------------------------------------------------------------------------------------
Quantified Annual Costs.....      -$25,100      -$72,500     -$105,700     -$146,100   -$1,287,600     -$529,500
----------------------------------------------------------------------------------------------------------------
Quantified Annual Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%..................        $9,900       $21,100       $30,200       $42,100      $400,900      $177,200
    SCC 5% Newell-Pizer.....        11,200        24,400        35,500        51,600       470,100       205,700
    SCC from 3% and 5%......        13,400        29,800        46,500        68,600       594,700       257,100
    SCC 3%..................        16,900        39,800        62,500        95,600       788,600       337,100
    SCC 3% Newell-Pizer.....        22,700        53,800        87,500       132,600     1,093,100       462,800
----------------------------------------------------------------------------------------------------------------
Quantified Net Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%..................       $35,000       $93,600      $135,900      $188,200    $1,688,500      $706,700
    SCC 5% Newell-Pizer.....        36,300        96,900       141,200       197,700     1,757,700       735,200
    SCC from 3% and 5%......        38,500       102,300       152,200       214,700     1,882,300       786,600
    SCC 3%..................        42,000       112,300       168,200       241,700     2,076,200       866,600
    SCC 3% Newell-Pizer.....        47,800       126,300       193,200       278,700     2,380,700       992,300
----------------------------------------------------------------------------------------------------------------
\a\ Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the
  proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the final standards.
\b\ Fuel impacts were calculated using pre-tax fuel prices.

    EPA also conducted a separate analysis of the total benefits over 
the model year lifetimes of the 2012 through 2016 model year vehicles. 
In contrast to the calendar year analysis, the model year lifetime 
analysis shows the lifetime impacts of the program on each of these MY 
fleets over the course of its lifetime. Full details of the inputs to 
this analysis can be found in DRIA Chapter 5. The societal benefits of 
the full life of each of the five model years from 2012 through 2016 
are shown in Tables III.H.10-4 and III.H.10-5 at both a 3 percent and a 
7 percent discount rate, respectively. The net benefits are shown in 
Tables III.H.10-6 and III.H.10-7 for both a 3 percent and a 7 percent 
discount rate. Note that the quantified annual benefits shown in Table 
III.H.10-4 and Table III.H.10-5 include fuel savings as a positive 
benefit. As such, the quantified annual costs as shown in Table 
III.H.10-6 and Table III.H.10-7 do not include fuel savings since those 
are included as benefits. Also note that each of the Tables III.H.10-4 
through Table III.H.10-7 include the benefits of reduced CO2 
emissions--and consequently the total benefits--for each of five 
interim SCC values considered by EPA. As noted above, there is a very 
high probability (very likely according to the IPCC) that the benefit 
estimates from GHG reductions are underestimates because, in part, 
models used to calculate SCC values do not include information about 
impacts that have not been quantified.

Table III.H.10-4--Estimated Societal Benefits Associated With the Proposed Light-Duty Vehicle GHG Program, Model
                                                  Year Analysis
                                  [Millions of 2007 dollars; 3% discount rate]
----------------------------------------------------------------------------------------------------------------
    Monetized values (millions)        2012MY       2013MY       2014MY       2015MY       2016MY        Sum
----------------------------------------------------------------------------------------------------------------
Cost of Noise, Accident,                  -$900      -$1,400      -$1,900      -$2,800      -$3,900     -$11,000
 Congestion ($)...................
Pretax Fuel Savings ($)...........      $15,600      $24,400      $34,800      $49,800      $68,500     $193,300
Energy Security (price shock) ($).         $400         $600         $900       $1,200       $1,600       $4,700
Change in no. of Refuelings                 500          700        1,000        1,300        1,800        5,300
 ()......................
Change in Refueling Time (hours)..            0          100          100          100          200          400

[[Page 49626]]

 
Value of Reduced Refueling Time            $900       $1,400       $1,900       $2,700       $3,700      $10,500
 ($)..............................
Value of Additional Driving ($)...       $2,000       $3,000       $4,100       $5,700       $7,900      $22,700
Value of PM2.5-related Health              $600         $900       $1,200       $1,700       $2,200       $6,600
 Impacts ($) a b c................
----------------------------------------------------------------------------------------------------------------
Social Cost of Carbon (SCC) at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................         $500         $700       $1,000       $1,400       $1,900       $5,600
    SCC 5% Newell-Pizer...........        1,000        1,500        2,000        2,900        3,800       11,000
    SCC from 3% and 5%............        1,800        2,800        3,900        5,400        7,200       21,000
    SCC 3%........................        3,200        4,800        6,700        9,400       13,000       37,000
    SCC 3% Newell-Pizer...........        5,300        8,100       11,000       16,000       21,000       61,000
----------------------------------------------------------------------------------------------------------------
Total Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................      $19,100      $29,600      $42,000      $59,700      $81,900     $232,400
    SCC 5% Newell-Pizer...........       19,600       30,400       43,000       61,200       83,800      237,800
    SCC from 3% and 5%............       20,400       31,700       44,900       63,700       87,200      247,800
    SCC 3%........................       21,800       33,700       47,700       67,700       93,000      263,800
    SCC 3% Newell-Pizer...........       23,900       37,000       52,000       74,300      101,000      287,800
----------------------------------------------------------------------------------------------------------------
\a\ Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the
  proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the final standards.
\b\ The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an
  estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton
  estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145%
  (nearly two-and-a-half times) larger.
\c\ The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table assume a 3%
  discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If
  a 7% discount rate had been used, the values would be approximately 9% lower.


Table III.H.10-5--Estimated Societal Benefits Associated With the Proposed Light-Duty Vehicle GHG Program, Model
                                                  Year Analysis
                                  [Millions of 2007 dollars; 7% discount rate]
----------------------------------------------------------------------------------------------------------------
    Monetized values (millions)        2012MY       2013MY       2014MY       2015MY       2016MY        Sum
----------------------------------------------------------------------------------------------------------------
Cost of Noise, Accident,                  -$700      -$1,100      -$1,500      -$2,200      -$3,100      -$8,700
 Congestion ($)...................
Pretax Fuel Savings ($)...........      $12,100      $19,000      $27,200      $39,000      $53,700     $150,900
Energy Security (price shock) ($).         $300         $500         $700         $900       $1,300       $3,700
Change in no. of Refuelings                 400          500          800        1,100        1,500        4,200
 ()......................
Change in Refueling Time (hours)..            0            0          100          100          100          300
Value of Reduced Refueling Time            $700       $1,100       $1,500       $2,100       $2,900       $8,300
 ($)..............................
Value of Additional Driving ($)...       $1,500       $2,400       $3,200       $4,500       $6,300      $18,000
Value of PM2.5-related Health              $500         $700       $1,000       $1,300       $1,800       $5,300
 Impacts ($)a b c.................
----------------------------------------------------------------------------------------------------------------
Social Cost of Carbon (SCC) at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................         $400         $500         $700       $1,000       $1,300       $3,900
    SCC 5% Newell-Pizer...........          700        1,100        1,500        2,000        2,500        7,700
    SCC from 3% and 5%............        1,400        2,100        2,800        3,700        4,800       15,000
    SCC 3%........................        2,400        3,600        4,800        6,500        8,300       26,000
    SCC 3% Newell-Pizer...........        4,000        6,000        8,000       11,000       14,000       43,000
----------------------------------------------------------------------------------------------------------------
Total Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................      $14,800      $23,100      $32,800      $46,600      $64,200     $181,400
    SCC 5% Newell-Pizer...........       15,100       23,700       33,600       47,600       65,400      185,200
    SCC from 3% and 5%............       15,800       24,700       34,900       49,300       67,700      192,500
    SCC 3%........................       16,800       26,200       36,900       52,100       71,200      203,500
    SCC 3% Newell-Pizer...........       18,400       28,600       40,100       56,600       76,900      220,500
----------------------------------------------------------------------------------------------------------------
\a\ Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the
  proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the final standards.

[[Page 49627]]

 
\b\ The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table are based on an
  estimate of premature mortality derived from the ACS study (Pope et al., 2002). If the benefit-per-ton
  estimates were based on the Six Cities study (Laden et al., 2006), the values would be approximately 145%
  (nearly two-and-a-half times) larger.
\c\ The PM2.5-related benefits (derived from benefit-per-ton values) presented in this table assume a 3%
  discount rate in the valuation of premature mortality to account for a twenty-year segmented cessation lag. If
  a 7% discount rate had been used, the values would be approximately 9% lower.


  Table III.H.10-6--Quantified Net Benefits Associated With the Proposed Light-Duty Vehicle GHG Program, Model
                                                Year Analysis \a\
                                  [millions of 2007 dollars; 3% discount rate]
----------------------------------------------------------------------------------------------------------------
    Monetized values (millions)        2012MY       2013MY       2014MY       2015MY       2016MY        Sum
----------------------------------------------------------------------------------------------------------------
Quantified Annual Costs (excluding       $5,400       $8,400      $10,900      $13,900      $17,500      $56,100
 fuel savings) \b\................
----------------------------------------------------------------------------------------------------------------
Quantified Annual Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................      $19,100      $29,600      $42,000      $59,700      $81,900     $232,400
    SCC 5% Newell-Pizer...........       19,600       30,400       43,000       61,200       83,800      237,800
    SCC from 3% and 5%............       20,400       31,700       44,900       63,700       87,200      247,800
    SCC 3%........................       21,800       33,700       47,700       67,700       93,000      263,800
    SCC 3% Newell-Pizer...........       23,900       37,000       52,000       74,300      101,000      287,800
----------------------------------------------------------------------------------------------------------------
Quantified Net Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................      $13,700      $21,200      $31,100      $45,800      $64,400     $176,300
    SCC 5% Newell-Pizer...........       14,200       22,000       32,100       47,300       66,300      181,700
    SCC from 3% and 5%............       15,000       23,300       34,000       49,800       69,700      191,700
    SCC 3%........................       16,400       25,300       36,800       53,800       75,500      207,700
    SCC 3% Newell-Pizer...........       18,500       28,600       41,100       60,400       83,500      231,700
----------------------------------------------------------------------------------------------------------------
\a\ Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the
  proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the final standards.
\b\ Quantified annual costs as shown here are the increased costs for new vehicles in each given model year.
  Since those costs are assumed to occur in the given model year (i.e., not over a several year time span), the
  discount rate does not affect the costs.


  Table III.H.10-7--Quantified Net Benefits Associated With the Proposed Light-Duty Vehicle GHG Program, Model
                                                Year Analysis \a\
                                  [millions of 2007 dollars; 7% Discount Rate]
----------------------------------------------------------------------------------------------------------------
    Monetized values (millions)        2012MY       2013MY       2014MY       2015MY       2016MY        Sum
----------------------------------------------------------------------------------------------------------------
Quantified Annual Costs (excluding       $5,400       $8,400      $10,900      $13,900      $17,500      $56,100
 fuel savings) \b\................
----------------------------------------------------------------------------------------------------------------
Quantified Annual Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................      $14,800      $23,100      $32,800      $46,600      $64,200     $181,400
    SCC 5% Newell-Pizer...........       15,100       23,700       33,600       47,600       65,400      185,200
    SCC from 3% and 5%............       15,800       24,700       34,900       49,300       67,700      192,500
    SCC 3%........................       16,800       26,200       36,900       52,100       71,200      203,500
    SCC 3% Newell-Pizer...........       18,400       28,600       40,100       56,600       76,900      220,500
----------------------------------------------------------------------------------------------------------------
Quantified Net Benefits at each assumed SCC value
----------------------------------------------------------------------------------------------------------------
    SCC 5%........................       $9,400      $14,700      $21,900      $32,700      $46,700     $125,300
    SCC 5% Newell-Pizer...........        9,700       15,300       22,700       33,700       47,900      129,100
    SCC from 3% and 5%............       10,400       16,300       24,000       35,400       50,200      136,400
    SCC 3%........................       11,400       17,800       26,000       38,200       53,700      147,400
    SCC 3% Newell-Pizer...........       13,000       20,200       29,200       42,700       59,400      164,400
----------------------------------------------------------------------------------------------------------------
\a\ Note that the co-pollutant impacts associated with the standards presented here do not include the full
  complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-
  related impacts. Instead, the co-pollutant benefits are based on benefit-per-ton values that reflect only
  human health impacts associated with reductions in PM2.5 exposure. Ideally, human health and environmental
  benefits would be based on changes in ambient PM2.5 and ozone as determined by full-scale air quality
  modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the
  proposal. We intend to more fully capture the co-pollutant benefits for the analysis of the final standards.
\b\ Quantified annual costs as shown here are the increased costs for new vehicles in each given model year.
  Since those costs are assumed to occur in the given model year (i.e., not over a several year time span), the
  discount rate does not affect the costs.


[[Page 49628]]

I. Statutory and Executive Order Reviews

1. Executive Order 12866: Regulatory Planning and Review
    Under section 3(f)(1) of Executive Order (EO) 12866 (58 FR 51735, 
October 4, 1993), this action is an ``economically significant 
regulatory action'' because it is likely to have an annual effect on 
the economy of $100 million or more. Accordingly, EPA submitted this 
action to the Office of Management and Budget (OMB) for review under EO 
12866 and any changes made in response to OMB recommendations have been 
documented in the docket for this action.
    In addition, EPA prepared an analysis of the potential costs and 
benefits associated with this action. This analysis is contained in the 
Draft Regulatory Impact Analysis, which is available in the docket for 
this rulemaking and at the docket Internet address listed under 
ADDRESSES above.
2. Paperwork Reduction Act
    The information collection requirements in this proposed rule have 
been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The 
Information Collection Request (ICR) document prepared by EPA has been 
assigned EPA ICR number 0783.56.
    The Agency proposes to collect information to ensure compliance 
with the provisions in this rule. This includes a variety of 
requirements for vehicle manufacturers. Section 208(a) of the Clean Air 
Act requires that vehicle manufacturers provide information the 
Administrator may reasonably require to determine compliance with the 
regulations; submission of the information is therefore mandatory. We 
will consider confidential all information meeting the requirements of 
section 208(c) of the Clean Air Act.
    As shown in Table III.J.2-1, the total annual burden associated 
with this proposal is about 39,900 hours and $5 million, based on a 
projection of 33 respondents. The estimated burden for vehicle 
manufacturers is a total estimate for both new and existing reporting 
requirements. Burden means the total time, effort, or financial 
resources expended by persons to generate, maintain, retain, or 
disclose or provide information to or for a Federal agency. This 
includes the time needed to review instructions; develop, acquire, 
install, and utilize technology and systems for the purposes of 
collecting, validating, and verifying information, processing and 
maintaining information, and disclosing and providing information; 
adjust the existing ways to comply with any previously applicable 
instructions and requirements; train personnel to be able to respond to 
a collection of information; search data sources; complete and review 
the collection of information; and transmit or otherwise disclose the 
information.

    Table III.J.2-1 Estimated Burden for Reporting and Recordkeeping
                              Requirements
------------------------------------------------------------------------
                                           Annual burden
          Number of respondents                hours       Annual costs
------------------------------------------------------------------------
33......................................          39,940      $5,001,000
------------------------------------------------------------------------

    An agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9.
    To comment on the Agency's need for this information, the accuracy 
of the provided burden estimates, and any suggested methods for 
minimizing respondent burden, including the use of automated collection 
techniques, EPA has established a public docket for this rule, which 
includes this ICR, under Docket ID number EPA-HQ-OAR-2007-0491. Submit 
any comments related to the ICR for this proposed rule to EPA and OMB. 
See ADDRESSES section at the beginning of this notice for where to 
submit comments to EPA. Send comments to OMB at the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
725 17th Street, NW., Washington, DC 20503, Attention: Desk Office for 
EPA. Since OMB is required to make a decision concerning the ICR 
between 30 and 60 days after September 28, 2009, a comment to OMB is 
best assured of having its full effect if OMB receives it by October 
28, 2009. The final rule will respond to any OMB or public comments on 
the information collection requirements contained in this proposal.
3. Regulatory Flexibility Act
a. Overview
    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of this rule on small 
entities, small entity is defined as: (1) A small business as defined 
by the Small Business Administration's (SBA) regulations at 13 CFR 
121.201 (see table below); (2) a small governmental jurisdiction that 
is a government of a city, county, town, school district or special 
district with a population of less than 50,000; and (3) a small 
organization that is any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.
    Table III.J.3-1 provides an overview of the primary SBA small 
business categories included in the light-duty vehicle sector:

Table III.J.3--1 Primary SBA Small Business Categories in the Light-Duty
                             Vehicle Sector
------------------------------------------------------------------------
                                   Defined as small
          Industry a             entity by SBA if less    NAICS codes b
                                   than or equal to:
------------------------------------------------------------------------
Light-duty vehicles:
    --Vehicle manufacturers     1,000 employees.......  336111
     (including small volume
     manufacturers).

[[Page 49629]]

 
    --Independent commercial    $7 million annual       811111, 811112,
     importers.                  sales.                  811198
                                $23 million annual      441120
                                 sales.
                                100 employees.........  423110, 424990
    --Alternative fuel vehicle  750 employees.........  336312, 336322,
     converters.                                         336399
                                1,000 employees.......  335312
                                $7 million annual       454312, 485310,
                                 sales.                  811198
------------------------------------------------------------------------
Notes:
\a\ Light-duty vehicle entities that qualify as small businesses would
  not be subject to this proposed rule. We are deferring action on small
  vehicle entities, and we intend to address these entities in a future
  rule.
\b\ North American Industrial Classification System.

b. Summary of Potentially Affected Small Entities
    EPA has not conducted a Regulatory Flexibility Analysis or a SBREFA 
SBAR Panel for the proposed rule because we are proposing to certify 
that the rule would not have a significant economic impact on a 
substantial number of small entities. EPA is proposing to defer 
standards for manufacturers meeting SBA's definition of small business 
as described in 13 CFR 121.201 due to the short lead time to develop 
this proposed rule, the extremely small emissions contribution of these 
entities, and the potential need to develop a program that would be 
structured differently for them (which would require more time). EPA 
would instead consider appropriate GHG standards for these entities as 
part of a future regulatory action. This includes small entities in 
three distinct categories of businesses for light-duty vehicles: Small 
volume manufacturers (SVMs), independent commercial importers (ICIs), 
and alternative fuel vehicle converters. Based on preliminary 
assessment, EPA has identified a total of about 47 vehicle businesses, 
about 13 entities (or 28 percent) that fit the Small Business 
Administration (SBA) criterion of a small business. There are about 2 
SVMs, 8 ICIs, and 3 alternative fuel vehicle converters in the light-
duty vehicle market which are small businesses (no major vehicle 
manufacturers meet the small-entity criteria as defined by SBA). EPA 
estimates that these small entities comprise about 0.03 percent of the 
total light-duty vehicle sales in the U.S. for the year 2007, and 
therefore the proposed deferment will have a negligible impact on the 
GHG emissions reductions from the proposed standards.
    To ensure that EPA is aware of which companies would be deferred, 
EPA is proposing that such entities submit a declaration to EPA 
containing a detailed written description of how that manufacturer 
qualifies as a small entity under the provisions of 13 CFR 121.201. 
Small entities are currently covered by a number of EPA motor vehicle 
emission regulations, and they routinely submit information and data on 
an annual basis as part of their compliance responsibilities. Because 
such entities are not automatically exempted from other EPA regulations 
for light-duty vehicles and light-duty trucks, absent such a 
declaration, EPA would assume that the entity was subject to the 
greenhouse gas control requirements in this GHG proposal. The 
declaration would need to be submitted at time of vehicle emissions 
certification under the EPA Tier 2 program. EPA expects that the 
additional paperwork burden associated with completing and submitting a 
small entity declaration to gain deferral from the proposed GHG 
standards would be negligible and easily done in the context of other 
routine submittals to EPA. However, EPA has accounted for this cost 
with a nominal estimate included in the Information Collection Request 
completed under the Paperwork Reduction Act. Additional information can 
be found in the Paperwork Reduction Act discussion in Section III.I.2. 
Based on this, EPA is proposing to certify that the rule would not have 
a significant economic impact on a substantial number of small 
entities.
c. Conclusions
    I therefore certify that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
However, EPA recognizes that some small entities continue to be 
concerned about the potential impacts of the statutory imposition of 
PSD requirements that may occur given the various EPA rulemakings 
currently under consideration concerning greenhouse gas emissions. As 
explained in the preamble for the proposed PSD tailoring rule, EPA is 
using the discretion afforded to it under section 609(c) of the RFA to 
consult with OMB and SBA, with input from outreach to small entities, 
regarding the potential impacts of PSD regulatory requirements as that 
might occur as EPA considers regulations of GHGs. Concerns about the 
potential impacts of statutorily imposed PSD requirements on small 
entities will be the subject of deliberations in that consultation and 
outreach. Concerned small entities should direct any comments relating 
to potential adverse economic impacts on small entities from PSD 
requirements for GHG emissions to the docket for the PSD tailoring 
rule.
    EPA continues to be interested in the potential impacts of the 
proposed rule on small entities and welcomes comments on issues related 
to such impacts.
4. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local,

[[Page 49630]]

and tribal governments, in the aggregate, or to the private sector, of 
$100 million or more in any one year. Before promulgating an EPA rule 
for which a written statement is needed, section 205 of the UMRA 
generally requires EPA 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 EPA to 
adopt an alternative other than the least costly, most cost-effective 
or least burdensome alternative if the Administrator publishes with the 
final rule an explanation why that alternative was not adopted.
    Before EPA establishes any regulatory requirements that may 
significantly or uniquely affect small governments, including tribal 
governments, it must have developed under section 203 of the UMRA a 
small government agency plan. The plan must provide for notifying 
potentially affected small governments, enabling officials of affected 
small governments to have meaningful and timely input in the 
development of EPA regulatory proposals with significant Federal 
intergovernmental mandates, and informing, educating, and advising 
small governments on compliance with the regulatory requirements.
    This proposal contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, or tribal 
governments. The rule imposes no enforceable duty on any State, local 
or tribal governments. EPA has determined that this rule contains no 
regulatory requirements that might significantly or uniquely affect 
small governments. EPA has determined that this proposal contains a 
Federal mandate that may result in expenditures of $100 million or more 
for the private sector in any one year. EPA believes that the proposal 
represents the least costly, most cost-effective approach to achieve 
the statutory requirements of the rule. The costs and benefits 
associated with the proposal are discussed above and in the Draft 
Regulatory Impact Analysis, as required by the UMRA.
5. Executive Order 13132 (Federalism)
    This action does not have federalism implications. It will not have 
substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government, as 
specified in Executive Order 13132. This rulemaking would apply to 
manufacturers of motor vehicles and not to State or local governments. 
Thus, Executive Order 13132 does not apply to this action. Although 
section 6 of Executive Order 13132 does not apply to this action, EPA 
did consult with representatives of State governments in developing 
this action.
    In the spirit of Executive Order 13132, and consistent with EPA 
policy to promote communications between EPA and State and local 
governments, EPA specifically solicits comment on this proposed action 
from State and local officials.
6. Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments)
    This proposed rule does not have tribal implications, as specified 
in Executive Order 13175 (65 FR 67249, November 9, 2000). This rule 
will be implemented at the Federal level and impose compliance costs 
only on vehicle manufacturers. Tribal governments would be affected 
only to the extent they purchase and use regulated vehicles. Thus, 
Executive Order 13175 does not apply to this rule. EPA specifically 
solicits additional comment on this proposed rule from tribal 
officials.
7. Executive Order 13045: ``Protection of Children From Environmental 
Health Risks and Safety Risks''
    This action is subject to EO 13045 (62 FR 19885, April 23, 1997) 
because it is an economically significant regulatory action as defined 
by EO 12866, and EPA believes that the environmental health or safety 
risk addressed by this action may have a disproportionate effect on 
children. A synthesis of the science and research regarding how climate 
change may affect children and other vulnerable subpopulations is 
contained in the Technical Support Document for Endangerment or Cause 
or Contribute Findings for Greenhouse Gases under Section 202(a) of the 
Clean Air Act, which can be found in the public docket for this 
proposed rule.\408\ A summary of the analysis is presented below.
---------------------------------------------------------------------------

    \408\ U.S. EPA. (2009). Technical Support Document for 
Endangerment or Cause or Contribute Findings for Greenhouse Gases 
under Section 202(a) of the Clean Air Act. Washington, DC: U.S. EPA. 
Retrieved on April 21, 2009 from http://epa.gov/climatechange/endangerment/downloads/TSD_Endangerment.pdf.
---------------------------------------------------------------------------

    With respect to GHG emissions, the effects of climate change 
observed to date and projected to occur in the future include the 
increased likelihood of more frequent and intense heat waves. 
Specifically, EPA's analysis has determined that severe heat waves are 
projected to intensify in magnitude, frequency, and duration over the 
portions of the U.S. where these events already occur, with potential 
increases in mortality and morbidity, especially among the young, 
elderly, and frail. EPA has estimated reductions in projected global 
mean surface temperatures as a result of reductions in GHG emissions 
associated with the standards proposed in this action (Section III.F). 
Children may receive benefits from reductions in GHG emissions because 
they are included in the segment of the population that is most 
vulnerable to hot temperatures.
    For non-GHG pollutants, EPA has determined that climate change is 
expected to increase regional ozone pollution, with associated risks in 
respiratory infection, aggravation of asthma, and premature death. The 
directional effect of climate change on ambient PM levels remains 
uncertain. However, disturbances such as wildfires are increasing in 
the U.S. and are likely to intensify in a warmer future with drier 
soils and longer growing seasons. PM emissions from forest fires can 
contribute to acute and chronic illnesses of the respiratory system, 
particularly in children, including pneumonia, upper respiratory 
diseases, asthma and chronic obstructive pulmonary diseases.
    The public is invited to submit comments or identify peer-reviewed 
studies and data that assess effects of early life exposure to the 
pollutants addressed by this proposed rule.
8. Executive Order 13211 (Energy Effects)
    This rule is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355 
(May 22, 2001)) because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy. In fact, this 
rule has a positive effect on energy supply and use. Because the GHG 
emission standards proposed today result in significant fuel savings, 
this rule encourages more efficient use of fuels. Therefore, we have 
concluded that this rule is not likely to have any adverse energy 
effects. Our energy effects analysis is described above in Section 
III.H.
9. National Technology Transfer Advancement Act
    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs EPA to use voluntary consensus standards in its regulatory 
activities unless to do so would be inconsistent

[[Page 49631]]

with applicable law or otherwise impractical. Voluntary consensus 
standards are technical standards (e.g., materials, specifications, 
test methods, sampling procedures, and business practices) that are 
developed or adopted by voluntary consensus standards bodies. NTTAA 
directs EPA to provide Congress, through OMB, explanations when the 
Agency decides not to use available and applicable voluntary consensus 
standards.
    For CO2, N2O, and CH4 emissions, 
EPA is proposing to collect data over the same tests that are used for 
the CAFE program. This will minimize the amount of testing done by 
manufacturers, since manufacturers are already required to run these 
tests. For A/C credits, EPA is proposing to use a consensus methodology 
developed by the Society of Automotive Engineers (SAE) and also a new 
A/C idle test. EPA knows of no consensus standard available for the A/C 
idle test.
10. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations
    Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes 
Federal executive policy on environmental justice. Its main provision 
directs Federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the United States.
    With respect to GHG emissions, EPA has determined that this 
proposed rule will not have disproportionately high and adverse human 
health or environmental effects on minority or low-income populations 
because it increases the level of environmental protection for all 
affected populations without having any disproportionately high and 
adverse human health or environmental effects on any population, 
including any minority or low-income population. The reductions in 
CO2 and other GHGs associated with the proposed standards 
will affect climate change projections, and EPA has estimated 
reductions in projected global mean surface temperatures (Section 
III.F.3). Within settlements experiencing climate change, certain parts 
of the population may be especially vulnerable; these include the poor, 
the elderly, those already in poor health, the disabled, those living 
alone, and/or indigenous populations dependent on one or a few 
resources. \409\ Therefore, these populations may receive benefits from 
reductions in GHGs.
---------------------------------------------------------------------------

    \409\ U.S. EPA. (2009). Technical Support Document for 
Endangerment or Cause or Contribute Findings for Greenhouse Gases 
under Section 202(a) of the Clean Air Act. Washington, DC: U.S. EPA. 
Retrieved on April 21, 2009 from http://epa.gov/climatechange/endangerment/downloads/TSD_Endangerment.pdf.
---------------------------------------------------------------------------

    For non-GHG co-pollutants such as ozone, PM2.5, and 
toxics, EPA has concluded that it is not practicable to determine 
whether there would be disproportionately high and adverse human health 
or environmental effects on minority and/or low income populations from 
this proposed rule.

J. Statutory Provisions and Legal Authority

    Statutory authority for the vehicle controls proposed today is 
found in section 202 (a) (which authorizes standards for emissions of 
pollutants from new motor vehicles which emissions cause or contribute 
to air pollution which may reasonably be anticipated to endanger public 
health or welfare), 202 (d), 203-209, 216, and 301 of the Clean Air 
Act, 42 U.S.C. 7521 (a), 7521 (d), 7522, 7523, 7524, 7525, 7541, 7542, 
7543, 7550, and 7601.

IV. NHTSA Proposal for Passenger Car and Light Truck CAFE Standards for 
MYs 2012-2016

A. Executive Overview of NHTSA Proposal

1. Introduction
    The National Highway Traffic Safety Administration (NHTSA) is 
proposing to establish corporate average fuel economy standards for 
passenger automobiles (passenger cars) and nonpassenger automobiles 
(light trucks) for model years (MY) 2012-2016. Improving vehicle fuel 
economy has been long and widely recognized as one of the key ways of 
achieving energy independence, energy security, and a low carbon 
economy.\410\ NHTSA's proposed standards will require passenger cars 
and light trucks to meet an estimated combined average of 34.1 mpg in 
MY 2016. This represents an average annual increase of 4.3 percent from 
the 27.3 mpg combined fuel economy level in MY 2011. NHTSA's proposal 
projects total fuel savings of approximately 61.6 billion gallons over 
the lifetimes of the vehicles sold in model years 2012-2016, with 
corresponding net societal benefits of approximately $201.7 billion.
---------------------------------------------------------------------------

    \410\ Among the reports and studies noting this point are the 
following:
    John Podesta, Todd Stern and Kim Batten, ``Capturing the Energy 
Opportunity; Creating a Low-Carbon Economy,'' Center for American 
Progress (November 2007), pp. 2, 6, 8, and 24-29, available at: 
http://www.americanprogress.org/issues/2007/11/pdf/energy_chapter.pdf (last accessed August 9, 2009).
    Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Frank 
Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, ``A 
Roadmap for a Secure, Low-Carbon Energy Economy; Balancing Energy 
Security and Climate Change,'' World Resources Institute and Center 
for Strategic and International Studies (January 2009), pp. 21-22; 
available at: http://pdf.wri.org/secure_low_carbon_energy_economy_roadmap.pdf (last accessed August 9, 2009).
    Alliance to Save Energy et al., ``Reducing the Cost of 
Addressing Climate Change Through Energy Efficiency (2009), 
available at: http://Aceee.org/energy/climate/leg.htm (last accessed 
August 9, 2009).
    John DeCicco and Freda Fung, ``Global Warming on the Road; The 
Climate Impact of America's Automobiles,'' Environmental Defense 
(2006) pp. iv-vii; available at: http://www.edf.org/documents/5301_Globalwarmingontheroad.pdf (last accessed August 9, 2009).
    ``Why is Fuel Economy Important?,'' a Web page maintained by the 
Department of Energy and Environmental Protection Agency, available 
at http://www.fueleconomy.gov/feg/why.shtml (last accessed August 9, 
2009);
    Robert Socolow, Roberta Hotinski, Jeffery B. Greenblatt, and 
Stephen Pacala, ``Solving the Climate Problem: Technologies 
Available to Curb CO2 Emissions,'' Environment, volume 
46, no. 10, 2004. Pages 8-19, available at: http://
www.princeton.edu/~cmi/resources/CMI--Resources--new--files/
Environ--08-21a.pdf (last accessed August 9, 2009).
---------------------------------------------------------------------------

    The significance accorded improving fuel economy reflects several 
factors. Conserving energy, especially reducing the nation's dependence 
on petroleum, benefits the U.S. in several ways. Improving energy 
efficiency has benefits for economic growth and the environment, as 
well as other benefits, such as reducing pollution and improving 
security of energy supply. More specifically, reducing total petroleum 
use decreases our economy's vulnerability to oil price shocks. Reducing 
dependence on oil imports from regions with uncertain conditions 
enhances our energy security. Additionally, the emission of 
CO2 from the tailpipes of cars and light trucks is one of 
the largest sources of U.S. CO2 emissions.\411\ Using 
vehicle technology to improve fuel economy, and thereby reducing 
tailpipe emissions of CO2, is one of the three main measures 
of reducing those tailpipe emissions of CO2.\412\ The two 
other measures for

[[Page 49632]]

reducing the tailpipe emissions of CO2 are switching to 
vehicle fuels with lower carbon content and changing driver behavior, 
i.e., inducing people to drive less.
---------------------------------------------------------------------------

    \411\ EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990--2006 (April 2008), pp. ES-4, ES-8, and 2-24. Available at 
http://www.epa.gov/climatechange/emissions/usgginv_archive.html 
(last accessed August 9, 2009).
    \412\ Podesta et al., p. 25; Ladislaw et al. p. 21; DeCicco et 
al. p. vii; ``Reduce Climate Change,'' a Web page maintained by the 
Department of Energy and Environmental Protection Agency at http://www.fueleconomy.gov/feg/climate.shtml (last accessed August 9, 
2009).
---------------------------------------------------------------------------

    While NHTSA has been setting fuel economy standards since the 
1970s, today's action represents the first-ever joint proposal by NHTSA 
with another agency, the Environmental Protection Agency. As discussed 
in Section I, NHTSA's proposed MYs 2012-2016 CAFE standards are part of 
a joint National Program, such that a large majority of the projected 
benefits are achieved jointly with EPA's GHG rule, described in detail 
above in Section III of this preamble. These proposed CAFE standards 
are consistent with the President's National Fuel Efficiency Policy 
announcement of May 19, 2009, which calls for harmonized rules for all 
automakers, instead of three overlapping and potentially inconsistent 
requirements from DOT, EPA, and the California Air Resources Board. And 
finally, the proposed CAFE standards and the analysis supporting them 
also respond to President's Obama's January 26 memorandum regarding the 
setting of CAFE standards for model years 2011 and beyond.
2. Role of Fuel Economy Improvements in Promoting Energy Independence, 
Energy Security, and a Low Carbon Economy
    The need to reduce energy consumption is more crucial today than it 
was when EPCA was enacted in the mid-1970s. U.S. energy consumption has 
been outstripping U.S. energy production at an increasing rate. Net 
petroleum imports now account for approximately 57 percent of U.S. 
domestic petroleum consumption, and the share of U.S. oil consumption 
for transportation is approximately 71 percent.\413\ Moreover, world 
crude oil production continues to be highly concentrated, exacerbating 
the risks of supply disruptions and their negative effects on both the 
U.S. and global economies.
---------------------------------------------------------------------------

    \413\ Energy Information Administration, Petroleum Basic 
Statistics, updated July 2009. Available at http://www.eia.doe.gov/basics/quickoil.html (last accessed August 9, 2009).
---------------------------------------------------------------------------

    Gasoline consumption in the U.S. has historically been relatively 
insensitive to fluctuations in both price and consumer income, and 
people in most parts of the country tend to view gasoline consumption 
as a non-discretionary expense. Thus, when gasoline's share in consumer 
expenditures rises, the public experiences fiscal distress. This fiscal 
distress can, in some cases, have macroeconomic consequences for the 
economy at large. Additionally, since U.S. oil production is only 
affected by fluctuations in prices over a period of years, any changes 
in petroleum consumption (as through increased fuel economy) largely 
flow into changes in the quantity of imports. Although petroleum 
imports only account for about 2 percent of GDP, they are large enough 
to create a discernible fiscal drag. As a consequence, however, 
measures that reduce petroleum consumption, such as fuel economy 
standards, will flow directly into the balance-of-payments account, and 
strengthen the domestic economy to some degree. And finally, U.S. 
foreign policy has been affected for decades by rising U.S. and world 
dependency of crude oil as the basis for modern transportation systems, 
although fuel economy standards have only an indirect and general 
impact on U.S. foreign policy.
    The benefits of a low carbon economy are manifold. The U.S. 
transportation sector is a significant contributor to total U.S. and 
global anthropogenic emissions of greenhouse gases. Motor vehicles are 
the second largest greenhouse gas-emitting sector in the U.S., after 
electricity generation, and accounted for 24 percent of total U.S. 
greenhouse gas emissions in 2006. Concentrations of greenhouse gases 
are at unprecedented levels compared to the recent and distant past, 
which means that fuel economy improvements to reduce those emissions 
are a crucial step toward addressing the risks of global climate 
change. These risks are well documented in section III of this notice.
3. The National Program
    NHTSA and EPA are each announcing proposed rules that have the 
effect of addressing the urgent and closely intertwined challenges of 
energy independence and security and global warming. These proposed 
rules call for a strong and coordinated Federal greenhouse gas and fuel 
economy program for passenger cars, light-duty-trucks, and medium-duty 
passenger vehicles (hereafter light-duty vehicles), referred to as the 
National Program. The proposed rules represent a coordinated program 
that can achieve substantial reductions of greenhouse gas (GHG) 
emissions and improvements in fuel economy from the light-duty vehicle 
part of the transportation sector, based on technology that will be 
commercially available and that can be incorporated at a reasonable 
cost. The agencies' proposals will also provide regulatory certainty 
and consistency for the automobile industry by setting harmonized 
national standards. They were developed and are designed in ways that 
recognize and accommodate the serious current economic situation faced 
by this industry.
    This joint notice is consistent with the President's announcement 
on May 19, 2009 of a National Fuel Efficiency Policy that will reduce 
greenhouse gas emissions and improve fuel economy for all new cars and 
light-duty trucks sold in the United States,\414\ and with the Notice 
of Upcoming Joint Rulemaking signed by DOT and EPA on that date.\415\ 
This joint notice also responds to the President's January 26, 2009 
memorandum on CAFE standards for model years 2011 and beyond, the 
details of which can be found in Section IV of this joint notice.
---------------------------------------------------------------------------

    \414\ President Obama Announces National Fuel Efficiency Policy, 
The White House, May 19, 2009.
    \415\ 74 FR 24007 (May 22, 2009).
---------------------------------------------------------------------------

a. Building Blocks of the National Program
    The National Program is both needed and possible because the 
relationship between improving fuel economy and reducing CO2 
tailpipe emissions is a very direct and close one. CO2 is 
the natural by-product of the combustion of fuel in motor vehicle 
engines. The more fuel efficient a vehicle is, the less fuel it burns 
to travel a given distance. The less fuel it burns, the less 
CO2 it emits in traveling that distance.\416\ Since the 
amount of CO2 emissions is essentially constant per gallon 
combusted of a given type of fuel, the amount of fuel consumption per 
mile is directly related to the amount of CO2 emissions per 
mile. In the real world, there is a single pool of technologies for 
reducing fuel consumption and CO2 emissions. Using those 
technologies in the way that minimizes fuel consumption also minimizes 
CO2 emissions. While there are emission control technologies 
that can capture or destroy the pollutants (e.g., carbon monoxide) that 
are produced by imperfect combustion of fuel, there is at present no 
such technology for CO2. In fact, the only way at present to 
reduce tailpipe emissions of CO2 is by reducing fuel 
consumption. The National Program thus has dual benefits: It conserves 
energy by improving fuel economy, as required of NHTSA by EPCA and 
EISA; in the process, it necessarily reduces tailpipe

[[Page 49633]]

CO2 emissions consonant with EPA's purposes and 
responsibilities under the Clean Air Act.
---------------------------------------------------------------------------

    \416\ Panel on Policy Implications of Greenhouse Warming, 
National Academy of Sciences, National Academy of Engineering, 
Institute of Medicine, ``Policy Implications of Greenhouse Warming: 
Mitigation, Adaptation, and the Science Base,'' National Academies 
Press, 1992, at 287.
---------------------------------------------------------------------------

i. DOT's CAFE Program
    In 1975, Congress enacted the Energy Policy and Conservation Act 
(EPCA), mandating a regulatory program for motor vehicle fuel economy 
to meet the various facets of the need to conserve energy, including 
ones having energy independence and security, environmental and foreign 
policy implications. EPCA allocates the responsibility for implementing 
the program between NHTSA and EPA as follows:
     NHTSA sets Corporate Average Fuel Economy (CAFE) standards 
for passenger cars and light trucks.
     Because fuel economy performance is measured during 
emissions regulation testing, EPA establishes the procedures for 
testing, tests vehicles, collects and analyzes manufacturers' test 
data, and calculates the average fuel economy of each manufacturer's 
passenger cars and light trucks. EPA determines fuel economy by the 
simple expedient of measuring the amount of CO2 emitted from 
the tailpipe, not by attempting to measure directly the amount of fuel 
consumed during a vehicle test, a difficult task to accomplish with 
precision. EPA then uses the carbon content of the test fuel\417\ to 
calculate the amount of fuel that had to be consumed per mile in order 
to produce that amount of CO2. Finally, EPA converts that 
fuel consumption figure into a miles-per-gallon figure.
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    \417\ This is the method that EPA uses to determine compliance 
with NHTSA's CAFE standards.
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     Based on EPA's calculation, NHTSA enforces the CAFE 
standards.
    The CAFE standards and compliance testing cannot capture all of the 
real world CO2 emissions, because EPCA requires EPA to use 
the 1975 passenger car test procedures under which vehicle air 
conditioners are not turned on during fuel economy testing.\418\ CAFE 
standards also do not address the 5-8 percent of GHG emissions that are 
not CO2, i.e., nitrous oxide (N2O), and methane 
(CH4) as well as emissions of CO2 and 
hydrofluorocarbons (HFCs) related to operation of the air conditioning 
system.
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    \418\ See 49 U.S.C. 32904(c).
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    NHTSA has been setting CAFE standards pursuant to EPCA since the 
enactment of the statute. Fuel economy gains since 1975, due both to 
the standards and market factors, have resulted in saving billions of 
barrels of oil and avoiding billions of metric tons of CO2 
emissions. In December 2007, Congress enacted the Energy Independence 
and Securities Act (EISA), amending EPCA to require, among other 
things, attribute-based standards for passenger cars and light trucks. 
The most recent CAFE rulemaking action was the issuance of standards 
governing model years 2011 cars and trucks.
ii. EPA's Greenhouse Gas Program
    On April 2, 2007, the U.S. Supreme Court issued its opinion in 
Massachusetts v. EPA,\419\ a case involving a 2003 order of the 
Environmental Protection Agency (EPA) denying a petition for rulemaking 
to regulate greenhouse gas emissions from motor vehicles under the 
Clean Air Act.\420\ The Court ruled that greenhouse gases are 
``pollutants'' under the CAA and that the Act therefore authorizes EPA 
to regulate greenhouse gas emissions from motor vehicles if that agency 
makes the necessary findings and determinations under section 202 of 
the Act. The Court considered EPCA only briefly, stating that the two 
obligations may overlap, but there is no reason to think the two 
agencies cannot both administer their obligations and yet avoid 
inconsistency.
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    \419\ 127 S.Ct. 1438 (2007).
    \420\ 68 FR 52922 (Sept. 8, 2003).
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    EPA has been working on appropriate responses that are consistent 
with the decision of the Supreme Court in Massachusetts v. EPA.\421\ As 
part of those responses, in July 2008, EPA issued an Advance Notice of 
Proposed Rulemaking seeking comments on the impact of greenhouse gases 
on the environment and on ways to reduce greenhouse gas emissions from 
motor vehicles. EPA recently also proposed to find that emissions of 
GHGs from new motor vehicles and motor vehicle engines cause or 
contribute to air pollution that may reasonably be anticipated to 
endanger public health and welfare.\422\
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    \421\ 549 U.S. 497 (2007). For further information on 
Massachusetts v. EPA see the July 30, 2008 Advance Notice of 
Proposed Rulemaking, ``Regulating Greenhouse Gas Emissions under the 
Clean Air Act'', 73 FR 44354 at 44397. There is a comprehensive 
discussion of the litigation's history, the Supreme Court's 
findings, and subsequent actions undertaken by the EPA from 2007-
2008 in response to the Supreme Court remand.
    \422\ 74 FR 18886 (Apr. 24, 2009).
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iii. California Air Resources Board's Greenhouse Gas Program
    In 2004, the California Air Resources Board approved standards for 
new light-duty vehicles, which regulate the emission of not only 
CO2, but also other GHGs. Since then, thirteen States and 
the District of Columbia, comprising approximately 40 percent of the 
light-duty vehicle market, have adopted California's standards. These 
standards apply to model years 2009 through 2016 and require reductions 
in CO2 emissions for passenger cars and some light trucks of 323 g/mil 
in 2009 up to 205 g/mi in 2016, and 439 g/mi for light trucks in 2009 
up to 332 g/mi in 2016. In 2008, EPA denied a request by California for 
a waiver of preemption under the CAA for its GHG emissions standards. 
However, consistent with another Presidential Memorandum of January 26, 
2009, EPA reconsidered the prior denial of California's request.\423\ 
EPA withdrew the prior denial and granted California's request for a 
waiver on June 30, 2009.\424\ The granting of the waiver permits 
California's emission standards to come into effect notwithstanding the 
general preemption of State emission standards for new motor vehicles 
that otherwise applies under the Clean Air Act.
---------------------------------------------------------------------------

    \423\ 74 FR 7040 (Feb. 12, 2009).
    \424\ 74 FR 32744 (July 8, 2009).
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b. The President's Announcement of National Fuel Efficiency Policy (May 
2009)
    The issue of three separate regulatory frameworks and overlapping 
requirements for reducing fuel consumption and CO2 emissions 
has been a subject of much controversy and legal disputes. On May 19, 
2009 President Obama announced a National Fuel Efficiency Policy aimed 
at both increasing fuel economy and reducing greenhouse gas pollution 
for all new cars and trucks sold in the United States, while also 
providing a predictable regulatory framework for the automotive 
industry. The policy seeks to set harmonized Federal standards to 
regulate both fuel economy and greenhouse gas emissions while 
preserving the legal authorities of the Department of Transportation, 
the Environmental Protection Agency and the State of California. The 
program covers model year 2012 to model year 2016 and ultimately 
requires the equivalent of an average fuel economy of 35.5 mpg in 2016, 
if all CO2 reduction were achieved through fuel economy 
improvements. Building on the MY 2011 standard that was set in March 
2009, this represents an average of 5 percent increase in average fuel 
economy each year between 2012 and 2016.
    In conjunction with the President's announcement, the Department of 
Transportation and the Environmental Protection Agency issued on May 
19, 2009, a Notice of Upcoming Joint

[[Page 49634]]

Rulemaking to propose a strong and coordinated fuel economy and 
greenhouse gas National Program for Model Year (MY) 2012-2016 light 
duty vehicles. Consistent, harmonized, and streamlined requirements 
under that program hold out the promise of delivering environmental and 
energy benefits, cost savings, and administrative efficiencies on a 
nationwide basis that might not be available under a less coordinated 
approach. The proposed National Program makes it possible for the 
standards of two different Federal agencies and the standards of 
California and other States to act in a unified fashion in providing 
these benefits. Establishing a harmonized approach to regulating light-
duty vehicle greenhouse gas (GHG) emissions and fuel economy is 
critically important given the interdependent goals of addressing 
climate change and ensuring energy independence and security. 
Additionally, establishing a harmonized approach may help to mitigate 
the cost to manufacturers of having to comply with multiple sets of 
Federal and State standards
4. Review of CAFE Standard Setting Methodology per the President's 
January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond
    On May 2, 2008, NHTSA published a Notice of Proposed Rulemaking 
entitled Average Fuel Economy Standards, Passenger Cars and Light 
Trucks; Model Years 2011-2015, 73 Fed. Reg. 24352. In mid-October, the 
agency completed and released a final environmental impact statement in 
anticipation of issuing standards for those years. Based on its 
consideration of the public comments and other available information, 
including information on the financial condition of the automotive 
industry, the agency adjusted its analysis and the standards and 
prepared a final rule for MYs 2011-2015. On November 14, the Office of 
Information and Regulatory Affairs (OIRA) of the Office of Management 
and Budget concluded review of the rule as consistent with the 
Order.\425\ However, issuance of the final rule was held in abeyance. 
On January 7, 2009, the Department of Transportation announced that the 
final rule would not be issued, saying:
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    \425\ Record of OIRA's action can be found at http://www.reginfo.gov/public/do/eoHistReviewSearch (last accessed August 
9, 2009). To find the report on the clearance of the draft final 
rule, select ``Department of Transportation'' under ``Economically 
Significant Reviews Completed'' and select ``2008'' under ``Select 
Calendar Year.''
---------------------------------------------------------------------------

    The Bush Administration will not finalize its rulemaking on 
Corporate Fuel Economy Standards. The recent financial difficulties of 
the automobile industry will require the next administration to conduct 
a thorough review of matters affecting the industry, including how to 
effectively implement the Energy Independence and Security Act of 2007 
(EISA). The National Highway Traffic Safety Administration has done 
significant work that will position the next Transportation Secretary 
to finalize a rule before the April 1, 2009 deadline.\426\
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    \426\ The statement can be found at http://www.dot.gov/affairs/dot0109.htm (last accessed August 9, 2009).
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a. Requests in the President's Memorandum
    In light of the requirement to prescribe standards for MY 2011 by 
March 30, 2009 and in order to provide additional time to consider 
issues concerning the analysis used to determine the appropriate level 
of standards for MYs 2012 and beyond, the President issued a memorandum 
on January 26, 2009, requesting the Secretary of Transportation and 
Administrator\427\ of the National Highway Traffic Safety 
Administration NHTSA to divide the rulemaking into two parts: (1) MY 
2011 standards, and (2) standards for MY 2012 and beyond.
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    \427\ Currently, the National Highway Traffic Safety 
Administration does not have an Administrator. Ronald L. Medford is 
the Acting Deputy Administrator.
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i. CAFE Standards for Model Year 2011
    The request that the final rule establishing CAFE standards for MY 
2011 passenger cars and light trucks be prescribed by March 30, 2009 
was based on several factors. One was the requirement that the final 
rule regarding fuel economy standards for a given model year must be 
adopted at least 18 months before the beginning of that model year (49 
U.S.C. 32902(g)(2)). The other was that the beginning of MY 2011 is 
considered for the purposes of CAFE standard setting to be October 1, 
2010.
ii. CAFE Standards for Model Years 2012 and Beyond
    The President requested that, before promulgating a final rule 
concerning the model years after model year 2011, NHTSA

    [C]onsider the appropriate legal factors under the EISA, the 
comments filed in response to the Notice of Proposed Rulemaking, the 
relevant technological and scientific considerations, and to the 
extent feasible, the forthcoming report by the National Academy of 
Sciences mandated under section 107 of EISA.

    In addition, the President requested that NHTSA consider whether 
any provisions regarding preemption are appropriate under applicable 
law and policy.
b. Implementing the President's Memorandum
    In keeping with the President's remarks on January 26 for new 
national policies to address the closely intertwined issues of energy 
independence, energy security and climate change, and for the 
initiation of serious and sustained domestic and international action 
to address them, NHTSA has developed CAFE standards for MY 2012 and 
beyond after collecting new information, conducting a careful review of 
technical and economic inputs and assumptions, and standard setting 
methodology, and completing new analyses.
    The goal of the review and re-evaluation was to ensure that the 
approach used for MY 2012 and thereafter would produce standards that 
contribute, to the maximum extent possible under EPCA/EISA, to meeting 
the energy and environmental challenges and goals outlined by the 
President. We have sought to craft our program with the goal of 
creating the maximum incentives for innovation, providing flexibility 
to the regulated parties, and meeting the goal of making substantial 
and continuing reductions in the consumption of fuel. To that end, we 
have made every effort to ensure that the CAFE program for MYs 2012-
2016 is based on the best scientific, technical, and economic 
information available, and that such information was developed in close 
coordination with other Federal agencies and our stakeholders, 
including the States and the vehicle manufacturers.
    We have also re-examined EPCA, as amended by EISA, to consider 
whether additional opportunities exist to improve the effectiveness of 
the CAFE program. For example, EPCA authorizes increasing the amount of 
civil penalties for violating the CAFE standards.\428\ Further, if the 
test procedures used for light trucks were revised to provide for the 
operation of air conditioning during fuel economy testing, vehicle 
manufacturers would have a regulatory incentive to increase the 
efficiency and reduce the weight of air conditioning systems, thereby 
reducing both fuel

[[Page 49635]]

consumption and tailpipe emissions of CO2.
---------------------------------------------------------------------------

    \428\ Under 49 U.S.C. 32904(c), EPA must use the same procedures 
for passenger automobiles that the Administrator used for model year 
1975 (weighted 55 percent urban cycle and 45 percent highway cycle), 
or procedures that give comparable results.
---------------------------------------------------------------------------

    With respect to the President's request that NHTSA consider the 
issue of preemption, NHTSA is deferring further consideration of the 
preemption issue. The agency believes that it is unnecessary to address 
the issue further at this time because of the consistent and 
coordinated Federal standards that would apply nationally under the 
proposed National Program.
    The following paragraphs provide a summary addressing how NHTSA has 
complied with the President's requests in the January 26 memorandum. 
NHTSA has reviewed comments received on the MY 2011 rulemaking and 
revisited its assumptions and methodologies for purposes of developing 
the proposed MY 2012-2016 standards. For any given assumption or aspect 
of NHTSA's analysis, comments rarely converged on a single position--
and for many issues, NHTSA received diametrically-opposed comments from 
different parties--which makes it challenging to resolve the concerns 
of all parties in a single stroke. However, NHTSA has taken a fresh 
look at all the issues as part of its joint process with EPA, changing 
some assumptions and methodologies and validating others. The agency is 
confident that the assumptions and analysis used to develop these 
proposed standards represent the best possible approach that is 
consistent with NHTSA's statutory requirements for setting the required 
fuel economy standards.
    The paragraphs below describe generally how the agency has reviewed 
comments on different issues related to the setting of the standards, 
and how the agency has either revised or validated its approach for the 
MY 2012-2016 standards. Much more detail on how the agency addresses 
all of these issues is found below in the rest of NHTSA's section of 
this preamble, in the joint TSD, and in NHTSA's PRIA.
    How stringent should the standards be? How quickly should they 
increase?
    EPCA requires that NHTSA set its standards for each model year at 
the ``maximum feasible average fuel economy level that the Secretary 
decides the manufacturers can achieve in that model year'' considering 
four factors: technological feasibility, economic practicability, the 
effect of other standards of the Government on fuel economy, and the 
need of the nation to conserve energy. None of these factors is further 
defined in the statute, and ``maximum feasible average fuel economy 
level'' is itself defined, if at all, only by reference to those four 
factors and the Secretary's consideration of them.\429\ In addition, 
the agency has the authority to and traditionally does consider other 
relevant factors, such as the effect of the CAFE standards on motor 
vehicle safety.
---------------------------------------------------------------------------

    \429\ 49 U.S.C. 32902(a).
---------------------------------------------------------------------------

    In the previous CAFE rulemaking, NHTSA proposed to set standards at 
the point at which societal net benefits were maximized, which drew a 
number of comments from both manufacturers and environmental and public 
interest groups. Manufacturers generally commented that standards 
should be lower than the ``maximizing net benefits'' alternative, due 
to lead time concerns and manufacturers' difficulties in raising 
capital. Environmental and consumer groups, as well as a number of 
State Attorneys General, commented that NHTSA should set standards 
above that point, with some arguing in favor of standards as high as 
those at the point at which total costs equaled total benefits. 
Commenters also emphasized that NHTSA should ensure that standards 
increased ratably, as required by EISA.
    For this NPRM, NHTSA has analyzed the costs and benefits of the 
``maximizing net benefits'' alternative and other alternatives, using 
inputs that diverge substantially from those used in the analyses in 
the previous rulemakings to establish attribute-based standards. But 
the agency has not sought to use ``maximizing net benefits'' as a 
governing principle to select the applicable fuel economy standard in 
this NPRM. NHTSA's balancing of the statutory factors in these 
difficult financial times leads it to make a different conclusion this 
time: NHTSA is proposing to set standards at 34.1 mpg in MY 2016, below 
the point at which net benefits are maximized, due to economic 
practicability concerns. The results of the alternatives analysis for 
the ``maximizing net benefits'' alternative and the ``total costs = 
total benefits'' alternative may be found in the DEIS and in the PRIA.
    Additionally, because today's proposed standards cover five model 
years, as opposed to the single model year covered by the March final 
rule, NHTSA is better able in this rulemaking to confirm that the 
standards do, in fact, increase ratably, as required by EISA.
    What attribute should NHTSA use to set the standards?
    In the previous rulemaking, most commenters agreed with NHTSA's use 
of footprint as the vehicle attribute for setting CAFE standards. Some 
manufacturers commented that NHTSA should consider multiple 
attributes--for example, sports car manufacturers suggested a mix of 
footprint and horsepower, while truck manufacturers suggested a mix of 
footprint and towing, hauling, or off-road capability. Several members 
of Congress also supported the latter comment.
    For this NPRM, NHTSA and EPA together reconsidered the appropriate 
attribute for setting CAFE and CO2 standards, and conclude 
that footprint best provides the ability address safety concerns 
without creating undue risk that program benefits will be lost to 
induced mix shifting. More information about this decision may be found 
in Section IV.C.5 below, in the draft joint TSD, and in NHTSA's PRIA.
    What data should NHTSA use to develop the baseline market forecast?
    In the previous rulemaking, the proposed standards were based on 
data from only the seven largest manufacturers. Several small and 
limited-line manufacturers commented that either the passenger car 
standards should be based on the plans of all manufacturers subject to 
the standards, or some alternative form of standard should be set for 
them. Ultimately, NHTSA set the MY 2011 standards based on the plans of 
all manufacturers subject to the standards.
    However, a number of commenters also called for NHTSA to cease 
using manufacturer's confidential product plans in any way for 
developing the standards. Because manufacturers request confidentiality 
when they submit their product plans to the agency out of competitive 
concerns, NHTSA is prohibited by regulation from releasing that 
information to the public. Thus, when NHTSA developed a baseline market 
forecast using information from the manufacturer's product plans, NHTSA 
could not release that forecast intact for public review.
    For this NPRM, in response to these concerns, NHTSA and EPA are 
using a baseline market file developed almost entirely from publicly-
available data. Relying on adjusted MY 2008 CAFE compliance data 
enables the agency to make the baseline public and helps to address 
transparency concerns. However, by virtue of not being based on product 
plans, some manufacturers' concerns that the baseline does not 
represent their particular intentions for MYs 2012-2016 may not be 
addressed. These issues are explained in more detail in Section IV.C.1 
below, in the draft joint TSD, and in NHTSA's PRIA.
    Did commenters agree with NHTSA's technology assumptions?
    In the previous rulemaking, manufacturers generally commented that 
NHTSA had underestimated the costs of technologies and overestimated

[[Page 49636]]

their effectiveness, and that the rate of diesel and hybrid application 
required by the standards was too high, too quickly. Environmental and 
consumer groups, and the States Attorneys General who commented, 
largely argued the opposite. Environmental and consumer groups and the 
States Attorneys General also commented that NHTSA should include 
downweighting in its analysis for vehicles under 5,000 lbs GVWR, while 
the Insurance Institute for Highway Safety (IIHS) argued that NHTSA's 
approach to restricting downweighting to only those vehicles was 
correct.
    For this NPRM, NHTSA, with EPA, has revisited every one of its cost 
and effectiveness estimates for individual technologies. Many of the 
estimates used in the MY 2011 final rule have been validated, while 
some have changed, notably the estimates for turbocharging and 
downsizing, diesels, and hybrids. Overall, the individual technology 
costs are lower for purposes of this NPRM than in the MY 2011 final 
rule due to the Indirect Cost Markup methodology developed by EPA for 
this rulemaking, which results in a lower markup than the 1.5 Retail 
Price Equivalent (RPE) markup previously used. The considerable 
majority of estimates for individual technology effectiveness were 
validated; changes largely resulted from the redefinition of certain 
electrification-related technologies and mild hybrids.
    Additionally, NHTSA is now applying downweighting/material 
substitution to vehicles below 5,000 lbs GVWR, albeit in a way that, we 
believe, mitigates the safety concerns to some extent. These issues are 
explained in more detail in Section IV.C.2 below, in the draft joint 
TSD, and in NHTSA's PRIA.
    With regard to the President's request that NHTSA consider, ``to 
the extent feasible, the forthcoming report by the National Academy of 
Sciences mandated under section 107 of EISA,'' we note that it was not 
feasible to consider this report for purposes of this NPRM because it 
is not scheduled to be completed until Fall 2009. However, NHTSA 
intends to make it available in the rulemaking docket as soon as the 
agency receives it, and will consider it for the final rule.
    Did commenters agree with NHTSA's economic assumptions?
    In the previous rulemaking, NHTSA primarily received comments 
regarding four particular economic assumptions. Regarding fuel prices, 
many commenters supported NHTSA's use of the AEO 2008 Reference Case, 
while many commenters also argued, given high pump prices in summer 
2008, that NHTSA should use at least the AEO High Price Case or 
possibly a higher estimate. Regarding the discount rate, some 
commenters supported NHTSA's use of 7 percent, while others argued that 
NHTSA should use no higher than 3 percent. Regarding the magnitude of 
the rebound effect, some commenters supported NHTSA's use of a 15 
percent rebound effect, while some called for a higher number and some 
called for numbers as low as zero percent. And finally, for the social 
cost of carbon, some commenters supported NHTSA's use of a domestic 
value and stated that the value should be $7/ton or lower, while other 
commenters argued that NHTSA should use a global value much higher than 
$7/ton, although there was little consensus as to what precise number.
    For this NPRM, NHTSA, with EPA, has revisited every one of its 
economic assumptions. Many of the assumptions used in the MY 2011 final 
rule have been validated, while some have changed. For fuel prices, 
NHTSA used the AEO High Price Case in the MY 2011 final rule, but 
stated that its decision was based on its expectation that the 
Reference Case would soon be revised to reflect higher estimates of 
future fuel prices. EIA did, in fact, revise the Reference Case upward 
in AEO 2009 to levels higher than the 2008 High Price Case, and NHTSA 
has therefore elected to use the Reference Case for this NPRM. For the 
discount rate, NHTSA is continuing to conduct and present the results 
of analyses using both a 3 percent and a 7 percent rate, as is EPA in 
its analysis. For the rebound effect, NHTSA took a fresh look at the 
recent literature and developed new estimates for the rebound effect, 
and has used a value of 10 percent in its analysis. And for the social 
cost of carbon, based on the results of an interagency effort to 
develop an estimate that can be used by all government agencies in 
rulemakings that affect climate change, NHTSA has conducted analyses 
for this NPRM using a range of values from $5 to $56/ton, representing 
global SCC values. These issues are explained in Section II above, in 
more detail in Section IV.C.3 below, in the joint TSD, and in NHTSA's 
PRIA.
    Did commenters agree with NHTSA's analytical tools?
    In the previous rulemaking, although some commenters generally 
supported NHTSA's use of the CAFE modeling system developed by DOT's 
Volpe National Transportation Systems Center (Volpe Center), other 
commenters expressed concerns regarding the modeling system, the ways 
in which the system was applied, and accessibility of the system and 
its inputs and outputs.
    Technical concerns regarding the model itself centered on the fact 
that it does not apply a direct and explicit representation of the 
physical processes connecting the engineering characteristics of a 
given vehicle to that vehicle's fuel economy. As NHTSA explained in its 
March 2009 Federal Register notice establishing final MY 2011 CAFE 
standards, full vehicle simulation could useful in developing model 
inputs, but not, at least in the foreseeable future, in performing 
forward-looking analysis of the future fleet.\430\ Having again 
reconsidered this issue, NHTSA again concludes that with proper care in 
developing model inputs, the Volpe model is as ``physics-based'' as is 
practical or necessary for CAFE analysis.
---------------------------------------------------------------------------

    \430\ 74 FR 14371-72 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Some commenters also questioned the model's structural assumptions 
about manufacturers' compliance strategies. NHTSA has reconsidered this 
question with respect to the potential for systematic underestimation 
or overestimation of compliance costs. As a result, the Volpe model has 
been modified to account for manufacturers' ability to engage in 
``multi-year planning,'' adding more technology than necessary for 
compliance in an early model year when a vehicle model is being 
redesigned in order to carry that technology forward and facilitate 
compliance in later model years. This major change to the Volpe model 
tends to produce greater costs (and benefits) in earlier model years in 
order to reduce costs in later model years.
    Some commenters also questioned the model's use of externally-
specified ``phase-in caps'' to constrain the speed at which 
technologies can practicably be adopted. NHTSA has reconsidered these 
inputs in light of the fact that the model also assumes that most 
technologies can only be practicably applied during a vehicle redesign 
or (in some cases) freshening, and tentatively concludes that these 
inputs can be significantly relaxed. The analysis supporting today's 
proposal therefore relies almost exclusively on the redesign- and 
refresh-related constraints to produce practicable estimates of 
potential technology adoption rates. We are seeking comment on this 
change to the model's inputs, and note that further changes to these 
inputs would impact our analysis.
    Commenters had many other concerns regarding inputs to the model, 
such as economic inputs and technology-related estimates. Commenters 
often (and

[[Page 49637]]

particularly in relation to the agency's estimate of the social value 
of avoided CO2 emissions) mistakenly attributed these 
concerns to the model itself. In again reviewing commenters' concerns 
regarding NHTSA's analysis, the agency has carefully differentiated 
between (1) the model, (2) inputs to the model, and (3) ways in which 
the model is applied. We encourage commenters to do the same in 
reviewing the analysis supporting today's proposal.
    Finally, some commenters expressed concern regarding the model's 
transparency. However, as NHTSA explained in in the MY 2011 final rule, 
these concerns appeared to have been mistakenly applied to the model 
itself, as the actual lack of transparency related only to the agency's 
use of manufacturers' product plans, which formed the basis for inputs 
to the model.\431\ The agency had previously made publicly available 
the model, source code (i.e., computer programming instructions), model 
documentation, and sample input files. To make the model more easily 
accessible to the public, the agency began (in March 2009) placing all 
of this information on NHTSA's Web site.\432\ In connection with 
today's proposal, the agency is placing the updated model, code, and 
documentation on the Web site, along with inputs and outputs for 
agency's current analysis. Among those inputs are those defining the 
agency's baseline estimates of the MYs 2012-2016 U.S. market for 
passenger cars and light trucks, as these inputs do not, for today's 
proposal, make use of manufacturers' confidential product plans.
---------------------------------------------------------------------------

    \431\ 74 FR 14372 (Mar. 30, 2009).
    \432\ See http://www.nhtsa.dot.gov (click on ``Fuel Economy,'' 
then ``Related Links--CAFE Compliance and Effects Modeling System 
(Volpe Model)'')
---------------------------------------------------------------------------

    How should NHTSA develop and fit the target curves?
    In the previous rulemaking, many commenters expressed concern about 
the steepness of the proposed curves for passenger cars, which occurred 
because of the way in which NHTSA fit the curves to the data. The more 
steep a curve is, the more rapidly mpg targets decrease as footprint 
increases.
    For this NPRM, NHTSA reconsidered how to address this concern and 
decided to propose curves that are based on a constrained linear 
function rather than a constrained logistic function, that are 
considerably less steep than the curves proposed in the previous 
rulemaking. This issue is discussed in greater detail in Section IV.C.5 
below, in the joint TSD, and in NHTSA's PRIA.
    Should NHTSA set additional ``backstop'' standards besides the one 
established by Congress?
    In the previous rulemaking, several commenters argued that NHTSA 
must establish absolute backstop standards for imported passenger cars 
and light trucks, in addition to the one for domestically-manufactured 
passenger cars required by EISA. NHTSA examined its statutory authority 
and concluded that only a backstop for domestic passenger cars was 
permissible under the statute.
    For this NPRM, NHTSA has re-examined its authority, and while the 
agency still tentatively concludes that Congress' intent is clear from 
the text of the statute, we recognize commenters' concerns that 
attribute-based standards may not absolutely guarantee the level of 
fuel savings currently anticipated if market forces cause manufacturers 
to build larger vehicles in MYs 2012-2016. Thus, we seek comment on 
this issue, which is discussed in greater detail below in Section 
IV.C.5.
    Should NHTSA classify more vehicles as passenger cars rather than 
as light trucks?
    In the previous rulemaking, many commenters agreed with NHTSA's 
decision to move many 2WD SUVs from the light truck to the passenger 
car fleet, but some commenters argued that NHTSA should go further and 
reclassify more light trucks as passenger cars.
    For this NPRM, NHTSA has reconsidered its vehicle classification 
system and has not included in the proposed regulatory text any changes 
to that system. However, NHTSA seeks comment on whether any changes 
should be adopted for that time period or whether changes, if any, 
should be deferred to MY 2017 and beyond. Classification issues are 
addressed in greater detail in Section IV.H below.
5. Summary of the Proposed MY 2012-2016 CAFE Standards
    NHTSA is proposing CAFE standards that are, like the standards 
NHTSA promulgated in March 2009 for MY 2011, expressed as mathematical 
functions depending on vehicle footprint. Footprint is one measure of 
vehicle size, and is determined by multiplying the vehicle's wheelbase 
by the vehicle's average track width.\433\ Under the proposed CAFE 
standards, each light vehicle model produced for sale in the United 
States would have a fuel economy target. The CAFE levels that must be 
met by the fleet of each manufacturer would be determined by computing 
the sales-weighted harmonic average of the targets applicable to each 
of the manufacturer's passenger cars and light trucks. These targets, 
the mathematical form and coefficients of which are presented later in 
today's notice, appear as follows when the values of the targets are 
plotted versus vehicle footprint:
---------------------------------------------------------------------------

    \433\ See 49 CFR 523.2 for the exact definition of 
``footprint.''

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

[[Page 49638]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.023


[[Page 49639]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.024

    Under these proposed footprint-based CAFE standards, the CAFE 
levels required of individual manufacturers depend, as noted above, on 
the mix of vehicles sold. It is important to note that NHTSA's CAFE 
standards and EPA's GHG standards will both be in effect, and each will 
lead to increases in average fuel economy and CO2 emissions 
reductions. The two agencies' standards together comprise the National 
Program, and this discussion of costs and benefits of NHTSA's CAFE 
standards does not change the fact that both the CAFE and GHG 
standards, jointly, are the source of the benefits and costs of the 
National Program.
    Based on the forecast developed for this NPRM of the MYs 2012-2016 
vehicle fleet, NHTSA estimates that the targets shown above would 
result in the following average required CAFE levels:

                  Table IV.A.5-1--Average Required Fuel Economy (mpg) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................         33.6         34.4         35.2         36.4         38.0
Light Trucks...................................         25.0         25.6         26.2         27.1         28.3
                                                ----------------------------------------------------------------
    Combined...................................         29.8         30.6         31.4         32.6         34.1
----------------------------------------------------------------------------------------------------------------

    For the reader's reference, these miles per gallon would be 
equivalent to the following gallons per 100 miles for passenger cars 
and light trucks:

----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................       2.9762        2.907       2.8409       2.7473       2.6316
Light Trucks...................................          4.0       3.9063       3.8168       3.8168       3.5336
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that average achieved fuel economy levels will 
correspondingly increase through MY 2016, but that manufacturers will, 
on average, undercomply \434\ in some model

[[Page 49640]]

years and overcomply \435\ in others, reaching a combined average fuel 
economy of 33.7 mpg in MY 2016.\436\ Table IV.A.5-1 is the estimated 
required fuel economy for the proposed CAFE standards while Table 
IV.A.5-2 includes the effects of some manufacturers' payment of CAFE 
fines. In addition, Section IV.G.4 below contains an analysis of the 
achieved levels (and projected fuel savings, costs, and benefits) when 
the use of FFV credits is also assumed.
---------------------------------------------------------------------------

    \434\ In NHTSA's analysis, ``undercompliance'' is mitigated 
either through use of FFV credits, use of existing or ``banked'' 
credits, or through fine payment. Because NHTSA cannot consider 
availability of credits in setting standards, the estimated achieved 
CAFE levels presented here do not account for their use. In 
contrast, because NHTSA is not prohibited from considering fine 
payment, the estimated achieved CAFE levels presented here include 
the assumption that BMW, Daimler (i.e., Mercedes), Porsche, and, 
Tata (i.e., Jaguar and Rover) will only apply technology up to the 
point that it would be less expensive to pay civil penalties.
    \435\ In NHTSA's analysis, ``overcompliance'' occurs through 
multi-year planning: manufacturers apply some ``extra'' technology 
in early model years (e.g., MY 2014) in order to carry that 
technology forward and thereby facilitate compliance in later model 
years (e.g., MY 2016)
    \436\ Consistent with EPCA, NHTSA has not accounted for 
manufacturers' ability to earn CAFE credits for selling FFVs, carry 
credits forward and back between model years, and transfer credits 
between the passenger car and light truck fleets.

                  Table IV.A.5-2--Average Achieved Fuel Economy (mpg) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................         32.9         34.2         35.2         36.5         37.6
Light Trucks...................................         24.9         25.7         26.5         27.4         28.1
                                                ----------------------------------------------------------------
    Combined...................................         29.3         30.5         31.5         32.7         33.7
----------------------------------------------------------------------------------------------------------------

    For the reader's reference, these miles per gallon would be 
equivalent to the following gallons per 100 miles for passenger cars 
and light trucks:

----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................       3.0438       2.9267       2.8398       2.7434       2.6623
Light Trucks...................................       4.0241       3.8952       3.7713       3.6495       3.5604
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that these fuel economy increases will lead to fuel 
savings totaling 61.6 billion gallons during the useful lives of 
vehicles sold in MYs 2012-2016:

                      Table IV.A.5-3--Fuel Saved (Billion Gallons) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................          2.5          5.3          7.5          9.4         11.4         36.0
Light Trucks......................          1.8          3.7          5.4          6.8          7.8         25.6
                                   -----------------------------------------------------------------------------
    Combined......................          4.3          9.1         12.9         16.1         19.2         61.6
----------------------------------------------------------------------------------------------------------------

    The agency also estimates that these new CAFE standards will lead 
to corresponding reductions of CO2 emissions totaling 656 
million metric tons (mmt) during the useful lives of vehicles sold in 
MYs 2012-2016:

                 Table IV.A.5-4--Avoided Carbon Dioxide Emissions (mmt) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................           25           56           79           99          121          381
Light Trucks......................           19           40           58           73           85          275
                                   -----------------------------------------------------------------------------
    Combined......................           44           96          137          173          206          656
----------------------------------------------------------------------------------------------------------------

    The agency estimates that these fuel economy increases would 
produce other benefits (e.g., reduced time spent refueling), as well as 
some disbenefits (e.g., increase traffic congestion) caused by drivers' 
tendency to increase travel when the cost of driving declines (as it 
does when fuel economy increases). The agency has estimated the total 
monetary value to society of these benefits and disbenefits, and 
estimates that the proposed standards will produce significant benefits 
to society. NHTSA estimates that, in present value terms, these 
benefits would total $200 billion over the useful lives of vehicles 
sold during MYs 2012-2016:

               Table IV.A.5-5--Present Value of Benefits ($Billion) Under Proposed CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................          7.6         17.0         24.4         31.2         38.7        119.1

[[Page 49641]]

 
Light Trucks......................          5.5         11.6         17.3         22.2         26.0         82.6
                                   -----------------------------------------------------------------------------
    Combined......................         13.1         28.7         41.8         53.4         64.7        201.7
----------------------------------------------------------------------------------------------------------------

    NHTSA attributes most of these benefits--about $157 billion, as 
noted above--to reductions in fuel consumption, valuing fuel (for 
societal purposes) at future pretax prices in the Energy Information 
Administration's (EIA's) reference case forecast from Annual Energy 
Outlook (AEO) 2009. The Preliminary Regulatory Impact Analysis (PRIA) 
accompanying today's proposed rule presents a detailed analysis of 
specific benefits of the proposed rule.

------------------------------------------------------------------------
                                   Amount               $ Value
------------------------------------------------------------------------
Fuel savings................  61.6 billion     $158.0 billion.
                               gallons.
CO2 emissions reductions....  656 million      $16.4 billion.
                               metric tons
                               (mmt).
------------------------------------------------------------------------

    NHTSA estimates that the necessary increases in technology 
application will involve considerable monetary outlays, totaling $62.5 
billion in incremental outlays (i.e., beyond those attributable to the 
MY 2011 standards) by new vehicle purchasers during MYs 2012-2016:

                Table IV.A.5-6--Incremental Technology Outlays ($b) Under Proposed CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                        2012         2013         2014         2015         2016        Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars....................          4.1          6.5          8.4          9.9         11.8         40.8
Light Trucks......................          1.5          2.8          4.0          5.2          5.9         19.4
                                   -----------------------------------------------------------------------------
    Combined......................          5.7          9.3         12.5         15.1         17.6         60.2
----------------------------------------------------------------------------------------------------------------

    Corresponding to these outlays and, to a much lesser extent, civil 
penalties that some companies are expected to pay for noncompliance, 
the agency estimates that the proposed standards would lead to 
increases in average new vehicle prices, ranging from $476 per vehicle 
in MY 2012 to $1,091 per vehicle in MY 2016:

      Table IV.A.5-7--Incremental Increases in Average New Vehicle Prices ($) Under Proposed CAFE Standards
----------------------------------------------------------------------------------------------------------------
                                                     2012         2013         2014         2015         2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars.................................          591          735          877          979        1,127
Light Trucks...................................          283          460          678          882        1,020
----------------------------------------------------------------------------------------------------------------
    Combined...................................          476          635          806          945        1,091
----------------------------------------------------------------------------------------------------------------

    Tables IV.A.5-8 and IV.A.5-9 below present itemized costs and 
benefits for a 3 percent and a 7 percent discount rate, respectively, 
for the combined fleet (passenger cars and light trucks) in each model 
year and for all model years combined. Numbers in parentheses represent 
negative values.

      Table IV.A.5-8--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 3% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                  2012          2013          2014          2015          2016          Total
----------------------------------------------------------------------------------------------------------------
Costs:
    Technology Costs........       $5,695        $9,295       $12,454       $15,080       $17,633       $60,157
Benefits:
    Lifetime Fuel                 $10,197       $22,396       $32,715       $41,880       $50,823      $158,012
     Expenditures...........
    Consumer Surplus from            $751        $1,643        $2,389        $3,029        $3,639       $11,451
     Additional Driving.....
    Refueling Time Value....         $776        $1,551        $2,198        $2,749        $3,277       $10,550
    Petroleum Market                 $559        $1,194        $1,700        $2,129        $2,538        $8,121
     Externalities..........
    Congestion Costs........        ($460)        ($934)      ($1,332)      ($1,657)      ($1,991)      ($6,376)
    Noise Costs.............          ($7)         ($14)         ($21)         ($26)         ($31)         ($99)
    Crash Costs.............        ($217)        ($437)        ($625)        ($776)        ($930)      ($2,985)
    CO2.....................       $1,028        $2,287        $3,382        $4,376        $5,372       $16,446
    CO......................           $0            $0            $0            $0            $0            $0
    VOC.....................          $41           $80          $108          $131          $156          $518
    NOX.....................          $82          $132          $155          $174          $200          $744
    PM......................         $220          $438          $621          $771          $904        $2,956

[[Page 49642]]

 
    SOX.....................         $161          $345          $490          $613          $731        $2,341
                             -----------------------------------------------------------------------------------
        Total...............      $13,132       $28,680       $41,781       $53,394       $64,687      $201,676
                             ===================================================================================
            Net Benefits....       $7,044       $18,759       $27,090       $34,710       $41,386      $128,992
----------------------------------------------------------------------------------------------------------------


      Table IV.A.5-9--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 7% Discount Rate
----------------------------------------------------------------------------------------------------------------
                                  2012          2013          2014          2015          2016          Total
----------------------------------------------------------------------------------------------------------------
Costs:
    Technology Costs........       $5,695        $9,295       $12,454       $15,080       $17,633       $60,157
Benefits:
    Lifetime Fuel                  $7,991       $17,671       $25,900       $33,264       $40,478      $125,305
     Expenditures...........
    Consumer Surplus from            $590        $1,301        $1,896        $2,412        $2,904        $9,102
     Additional Driving.....
    Refueling Time Value....         $624        $1,249        $1,770        $2,215        $2,642        $8,500
    Petroleum Market                 $448          $960        $1,367        $1,712        $2,043        $6,531
     Externalities..........
    Congestion Costs........        ($371)        ($753)      ($1,074)      ($1,335)      ($1,606)      ($5,138)
    Noise Costs.............          ($6)         ($12)         ($16)         ($21)         ($24)         ($80)
    Crash Costs.............        ($173)        ($352)        ($503)        ($626)        ($749)      ($2,403)
    CO2.....................         $797        $1,781        $2,634        $3,410        $4,189       $12,813
    CO......................           $0            $0            $0            $0            $0            $0
    VOC.....................          $33           $65           $87          $106          $125          $416
    NOX.....................          $60           $99          $120          $135          $156          $570
    PM......................         $170          $344          $492          $613          $721        $2,339
    SOX.....................         $129          $278          $394          $493          $588        $1,882
                             -----------------------------------------------------------------------------------
        Total...............      $10,292       $22,631       $33,066       $42,380       $51,468      $159,837
                             ===================================================================================
            Net Benefits....       $4,281       $12,832       $18,818       $24,414       $29,293       $89,638
----------------------------------------------------------------------------------------------------------------

    Neither EPCA nor EISA requires that NHTSA conduct a cost-benefit 
analysis in determining average fuel economy standards, but too, 
neither precludes its use.\437\ EPCA does require that NHTSA consider 
economic practicability among other factors, and NHTSA has concluded, 
as discussed elsewhere herein, that the standards it proposes today are 
economically practicable. Further validating and supporting its 
conclusion that the standards it proposes today are reasonable, a 
comparison of the standards' costs and benefits shows that the 
standards' estimated benefits far outweigh its estimated costs. Based 
on the figures reported above, NHTSA estimates that the total benefits 
of today's proposed standards would be more three times the magnitude 
of the corresponding costs, such that the proposed standards would 
produce net benefits of nearly $138 billion over the useful lives of 
vehicles sold during MYs 2012-2016.
---------------------------------------------------------------------------

    \437\ Center for Biological Diversity v. NHTSA, 508 F.3d 508 
(9th Cir. 2007) (rejecting argument that EPCA precludes the use of a 
marginal cost-benefit analysis that attempted to weigh all of the 
social benefits (i.e., externalities as well as direct benefits to 
consumers) of improved fuel savings in determining the stringency of 
the CAFE standards). See also Entergy Corp. v. Riverkeeper, Inc., 
129 S.Ct. 1498, 1508 (2009) (``[U]nder Chevron, that an agency is 
not required to [conduct a cost-benefit analysis] does not mean that 
an agency is not permitted to do so.'')
---------------------------------------------------------------------------

B. Background

1. Chronology of Events Since the National Academy of Sciences Called 
for Reforming and Increasing CAFE Standards
a. National Academy of Sciences Issues Report on Future of CAFE Program 
(February 2002)
i. Significantly Increasing CAFE Standards Without Making Them 
Attribute-Based Would Adversely Affect Safety
    In the 2002 congressionally-mandated report entitled 
``Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards,'' \438\ a committee of the National Academy of Sciences 
(NAS) (``2002 NAS Report'') concluded that the then-existing form of 
passenger car and light truck CAFE standards permitted vehicle 
manufacturers to comply in part by downweighting and even downsizing 
their vehicles and that these actions had led to additional fatalities. 
The committee explained that this safety problem arose because, at that 
time, the CAFE standards were not attributed-based and thus subjected 
all passenger cars to the same fuel economy target and all light trucks 
to the same target, regardless of their weight, size, or load-carrying 
capacity.\439\ The committee said that this experience suggests that 
consideration should be given to developing a new system of fuel 
economy targets that reflects differences in such vehicle attributes. 
Without a thoughtful restructuring of the program, there would be the 
trade-offs that must be made if CAFE standards were increased by any 
significant amount.\440\
---------------------------------------------------------------------------

    \438\ National Research Council, ``Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy 
Press, Washington, DC (2002). Available at http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed August 9, 2009). The 
conference committee report for the Department of Transportation and 
Related Agencies Appropriations Act for FY 2001 (Pub. L. 106-346) 
directed NHTSA to fund a study by NAS to evaluate the effectiveness 
and impacts of CAFE standards (H. Rep. No. 106-940, p. 117-118). In 
response to the direction from Congress, NAS published this lengthy 
report.
    \439\ NHTSA formerly used this approach for CAFE standards. EISA 
prohibits its use after MY 2010.
    \440\ NAS, p. 9.
---------------------------------------------------------------------------

    In response to these conclusions, NHTSA issued attribute-based CAFE 
standards for light trucks and sought legislative authority to issue 
attribute-based CAFE standards for passenger cars before undertaking to 
raise the car

[[Page 49643]]

standards. Congress went a step further in enacting EISA, not only 
authorizing the issuance of attribute-based standards, but also 
mandating them.
ii. Climate Change and Other Externalities Justify Increasing the CAFE 
Standards
    The NAS committee said that there are two compelling concerns that 
justify a government-mandated increase in fuel economy, both relating 
to externalities. The first and most important concern, it argued, is 
the accumulation in the atmosphere of greenhouse gases, principally 
carbon dioxide.\441\
---------------------------------------------------------------------------

    \441\ NAS, pp. 2, 13, and 83.
---------------------------------------------------------------------------

    A second concern is that petroleum imports have been steadily 
rising because of the nation's increasing demand for gasoline without a 
corresponding increase in domestic supply. The high cost of oil imports 
poses two risks: Downward pressure on the strength of the dollar (which 
drives up the cost of goods that Americans import) and an increase in 
U.S. vulnerability to macroeconomic shocks that cost the economy 
considerable real output.
    To determine how much the fuel economy standards should be 
increased, the committee urged that all social benefits be considered. 
That is, it urged not only that the dollar value of the saved fuel be 
considered, but also that the dollar value to society of the resulting 
reductions in greenhouse gas emissions and in dependence on imported 
oil should be calculated and considered. The committee said that if it 
is possible to assign dollar values to these favorable effects, it 
becomes possible to make at least crude comparisons between the 
socially beneficial effects of measures to improve fuel economy on the 
one hand, and the costs (both out-of-pocket and more subtle) on the 
other.
iii. Reforming the CAFE Program Could Address Inequity Arising From the 
CAFE Structure
    The 2002 NAS report expressed concerns about increasing the 
standards under the CAFE program as 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.\442\
---------------------------------------------------------------------------

    \442\ NAS, pp. 4-5 (Finding 10).
---------------------------------------------------------------------------

    To address those structural problems, the report suggested various 
possible reforms. The report found that the ``CAFE program might be 
improved significantly by converting it to a system in which fuel 
targets depend on vehicle attributes.''\443\ 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.\444\
---------------------------------------------------------------------------

    \443\ NAS, p. 5 (Finding 12).
    \444\ NAS, p. 87.
---------------------------------------------------------------------------

2. NHTSA Issues Final Rule Establishing Attribute-Based CAFE Standards 
for MY 2008-2011 Light Trucks (March 2006)
    The 2006 final rule reformed the structure of the CAFE program for 
light trucks by introducing an attribute-based approach and using that 
approach to establish higher CAFE standards for MY 2008-2011 light 
trucks.\445\ Reforming the CAFE program enables it to achieve larger 
fuel savings, while enhancing safety and preventing adverse economic 
consequences.
---------------------------------------------------------------------------

    \445\ 71 FR 17566 (Apr. 6, 2006).
---------------------------------------------------------------------------

    As noted above, under Reformed CAFE, fuel economy standards were 
restructured so that they are based on a vehicle attribute, a measure 
of vehicle size called ``footprint.'' It is the product of multiplying 
a vehicle's wheelbase by its track width. A target level of fuel 
economy was established for each increment in footprint (0.1 ft\2\). 
Trucks with smaller footprints have higher fuel economy targets; 
conversely, larger ones have lower targets. A particular manufacturer's 
compliance obligation for a model year is calculated as the harmonic 
average of the fuel economy targets for the manufacturer's vehicles, 
weighted by the distribution of the manufacturer's production volumes 
among the footprint increments. Thus, each manufacturer is required to 
comply with a single overall average fuel economy level for each model 
year of production.
    Compared to Unreformed (non-attributed-based) CAFE, Reformed CAFE 
enhances overall fuel savings while providing vehicle manufacturers 
with the flexibility they need to respond to changing market 
conditions. Reformed CAFE also provides a more equitable regulatory 
framework by creating a level playing field for manufacturers, 
regardless of whether they are full-line or limited-line manufacturers. 
We were particularly encouraged that Reformed CAFE will confer no 
compliance advantage if vehicle makers choose to downsize some of their 
fleet as a CAFE compliance strategy, thereby reducing the adverse 
safety risks associated with the Unreformed CAFE program.
3. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011 Light 
Trucks (November 2007)
    On November 15, 2007, the United States Court of Appeals for the 
Ninth Circuit issued its decision in Center for Biological Diversity v. 
NHTSA,\446\ the challenge to the MY 2008-11 light truck CAFE rule. The 
court held that EPCA permits, but does not require, the use of a 
marginal cost-benefit analysis. The court specifically emphasized 
NHTSA's discretion to decide how to balance the statutory factors--as 
long as that balancing does not undermine the fundamental statutory 
purpose of energy conservation.
---------------------------------------------------------------------------

    \446\ 508 F.3d 508.
---------------------------------------------------------------------------

    However, the Court found that NHTSA had been arbitrary and 
capricious in the following respects:
     NHTSA's decision that it could not monetize the benefit of 
reducing CO2 emissions for the purpose of conducting its 
marginal benefit-cost analysis;
     NHTSA's lack, in the Court's view, of a reasoned 
explanation for its decision not to establish a ``backstop'' (i.e., a 
fixed minimum CAFE standard applicable to manufacturers);
     NHTSA's lack, again in the Court's view, of a reasoned 
explanation for its decision not to revise the regulatory definitions 
for the passenger car and light truck categories of automobiles so that 
some vehicles currently classified as light trucks are instead 
classified as passenger cars;
     NHTSA's decision not to subject most medium- and heavy-
duty pickups and most medium- and heavy-duty cargo vans (i.e., those 
between 8,500 and 10,000 pounds gross vehicle weight rating (GVWR,) to 
the CAFE standards;
     NHTSA's decision to prepare and publish an Environmental 
Assessment (EA) and making a finding of no significant impact 
notwithstanding what the Court found to be an insufficiently broad 
range of alternatives, insufficient analysis of the climate change 
effects of the CO2 emissions, and limited assessment of 
cumulative impacts in its EA under the National Environmental Policy 
Act (NEPA).
    The Court did not vacate the standards, but instead said it would 
remand the rule to NHTSA to

[[Page 49644]]

promulgate new standards consistent with its opinion ``as expeditiously 
as possible and for the earliest model year practicable.\447\ Under the 
decision, the standards established by the April 2006 final rule would 
remain in effect unless and until amended by NHTSA. In addition, it 
directed the agency to prepare an Environmental Impact Statement.
---------------------------------------------------------------------------

    \447\ The deadline in EPCA for issuing a final rule 
establishing, for the first time, a CAFE standard for a model year 
is 18 months before the beginning of that model year. 49 U.S.C. 
32902(g)(2). The same deadline applies to issuing a final rule 
amending an existing CAFE standard so as to increase its stringency. 
Given that the agency has long regarded October 1 as the beginning 
of a model year, the statutory deadline for increasing the MY 2009 
standard was March 30, 2007, and the deadline for increasing the MY 
2010 standard is March 30, 2008. Thus, the only model year for which 
there was sufficient time at the time of the Court's decision to 
gather all of the necessary information, conduct the necessary 
analyses and complete a rulemaking was MY 2011. As noted earlier in 
this notice, however, EISA requires that a new standard be 
established for that model year.
---------------------------------------------------------------------------

4. Congress Enacts Energy Security and Independence Act of 2007 
(December 2007)
    As noted above in Section I.B., EISA significantly changed the 
provisions of EPCA governing the establishment of future CAFE 
standards. These changes made it necessary for NHTSA to pause in its 
efforts so that it could assess the implications of the amendments made 
by EISA and then, as required, revise some aspects of the proposals it 
had been developing (e.g., the model years covered and credit issues).
5. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008)
    The agency cannot set out the exact level of CAFE that each 
manufacturer would have been required to meet for each model year under 
the passenger car or light truck standards since the levels would 
depend on information that would not be available until the end of each 
of the model years, i.e., the final actual production figures for each 
of those years. The agency can, however, project what the industry-wide 
level of average fuel economy would have been for passenger cars and 
for light trucks if each manufacturer produced its expected mix of 
automobiles and just met its obligations under the proposed 
``optimized'' standards for each model year.

------------------------------------------------------------------------
                                                 Passenger      Light
                                                  cars mpg    trucks mpg
------------------------------------------------------------------------
MY 2011.......................................         31.2         25.0
MY 2012.......................................         32.8         26.4
MY 2013.......................................         34.0         27.8
MY 2014.......................................         34.8         28.2
MY 2015.......................................         35.7         28.6
------------------------------------------------------------------------

    The combined industry-wide average fuel economy (in miles per 
gallon, or mpg) levels for both cars and light trucks, if each 
manufacturer just met its obligations under the proposed ``optimized'' 
standards for each model year, would have been as follows:

------------------------------------------------------------------------
                                                               Combined
                                                                 mpg
------------------------------------------------------------------------
MY 2011....................................................         27.8
MY 2012....................................................         29.2
MY 2013....................................................         30.5
MY 2014....................................................         31.0
MY 2015....................................................         31.6
------------------------------------------------------------------------

    The annual average increase during this five year period would have 
been approximately 4.5 percent. Due to the uneven distribution of new 
model introductions during this period and to the fact that significant 
technological changes could be most readily made in conjunction with 
those introductions, the annual percentage increases were greater in 
the early years in this period.
6. Ninth Circuit Revises its Decision re Final Rule for MY 2008-2011 
Light Trucks (August 2008)
    In response to the Government petition for rehearing, the Ninth 
Circuit modified its decision by replacing its direction to prepare an 
EIS with a direction to prepare either a new EA or, if necessary, an 
EIS.\448\
---------------------------------------------------------------------------

    \448\ See CBD v. NHTSA, 538 F.3d 1172 (9th Cir. 2008).
---------------------------------------------------------------------------

7. NHTSA Releases Final Environmental Impact Statement (October 2008)
    On October 17, 2008, EPA published a notice announcing the 
availability of NHTSA's final environmental impact statement (FEIS) for 
this rulemaking.\449\ Throughout the FEIS, NHTSA relied extensively on 
findings of the United Nations Intergovernmental Panel on Climate 
Change (IPCC) and the U.S. Climate Change Science Program (USCCSP). In 
particular, the agency relied heavily on the most recent, thoroughly 
peer-reviewed, and credible assessments of global climate change and 
its impact on the United States: the IPCC Fourth Assessment Report 
Working Group I4 and II5 Reports, and reports by the USCCSP that 
include Scientific Assessments of the Effects of Global Climate Change 
on the United States and Synthesis and Assessment Products.
---------------------------------------------------------------------------

    \449\ 73 FR 61859 (Oct. 18, 2008).
---------------------------------------------------------------------------

    In the FEIS, NHTSA compared the environmental impacts of its 
preferred alternative and those of reasonable alternatives. It 
considered direct, indirect, and cumulative impacts and describes these 
impacts to inform the decisionmaker and the public of the environmental 
impacts of the various alternatives.
    Among other potential impacts, NHTSA analyzed the direct and 
indirect impacts related to fuel and energy use, emissions, including 
carbon dioxide and its effects on temperature and climate change, air 
quality, natural resources, and the human environment. Specifically, 
the FEIS used a climate model to estimate and report on four direct and 
indirect effects of climate change, driven by alternative scenarios of 
GHG emissions, including:
    1. Changes in CO2 concentrations;
    2. Changes in global mean surface temperature;
    3. Changes in regional temperature and precipitation; and
    4. Changes in sea level.
    NHTSA also considered the cumulative impacts of the proposed 
standards for MY 2011-2015 passenger cars and light trucks, together 
with estimated impacts of NHTSA's implementation of the CAFE program 
through MY 2010 and NHTSA's future CAFE rulemaking for MYs 2016-2020.
8. Department of Transportation Decides not to Issue MY 2011-2015 Final 
Rule (January 2009)
    On January 7, 2009, the Department of Transportation announced that 
the Bush Administration would not issue the final rule, notwithstanding 
the Office of Information and Regulatory Affairs' completion of review 
of the rule under Executive Order 12866, Regulatory Planning and 
Review, on November 14, 2008.\450\
---------------------------------------------------------------------------

    \450\ The statement can be found at http://www.dot.gov/affairs/dot0109.htm (last accessed August 9, 2009).
---------------------------------------------------------------------------

9. The President Requests NHTSA to Issue Final Rule for MY 2011 Only 
(January 2009)
    As explained above, in his memorandum of January 26, 2009, the 
President requested the agency to issue a final rule adopting CAFE 
standards for MY 2011 only. Further, the President requested NHTSA to 
establish standards for MY 2012 and later after considering the 
appropriate legal factors, the comments filed in response to the May 
2008 proposal, the relevant technological and scientific 
considerations, and, to the extent feasible, a forthcoming report by 
the

[[Page 49645]]

National Academy of Sciences assessing automotive technologies that can 
practicably be used to improve fuel economy.
10. NHTSA Issues Final Rule for MY 2011 (March 2009)
a. Introduction
    NHTSA's review and analysis of comments on its proposal led the 
agency to make many changes to its methods for analyzing potential MY 
2011 CAFE standards, as well as to the data and other information to 
which the agency has applied these methods. The following are some of 
the more prominent changes:
     After receiving, reviewing, and integrating updated 
product plans from vehicle manufacturers, NHTSA revised its forecast of 
the future light vehicle market.
     NHTSA changed the methods and inputs it used to represent 
the applicability, availability, cost, and effectiveness of future 
fuel-saving technologies.
     NHTSA based its fuel price forecast on the AEO 2008 High 
Case price scenario instead of the AEO 2008 Reference Case.
     NHTSA reduced mileage accumulation estimates (i.e., 
vehicle miles traveled) to levels consistent with this increased fuel 
price forecast.
     NHTSA applied increased estimates for the value of oil 
import externalities.
     NHTSA included all manufacturers--not just the largest 
seven--in the process used to fit the curve and estimate the stringency 
at which societal net benefits are maximized.
     NHTSA tightened its application of the definition of 
``nonpassenger automobiles,'' causing a reassigning of over one million 
vehicles from the light truck fleet to the passenger car fleet, and 
lowering the average fuel economy for cars due to the inclusion of 
vehicles previously categorized as trucks, as well as the average fuel 
economy for trucks because the truck category then had a larger 
proportion of heavier trucks.
     NHTSA fitted the shape of the curve based on 
``exhaustion'' of available technologies instead of on manufacturer-
level optimization of CAFE levels.
    These changes affected both the shape and stringency of the 
attribute-based standards. Taken together, the last three of the above 
changes reduced the steepness of the curves defining fuel economy 
targets for passenger cars, and also less significantly reduced the 
steepness of the light truck curves.
b. Standards
    The final rule established footprint-based fuel economy standards 
for MY 2011 passenger cars and light trucks, where each vehicle 
manufacturer's required level of CAFE was based on target levels of 
average fuel economy set for vehicles of different sizes and on the 
distribution of that manufacturer's vehicles among those sizes. The 
curves defining the performance target at each footprint reflect the 
technological and economic capabilities of the industry. The target for 
each footprint is the same for all manufacturers, regardless of 
differences in their overall fleet mix. Compliance would be determined 
by comparing a manufacturer's harmonically averaged fleet fuel economy 
levels in a model year with a required fuel economy level calculated 
using the manufacturer's actual production levels and the targets for 
each footprint of the vehicles that it produces.
    The agency analyzed seven regulatory alternatives, one of which 
maximizes net benefits within the limits of available information and 
was known at the time as the ``optimized standards.'' The optimized 
standards were set at levels, such that, considering all of the 
manufacturers together, no other alternative is estimated to produce 
greater net benefits to society. Upon a considered analysis of all 
information available, including all information submitted to NHTSA in 
comments, the agency adopted the ``optimized standard'' alternative as 
the final standards for MY 2011.\451\ By limiting the standards to 
levels that can be achieved using technologies each of which are 
estimated to provide benefits that at least equal its costs, the net 
benefit maximization approach helped, at the time, to assure the 
marketability of the manufacturers' vehicles and thus economic 
practicability of the standards. Providing this assurance assumed 
increased importance in view of current and anticipated conditions in 
the industry in particular and the economy in general. As was widely 
reported in the public domain throughout that rulemaking, and as shown 
in public comments, the national and global economies raised serious 
concerns. Even before those recent developments, the automobile 
manufacturers were already facing substantial difficulties. Together, 
these problems made NHTSA's economic practicability analysis 
particularly important and challenging in that rulemaking.
---------------------------------------------------------------------------

    \451\ The agency notes, for NEPA purposes, that the ``optimized 
standard'' alternative adopted as the final standards corresponds to 
the ``Optimized Mid-2'' scenario described in Section 2.2.2 of the 
FEIS.
---------------------------------------------------------------------------

    The agency could not set out the exact level of CAFE that each 
manufacturer would be required to meet for MY 2011 under the passenger 
car or light truck standards because the levels will depend on 
information that will not be available until the end of that model 
year, i.e., the final actual production figures for that year. However, 
the following levels were projected for what the industry-wide level of 
average fuel economy will be for passenger cars and for light trucks if 
each manufacturer produced its expected mix of automobiles and just met 
its obligations under the ``optimized'' standards.

------------------------------------------------------------------------
                                                 Passenger      Light
                                                  cars mpg    trucks mpg
------------------------------------------------------------------------
MY 2011.......................................         30.2         24.1
------------------------------------------------------------------------

    The combined industry-wide average fuel economy (in miles per 
gallon, or mpg) levels for both cars and light trucks, if each 
manufacturer just met its obligations under the ``optimized'' 
standards, were projected as follows:

------------------------------------------------------------------------
                                                                 mpg
                                                  Combined     increase
                                                    mpg       over prior
                                                                 year
------------------------------------------------------------------------
MY 2011.......................................         27.3          2.0
------------------------------------------------------------------------

    In addition, per EISA, each manufacturer's domestic passenger fleet 
is required in MY 2011 to achieve 27.5 mpg or 92 percent of the CAFE of 
the industry-wide combined fleet of domestic and non-domestic passenger 
cars \452\ for that model year, whichever is higher. This requirement 
resulted in the following projected alternative minimum standard (not 
attribute-based) for domestic passenger cars:
---------------------------------------------------------------------------

    \452\ Those numbers set out several paragraphs above.

------------------------------------------------------------------------
                                                               Domestic
                                                              passenger
                                                               cars mpg
------------------------------------------------------------------------
MY 2011....................................................         27.8
------------------------------------------------------------------------

c. Credits
    NHTSA also adopted a new Part 536 on use of ``credits'' earned for 
exceeding applicable CAFE standards. Part 536 implements the provisions 
in EISA authorizing NHTSA to establish by regulation a credit trading 
program and directing it to establish by regulation a credit transfer 
program.\453\ Since its

[[Page 49646]]

enactment, EPCA has permitted manufacturers to earn credits for 
exceeding the standards and to apply those credits to compliance 
obligations in years other than the model year in which it was earned. 
EISA extended the ``carry-forward'' period to five model years, and 
left the ``carry-back'' period at three model years. Under Part 536, 
credit holders (including, but not limited to, manufacturers) will have 
credit accounts with NHTSA, and will be able to hold credits, apply 
them to compliance with CAFE standards, transfer them to another 
``compliance category'' for application to compliance there, or trade 
them. A credit may also be cancelled before its expiry date, if the 
credit holder so chooses. Traded and transferred credits will be 
subject to an ``adjustment factor'' to ensure total oil savings are 
preserved, as required by EISA. EISA also prohibits credits earned 
before MY 2011 from being transferred, so NHTSA has developed several 
regulatory restrictions on trading and transferring to facilitate 
Congress' intent in this regard.
---------------------------------------------------------------------------

    \453\ Congress required that DOT establish a credit 
``transferring'' regulation, to allow individual manufacturers to 
move credits from one of their fleets to another (e.g., using a 
credit earned for exceeding the light truck standard for compliance 
with the domestic passenger car standard). Congress allowed DOT to 
establish a credit ``trading'' regulation, so that credits may be 
bought and sold between manufacturers and other parties.
---------------------------------------------------------------------------

11. Energy Policy and Conservation Act, as Amended by the Energy 
Independence and Security Act
    NHTSA's statutory authority and obligations under the Energy Policy 
and Conservation Act of 1975 (EPCA), as amended by the Energy 
Independence and Security Act of 2007 (EISA), is discussed at length 
above in Section I.B.1.

C. Development and Feasibility of the Proposed Standards

1. How Was the Baseline Vehicle Fleet Developed?
a. Why Do the Agencies Establish a Baseline Vehicle Fleet?
    In order to determine what levels of stringency are feasible in 
future model years, the agencies must project what vehicles will exist 
in those model years, and then evaluate what technologies can feasibly 
be applied to those vehicles in order to raise their fuel economy and 
lower their CO2 emissions. The agencies therefore establish 
a baseline vehicle fleet representing those vehicles, based on the best 
available information. Each agency then developed a separate reference 
fleet, accounting (via their respective models) for the effect that the 
MY 2011 CAFE standards have on the baseline fleet. This reference fleet 
is then used for comparisons of technologies' incremental cost and 
effectiveness, as well as the other relevant comparisons in the rule.
b. What Data Did the Agencies Use To Construct the Baseline, and How 
Did They Do So?
    As explained in the Technical Support Document (TSD) prepared 
jointly by NHTSA and EPA, both agencies used a baseline vehicle fleet 
constructed beginning with EPA fuel economy certification data for the 
2008 model year, the most recent for which final data is currently 
available from manufacturers. This data was used as the source for MY 
2008 production volumes and some vehicle engineering characteristics, 
such fuel economy ratings, engine sizes, numbers of cylinders, and 
transmission types.
    Some information important for analyzing new CAFE standards is not 
contained in the EPA fuel economy certification data. EPA staff 
estimated vehicle wheelbase and track widths using data from 
Motortrend.com and Edmunds.com. This information is necessary for 
estimating vehicle footprint, which is required for the analysis of 
footprint-based standards. Considerable additional information 
regarding vehicle engineering characteristics is also important for 
estimating the potential to add new technologies in response to new 
CAFE standards. In general, such information helps to avoid ``adding'' 
technologies to vehicles that already have the same or a more advanced 
technology. Examples include valvetrain configuration (e.g., OHV, SOHC, 
DOHC), presence of cylinder deactivation, and fuel delivery (e.g., 
MPFI, SIDI). To the extent that such engineering characteristics were 
not available in certification data, EPA staff relied on data published 
by Ward's Automotive, supplementing this with information from Internet 
sites such as Motortrend.com and Edmunds.com. NHTSA staff also added 
some more detailed engineering characteristics (e.g, type of variable 
valve timing) using data available from ALLDATA[reg] Online. Combined 
with the certification data, all of this information yielded a MY 2008 
baseline vehicle fleet.
    After the baseline was created the next step was to project the 
sales volumes for 2011-2016 model years. EPA used projected car and 
truck volumes for this period from Energy Information Administration's 
(EIA's) 2009 Annual Energy Outlook (AEO).\454\ However, AEO projects 
sales only at the car and truck level, not at the manufacturer and 
model-specific level, which are needed in order to estimate the effects 
new standards will have on individual manufacturers. Therefore, EPA 
purchased data from CSM-Worldwide and used their projections of the 
number of vehicles of each type predicted to be sold by manufacturers 
in 2011-2015.\455\ This provided the year-by-year percentages of cars 
and trucks sold by each manufacturer as well as the percentages of each 
vehicle segment. Although it was, therefore, necessary to assume the 
same manufacturer and segment shares in 2016 as in 2015, 2016 estimates 
from CSM should be available for the final rule. Using these 
percentages normalized to the AEO projected volumes then provided the 
manufacturer-specific market share and model-specific sales for model 
years 2011-2016.
---------------------------------------------------------------------------

    \454\ Available at http://www.eia.doe.gov/oiaf/aeo/index.html. 
The agencies have also used fuel price forecasts from AEO2009. Both 
agencies regard AEO a credible source not only of such forecasts, 
but also of many underlying forecasts, including forecasts of the 
size the future light vehicle market.
    \455\ EPA also considered other sources of similar information, 
such as J.D. Powers, and concluded that CSM was better able to 
provide forecasts at the requisite level of detail for most of the 
model years of interest.
---------------------------------------------------------------------------

    The processes for constructing the MY 2008 baseline vehicle fleet 
and subsequently adjusting sales volumes to construct the MY 2011-2016 
baseline vehicle fleet are presented in detail in Chapter 1 of the 
draft Joint Technical Support Document accompanying today's notice.
c. How Is This Different From NHTSA's Historical Approach and Why is 
This Approach Preferable?
    As discussed above in Section II.B.3, NHTSA has historically based 
its analysis of potential new CAFE standards on detailed product plans 
the agency has requested from manufacturers planning to produce light 
vehicles for sale in the United States. In contrast, the current market 
forecast is based primarily on information sources which are all either 
in the public domain or available commercially. There are advantages to 
this approach, namely transparency and the potential to reduce some 
errors due to manufacturers' misunderstanding of NHTSA's request for 
information. There are also disadvantages, namely that the current 
market forecast does not represent certain changes likely to occur in 
the future vehicle fleet as opposed to the MY 2008 vehicle fleet, such 
as vehicles being discontinued and newly introduced. On balance, 
however, the agencies have carefully considered these

[[Page 49647]]

advantages and disadvantages of using a market forecast derived from 
public and commercial sources rather than from manufacturers' product 
plans, and conclude that the advantages outweigh the disadvantages.
    Nevertheless, the agencies are hopeful that manufacturers will, in 
the future, agree to make public their plans regarding model years that 
are very near, such as MY 2010 or perhaps MY 2011, so that this 
information can be incorporated into an analysis that is available for 
public review and comment. In any event, because NHTSA and EPA are 
releasing market inputs used in the agencies' respective analyses, 
manufacturers, suppliers, and other automobile industry observers and 
participants can submit comments on how these inputs should be revised, 
as can all other reviewers. More information on the advantages and 
disadvantages of the current approach and the agencies' decision to 
follow it is available in Section II.B.3.
d. How Is This Baseline Different Quantitatively From the Baseline That 
NHTSA Used for the MY 2011 (March 2009) Final Rule?
    As discussed above, the current baseline was developed from 
adjusted MY 2008 compliance data and covers MYs 2011-2016, while the 
baseline that NHTSA used for the MY 2011 CAFE rule was developed from 
confidential manufacturer product plans for MY 2011. This section 
describes, for the reader's comparison, some of the differences between 
the current baseline and the MY 2011 CAFE rule baseline.
    Estimated vehicle sales:
    The sales forecasts, based on the Energy Information 
Administration's (EIA's) Annual Energy Outlook 2009 (AEO 2009), used in 
the current baseline indicate that the total number of light vehicles 
expected to be sold during MYs 2011-2015 is 77 million, or about 15.4 
million vehicles annually. NHTSA's MY 2011 final rule forecast, based 
on AEO 2008, of the total number of light vehicles likely to be sold 
during MY 2011 through MY 2015 was 83 million, or about 16.6 million 
vehicles annually. Light trucks are expected to make up 40 percent of 
the MY 2011 baseline market forecast in the current baseline, compared 
to 42 percent of the baseline market forecast in the MY 2011 final 
rule. These changes in both the overall size of the light vehicle 
market and the relative market shares of passenger cars and light 
trucks reflect changes in the economic forecast underlying AEO, and 
changes in AEO's forecast of future fuel prices.
    The figures below attempt to demonstrate graphically the difference 
between the variation of fuel economy with footprint for passenger cars 
under the current baseline and MY 2011 final rule, and for light trucks 
under the current baseline and MY 2011 final rule, respectively. 
Figures IV.C.1-1 and 1-2 show the variation of fuel economy with 
footprint for passenger car models in the current baseline and in the 
MY 2011 final rule, while Figures IV.C.1-3 and 1-4 show the variation 
of fuel economy with footprint for light truck models in the current 
baseline and in the MY 2011 final rule. However, it is difficult to 
draw meaningful conclusions by comparing figures from the current 
baseline with those of the MY 2011 final rule. In the current baseline 
the number of make/models, and their associated fuel economy and 
footprint, are fixed and do not vary over time--this is why the number 
of data points in the current baseline figures appears smaller as 
compared to the number of data points in the MY 2011 final rule 
baseline. In contrast, the baseline fleet used in the MY 2011 final 
rule varies over time as vehicles (with different fuel economy and 
footprint characteristics) are added to and dropped from the product 
mix.
[GRAPHIC] [TIFF OMITTED] TP28SE09.025


[[Page 49648]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.026

[GRAPHIC] [TIFF OMITTED] TP28SE09.027


[[Page 49649]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.028

    Estimated manufacturer market shares:
    NHTSA's expectations regarding manufacturers' market shares (the 
basis for which is discussed below) have also changed since the MY 2011 
final rule. These changes are reflected below in Table IV.C.1-1, which 
shows the agency's sales forecasts for passenger cars and light trucks 
under the current baseline and the MY 2011 final rule.\456\
---------------------------------------------------------------------------

    \456\ As explained below, although NHTSA normalized each 
manufacturer's overall market share to produce a realistically-sized 
fleet, the product mix for each manufacturer that submitted product 
plans was preserved. The agency has reviewed manufacturers' product 
plans in detail, and understands that manufacturers do not sell the 
same mix of vehicles in every model year.

                                         Table IV.C.1-1--Sales Forecasts
                              [Production for U.S. sale in MY 2011, thousand units]
----------------------------------------------------------------------------------------------------------------
                                                                 Current baseline          MY 2011 final rule
                       Manufacturer                        -----------------------------------------------------
                                                             Passenger   Nonpassenger   Passenger   Nonpassenger
----------------------------------------------------------------------------------------------------------------
Chrysler..................................................          194           403          707         1,216
Ford......................................................        1,230           944        1,615         1,144
General Motors............................................        1,156         1,314        1,700         1,844
Honda.....................................................          996           571        1,250           470
Hyundai...................................................          570           127          655           221
Kia \457\.................................................          302            98
Nissan....................................................          794           421          789           479
Toyota....................................................        1,474         1,059        1,405         1,094
Other Asian...............................................          631           212          441           191
European..................................................          888           399          724           190
                                                           -----------------------------------------------------
    Total.................................................        8,235         5,547        9,286         6,849
----------------------------------------------------------------------------------------------------------------

    Dual-fueled vehicles:
---------------------------------------------------------------------------

    \457\ Kia is not listed in the table for the MY 2011 final rule 
because it was considered as part of Hyundai for purposes of that 
analysis (i.e., Hyundai-Kia).
---------------------------------------------------------------------------

    Manufacturers have also, during and since MY 2008, indicated plans 
to sell more dual-fueled or flexible-fuel vehicles (FFVs) in MY 2011 
than

[[Page 49650]]

indicated in the current baseline of adjusted MY 2008 compliance data. 
FFVs create a potential market for alternatives to petroleum-based 
gasoline and diesel fuel. For purposes of determining compliance with 
CAFE standards, the fuel economy of a FFV is, subject to limitations, 
adjusted upward to account for this potential.\458\ However, NHTSA is 
precluded from ``taking credit'' for the compliance flexibility by 
accounting for manufacturers' ability to earn and use credits in 
setting the level of the standards.''\459\ Some manufacturers plan to 
produce a considerably greater share of FFVs than can earn full credit 
under EPCA. The projected average FFV share of the market in MY 2011 is 
6 percent for the current baseline, versus 17 percent for the MY 2011 
final rule.
---------------------------------------------------------------------------

    \458\ See 49 U.S.C. 32905 and 32906.
    \459\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    Estimated achieved fuel economy levels:
    Because manufacturers' product plans also reflect simultaneous 
changes in fleet mix and other vehicle characteristics, the 
relationship between increased technology utilization and increased 
fuel economy cannot be isolated with any certainty. To do so would 
require an apples-to-apples ``counterfactual'' fleet of vehicles that 
are, except for technology and fuel economy, identical--for example, in 
terms of fleet mix and vehicle performance and utility. The current 
baseline market forecast shows industry-wide average fuel economy 
levels somewhat higher in MY 2011 than shown in the MY 2011 final rule. 
Under the current baseline, average fuel economy for MY 2011 is 26.7 
mpg, versus 26.5 mpg under the baseline in the MY 2011 final rule.
    These differences are shown in greater detail below in Table 
IV.C.1-2, which shows manufacturer-specific CAFE levels (not counting 
FFV credits that some manufacturers expect to earn) from the current 
baseline versus the MY 2011 final rule baseline (from manufacturers' 
2008 product plans) for passenger cars and light trucks. Table IV.C.1-3 
shows the combined averages of these planned CAFE levels in the 
respective baseline fleets. These tables demonstrate that, while the 
difference at the industry level is not so large, there are significant 
differences in CAFE at the manufacturer level between the current 
baseline and the MY 2011 final rule baseline. For example, while Honda 
and Hyundai are essentially the same under both, Toyota and Nissan show 
increased combined CAFE levels under the current baseline (by 2.4 and 
0.8 mpg respectively), while Chrysler, Ford, and GM show decreased 
combined CAFE levels under the current baseline (by 1.1, 1.8, and 1.0 
mpg, respectively) relative to the MY 2011 final rule baseline.

  Table IV.C.1-2--Current Baseline Planned CAFE Levels in MY 2011 Versus MY 2011 Final Rule Planned Cafe Levels
                                          [Passenger and nonpassenger]
----------------------------------------------------------------------------------------------------------------
                                                              Current baseline CAFE       MY 2011 planned CAFE
                                                                      levels                     levels
                       Manufacturer                        -----------------------------------------------------
                                                             Passenger   Nonpassenger   Passenger   Nonpassenger
----------------------------------------------------------------------------------------------------------------
BMW.......................................................         27.2          23.1         27.0          23.0
Chrysler..................................................         28.4          21.8         28.2          23.1
Ford......................................................         28.2          20.5         29.3          22.5
Subaru....................................................         29.1          25.6         28.6          28.6
General Motors............................................         28.5          20.9         30.3          21.4
Honda.....................................................         33.8          25.3         32.3          25.2
Hyundai...................................................         31.5          24.3         31.7          26.0
Tata......................................................         24.6          19.5         24.7          23.9
Kia \460\.................................................         31.7          23.7  ...........  ............
Mazda \461\...............................................         31.0          26.7  ...........  ............
Daimler...................................................         27.3          21.0         25.2          20.6
Mitsubishi................................................         30.0          23.8         29.3          26.7
Nissan....................................................         31.9          21.5         31.3          21.4
Porsche...................................................         26.2          20.0         27.2          20.0
Ferrari \462\.............................................  ...........  ............         16.2  ............
Maserati \463\............................................  ...........  ............         18.2  ............
Suzuki....................................................         30.5          23.3         28.7          24.0
Toyota....................................................         35.4          24.8         33.2          22.7
Volkswagen................................................         28.6          20.2         28.5          20.1
                                                           -----------------------------------------------------
    Total/Average.........................................         30.8          22.3         30.4          22.6
----------------------------------------------------------------------------------------------------------------


[[Page 49651]]

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

    \460\ Again, Kia is not listed in the table for the MY 2011 
final rule because it was considered as part of Hyundai for purposes 
of that analysis (i.e., Hyundai-Kia).
    \461\ Mazda is not listed in the table for the MY 2011 final 
rule because it was considered as part of Ford for purposes of that 
analysis.
    \462\ EPA did not include Ferrari in the current baseline based 
on the conclusion that including them would not impact the results, 
and therefore Ferrari is not listed in the table for the current 
baseline.
    \463\ EPA did not include Maserati in the current baseline based 
on the conclusion that including them would not impact the results, 
and therefore Maserati is not listed in the table for the current 
baseline.

 Table IV.C.1-3--Current Baseline Planned CAFE Levels in MY 2011 Versus
            MY 2011 Final Rule Planned CAFE Levels (Combined)
------------------------------------------------------------------------
                                                               MY 2011
                 Manufacturer                     Current     final rule
                                                  baseline     baseline
------------------------------------------------------------------------
BMW...........................................         25.6         26.0
Chrysler......................................         23.6         24.7
Ford..........................................         24.2         26.0
Subaru........................................         27.5         28.6
General Motors................................         23.9         24.9
Honda.........................................         30.1         30.0
Hyundai.......................................         29.9         30.0
Tata..........................................         21.1         24.4
Kia...........................................         29.3  ...........
Mazda.........................................         30.2  ...........
Daimler.......................................         24.7         23.6
Mitsubishi....................................         29.1         29.1
Nissan........................................         27.3         26.6
Porsche.......................................         23.2         22.0
Ferrari.......................................  ...........         16.2
Maserati......................................  ...........         18.2
Suzuki........................................         28.6         27.8
Toyota........................................         30.0         27.6
Volkswagen....................................         26.2         27.1
                                               -------------------------
    Total/Average.............................         26.7         26.5
------------------------------------------------------------------------

    Tables IV.C.1-4 through 1-6 summarize other differences between the 
current baseline and manufacturers' product plans submitted to NHTSA in 
2008 for the MY 2011 final rule. These tables present average vehicle 
footprint, curb weight, and power-to-weight ratios for each 
manufacturer represented in the current baseline and of the seven 
largest manufacturers represented in the product plan data, and for the 
overall industry. The tables containing product plan data do not 
identify manufacturers by name, and do not present them in the same 
sequence.
    Tables IV.C.1-4a and 1-4b show that the current baseline reflects a 
slight decrease in overall average passenger vehicle size relative to 
the manufacturers' plans. This is a reflection of the market segment 
shifts underlying the sales forecasts of the current baseline.

   Table IV.C.1-4a--Current Baseline Average MY 2011 Vehicle Footprint
                              [Square Feet]
------------------------------------------------------------------------
           Manufacturer                 PC           LT          Avg.
------------------------------------------------------------------------
BMW..............................         45.4         49.7         46.9
Chrysler.........................         46.4         54.0         51.5
Ford.............................         46.2         57.9         51.3
Subaru...........................         43.1         46.3         44.4
General Motors...................         46.2         59.6         53.4
Honda............................         44.3         49.4         46.2
Hyundai..........................         44.7         48.8         45.5
Tata.............................         50.3         48.0         48.8
Kia..............................         45.2         51.6         46.7
Mazda............................         44.3         46.9         44.7
Daimler..........................         46.6         53.3         49.0
Mitsubishi.......................         43.8         46.4         44.1
Nissan...........................         45.2         55.4         48.8
Porsche..........................         38.6         51.0         43.6
Suzuki...........................         41.0         47.2         42.3
Toyota...........................         44.0         51.1         47.0
Volkswagen.......................         43.4         52.6         45.4
                                  --------------------------------------
    Industry Average.............         45.0         54.4         48.8
------------------------------------------------------------------------


   Table IV.C.1-4b--MY 2011 Final Rule Average Planned MY 2011 Vehicle
                                Footprint
                              [Square Feet]
------------------------------------------------------------------------
                                        PC           LT          Avg.
------------------------------------------------------------------------
Manufacturer 1...................         46.7         58.5         52.8
Manufacturer 2...................         46.0          5.4         47.1
Manufacturer 3...................         44.9         52.8         48.4
Manufacturer 4...................         45.4         55.8         49.3
Manufacturer 5...................         45.2         57.5         50.3
Manufacturer 6...................         48.5         54.7         52.4
Manufacturer 7...................         45.1         49.9         46.4
                                  --------------------------------------
    Industry Average.............         45.6         55.1         49.7
------------------------------------------------------------------------


[[Page 49652]]

    Tables IV.C.1-5a and 1-5b show that the current baseline reflects a 
decrease in overall average vehicle weight relative to the 
manufacturers' plans. As above, this is most likely a reflection of the 
market segment shifts underlying the sales forecasts of the current 
baseline.

  Table IV.C.1-5a--Current Baseline Average MY 2011 Vehicle Curb Weight
                                [Pounds]
------------------------------------------------------------------------
           Manufacturer                 PC           LT          Avg.
------------------------------------------------------------------------
BMW..............................        3,535        4,612        3,900
Chrysler.........................        3,498        4,506        4,178
Ford.............................        3,516        4,596        3,985
Subaru...........................        3,155        3,801        3,435
General Motors...................        3,495        5,030        4,311
Honda............................        3,021        4,064        3,401
Hyundai..........................        3,135        4,080        3,307
Tata.............................        3,906        5,198        4,717
Kia..............................        3,034        4,057        3,284
Mazda............................        3,236        3,744        3,316
Daimler..........................        3,450        5,123        4,045
Mitsubishi.......................        3,238        3,851        3,312
Nissan...........................        3,242        4,535        3,690
Porsche..........................        3,159        4,907        3,874
Suzuki...........................        2,870        3,843        3,080
Toyota...........................        3,112        4,186        3,561
Volkswagen.......................        3,479        5,673        3,959
                                  --------------------------------------
    Industry Average.............        3,280        4,538        3,786
------------------------------------------------------------------------


Table IV.C.1-5b--MY 2011 Final Rule Average Planned MY 2011 Vehicle Curb
                                 Weight
                                [Pounds]
------------------------------------------------------------------------
                                        PC           LT          Avg.
------------------------------------------------------------------------
Manufacturer 1...................        3,197        4,329        3,692
Manufacturer 2...................        3,691        4,754        4,363
Manufacturer 3...................        3,293        4,038        3,481
Manufacturer 4...................        3,254        4,191        3,510
Manufacturer 5...................        3,547        5,188        4,401
Manufacturer 6...................        3,314        4,641        3,815
Manufacturer 7...................        3,345        4,599        3,865
                                  --------------------------------------
    Industry Average.............        3,380        4,687        3,935
------------------------------------------------------------------------

    Tables IV.C.1-6a and IV.C.1-6b show that the current baseline 
reflects a decrease in average performance relative to that of the 
manufacturers' product plans. This decreased performance is most likely 
a reflection of the market segment shifts underlying the sales 
forecasts of the current baseline, that is, an assumed shift away from 
higher performance vehicles.

   Table IV.C.1-6a--Current Baseline Average MY 2011 Vehicle Power-to-
                              Weight Ratio
                                 [hp/lb]
------------------------------------------------------------------------
           Manufacturer                 PC           LT          Avg.
------------------------------------------------------------------------
BMW..............................        0.072        0.061        0.068
Chrysler.........................        0.055        0.052        0.053
Ford.............................        0.058        0.053        0.056
Subaru...........................        0.062        0.057        0.059
General Motors...................        0.056        0.056        0.056
Honda............................        0.057        0.054        0.056
Hyundai..........................        0.051        0.055        0.052
Tata.............................        0.077        0.057        0.064
Kia..............................        0.050        0.056        0.051
Mazda............................        0.051        0.053        0.052
Daimler..........................        0.066        0.056        0.062
Mitsubishi.......................        0.053        0.056        0.053
Nissan...........................        0.058        0.057        0.058
Porsche..........................        0.105        0.073        0.092
Suzuki...........................        0.049        0.062        0.052
Toyota...........................        0.052        0.062        0.056
Volkswagen.......................        0.058        0.052        0.056
                                  --------------------------------------

[[Page 49653]]

 
    Industry Average.............        0.056        0.056        0.056
------------------------------------------------------------------------


   Table IV.C.1-6b--MY 2011 Final Rule Average Planned MY 2011 Vehicle
                          Power-to-Weight Ratio
                                 [hp/lb]
------------------------------------------------------------------------
                                        PC           LT          Avg.
------------------------------------------------------------------------
Manufacturer 1...................        0.065        0.058        0.060
Manufacturer 2...................        0.061        0.065        0.062
Manufacturer 3...................        0.053        0.059        0.056
Manufacturer 4...................        0.060        0.058        0.059
Manufacturer 5...................        0.060        0.057        0.059
Manufacturer 6...................        0.063        0.065        0.065
Manufacturer 7...................        0.053        0.055        0.053
                                  --------------------------------------
    Industry Average.............        0.060        0.059        0.060
------------------------------------------------------------------------

    As discussed above, the agencies' market forecast for MY 2012-2016 
holds the performance and other characteristics of individual vehicle 
models constant, adjusting the size and composition of the fleet from 
one model year to the next.
    Refresh and redesign schedules (for application in NHTSA's 
modeling):
    Expected model years in which each vehicle model will be redesigned 
or freshened constitute another important aspect of NHTSA's market 
forecast. As discussed in Section IV.C.2.c below, NHTSA's analysis 
supporting the current rulemaking times the addition of nearly all 
technologies to coincide with either a vehicle redesign or a vehicle 
freshening. Product plans submitted to NHTSA preceding the MY 2011 
final rule contained manufacturers' estimates of vehicle redesign and 
freshening schedules and NHTSA's estimates of the timing of the five-
year redesign cycle and the two- to three-year refresh cycle were made 
with reference to those plans. In the current baseline, in contrast, 
estimates of the timing of the refresh and redesign cycles were based 
on historical dates--i.e., counting forward from known redesigns 
occurring in or prior to MY 2008 for each vehicle in the fleet and 
assigning refresh and redesign years accordingly. After applying these 
estimates, the shares of manufacturers' passenger car and light truck 
estimated to be redesigned in MY 2011 were as summarized below for the 
current baseline and the MY 2011 final rule. Table IV.C.1-7 below shows 
the percentages of each manufacturer's fleets expected to be redesigned 
in MY 2011 for the current baseline. Table IV.C.1-8 presents 
corresponding estimates from the market forecast used by NHTSA in the 
analysis supporting the MY 2011 final rule (again, to protect 
confidential information, manufacturers are not identified by name).

 Table IV.C.1-7--Current Baseline, Share of Fleet Redesigned in MY 2011
------------------------------------------------------------------------
           Manufacturer                 PC           LT          Avg.
------------------------------------------------------------------------
BMW..............................          32%          40%          34%
Chrysler.........................           0%          11%           8%
Ford.............................          12%           7%          10%
Subaru...........................           0%          51%          22%
General Motors...................          20%           2%          11%
Honda............................          31%          33%          32%
Hyundai..........................          20%           0%          16%
Tata.............................          28%         100%          73%
Kia..............................          35%          87%          48%
Mazda............................           0%           0%           0%
Daimler..........................           0%           0%           0%
Mitsubishi.......................           0%          56%           7%
Nissan...........................           4%          18%           9%
Porsche..........................           0%         100%          41%
Suzuki...........................           8%          21%          11%
Toyota...........................           4%          24%          12%
Volkswagen.......................          23%           0%          18%
                                  --------------------------------------
    Industry Average.............          15%          17%          15%
------------------------------------------------------------------------


Table IV.C.1-8--MY 2011 Final Rule, Share of Fleet Redesigned in MY 2011
------------------------------------------------------------------------
                                        PC           LT          Avg.
                                    (percent)    (percent)    (percent)
------------------------------------------------------------------------
Manufacturer 1...................           19            0           11

[[Page 49654]]

 
Manufacturer 2...................           34           27           29
Manufacturer 3...................            5            0            3
Manufacturer 4...................            7            0            5
Manufacturer 5...................           19            0           11
Manufacturer 6...................           34           28           33
Manufacturer 7...................           27           28           28
                                  --------------------------------------
    Overall......................           20            9           15
------------------------------------------------------------------------

    We continue, therefore, to estimate that manufacturers' redesigns 
will not be uniformly distributed across model years. This is in 
keeping with standard industry practices, and reflects what 
manufacturers actually do--NHTSA has observed that manufacturers in 
fact do redesign more vehicles in some years than in others. NHTSA 
staff have closely examined manufacturers' planned redesign schedules, 
contacting some manufacturers for clarification of some plans, and 
confirmed that these plans remain unevenly distributed over time. For 
example, although Table 8 shows that NHTSA expects Company 2 to 
redesign 34 percent of its passenger car models in MY 2011, current 
information indicates that this company will then redesign only (a 
different) 10 percent of its passenger cars in MY 2012. Similarly, 
although Table 8 shows that NHTSA expects four of the largest seven 
light truck manufacturers to redesign virtually no light truck models 
in MY 2011, current information also indicates that these four 
manufacturers will redesign 21-49 percent of their light trucks in MY 
2012.
e. How Does Manufacturer Product Plan Data Factor Into the Baseline 
Used in This Proposal?
    As discussed in Section II.B.4 above, while the agencies received 
updated product plans in Spring 2009 in response to NHTSA's request, 
the baseline data used in this proposal is not informed by these 
product plans, because they contain confidential business information 
the agencies are legally required to protect from disclosure, and 
because the agencies have concluded that, for purposes of this NPRM, a 
transparent baseline is preferable.
    However, as also discussed above, NHTSA has conducted a separate 
analysis that does make use of these product plans, contained in 
NHTSA's PRIA. NHTSA performed this separate analysis for purposes of 
comparison only. NHTSA used the publicly available baseline for all 
analysis related to the development and evaluation of the proposed new 
CAFE standards.
2. How Were the Technology Inputs Developed?
    As discussed above in Section II.E, for developing the technology 
inputs for the MY 2012-2016 CAFE and GHG standards, the agencies 
primarily began with the technology inputs used in the MY 2011 CAFE 
final rule and in the July 2008 EPA ANPRM, and then reviewed, as 
requested by President Obama in his January 26 memorandum, the 
technology assumptions that NHTSA used in setting the MY 2011 standards 
and the comments that NHTSA received in response to its May 2008 Notice 
of Proposed Rulemaking. In addition, the agencies supplemented their 
review with updated information from more current literature, new 
product plans and from EPA certification testing. More detail is 
available regarding how the agencies developed the technology inputs 
for this NPRM above in Section II.E, in Chapter 3 of the Draft Joint 
TSD, and in Section V of NHTSA's PRIA.
a. What Technologies Does NHTSA Consider?
    Section II.E.1 above describes the fuel-saving technologies 
considered by the agencies that manufacturers could use to improve the 
fuel economy of their vehicles during MYs 2012-2016. The majority of 
the technologies described in this section are readily available, well 
known, and could be incorporated into vehicles once production 
decisions are made. As discussed, the technologies considered fall into 
five broad categories: Engine technologies, transmission technologies, 
vehicle technologies, electrification/accessory technologies, and 
hybrid technologies. Table IV.C.2-1 below lists all the technologies 
considered and provides the abbreviations used for them in the Volpe 
model,\464\ as well as their year of availability, which for purposes 
of NHTSA's analysis means the first model year in the rulemaking period 
that the Volpe model is allowed to apply a technology to a 
manufacturer's fleet.\465\ Year of availability recognizes that 
technologies must achieve a level of technical viability before they 
can be implemented in the Volpe model, and are thus a means of 
constraining technology use until such time as it is considered to be 
technologically feasible. For a more detailed description of each 
technology and their costs and effectiveness, we refer the reader to 
Chapter 3 of the joint TSD and Section V of NHTSA's PRIA.
---------------------------------------------------------------------------

    \464\ The abbreviations are used in this section both for 
brevity and for the reader's reference if they wish to refer to the 
expanded decision trees and the model input and output sheets, which 
are available in Docket No. NHTSA-2009-0059 and on NHTSA's Web site.
    \465\ A date of 2011 means the technology can be applied in all 
model years, while a date of 2014 means the technology can only be 
applied in model years 2014 through 2016.

        Table IV.C.2-1--List of Technologies in NHTSA's Analysis
------------------------------------------------------------------------
            Technology               Model abbreviation   Year available
------------------------------------------------------------------------
Low Friction Lubricants...........  LUB.................            2011
Engine Friction Reduction.........  EFR.................            2011
VVT--Coupled Cam Phasing (CCP) on   CCPS................            2011
 SOHC.
Discrete Variable Valve Lift        DVVLS...............            2011
 (DVVL) on SOHC.
Cylinder Deactivation on SOHC.....  DEACS...............            2011

[[Page 49655]]

 
VVT--Intake Cam Phasing (ICP).....  ICP.................            2011
VVT--Dual Cam Phasing (DCP).......  DCP.................            2011
Discrete Variable Valve Lift        DVVLD...............            2011
 (DVVL) on DOHC.
Continuously Variable Valve Lift    CVVL................            2011
 (CVVL).
Cylinder Deactivation on DOHC.....  DEADD...............            2011
Cylinder Deactivation on OHV......  DEACO...............            2011
VVT--Coupled Cam Phasing (CCP) on   CCPO................            2011
 OHV.
Discrete Variable Valve Lift        DVVLO...............            2011
 (DVVL) on OHV.
Conversion to DOHC with DCP.......  CDOHC...............            2011
Stoichiometric Gasoline Direct      SGDI................            2011
 Injection (GDI).
Combustion Restart................  CBRST...............            2014
Turbocharging and Downsizing......  TRBDS...............            2011
Exhaust Gas Recirculation (EGR)     EGRB................            2013
 Boost.
Conversion to Diesel following      DSLC................            2011
 CBRST.
Conversion to Diesel following      DSLT................            2011
 TRBDS.
6-Speed Manual/Improved Internals.  6MAN................            2011
Improved Auto. Trans. Controls/     IATC................            2011
 Externals.
Continuously Variable Transmission  CVT.................            2011
6/7/8-Speed Auto. Trans with        NAUTO...............            2011
 Improved Internals.
Dual Clutch or Automated Manual     DCTAM...............            2011
 Transmission.
Electric Power Steering...........  EPS.................            2011
Improved Accessories..............  IACC................            2011
12V Micro-Hybrid..................  MHEV................            2011
Belt Integrated Starter Generator.  BISG................            2011
Crank Integrated Starter Generator  CISG................            2011
Power Split Hybrid................  PSHEV...............            2011
2-Mode Hybrid.....................  2MHEV...............            2011
Plug-in Hybrid....................  PHEV................            2011
Mass Reduction 1 (1.5%)...........  MS1.................            2011
Mass Reduction 2 (3.5%-8.5%)......  MS2.................            2014
Low Rolling Resistance Tires......  ROLL................            2011
Low Drag Brakes...................  LDB.................            2011
Secondary Axle Disconnect 4WD.....  SAX.................            2011
Aero Drag Reduction...............  AERO................            2011
------------------------------------------------------------------------

    For purposes of this NPRM and as discussed in greater detail in the 
joint TSD, NHTSA and EPA carefully reviewed the list of technologies 
used in the agency's analysis for the MY 2011 final rule. Given the 
relatively short amount of time, from a technology-development 
perspective, that has elapsed since March 2009 and this NPRM, NHTSA and 
EPA concluded that the considerable majority of technologies were 
correctly defined and continued to be appropriate for use in the 
analysis supporting the proposed standards. However, some refinements 
were made as discussed below.
    Specific to its modeling, NHTSA has revised eight of the 
technologies used in the current analysis from those considered in the 
MY 2011 final rule. Specifically, two technologies which were 
previously unavailable in the MY 2011 time frame are now available (in 
the extended MY 2012-2016 period); one technology has been combined 
with another; one is newly introduced; three have revised names and/or 
definitions; and one has been deleted entirely. These changes are 
discussed further below, and NHTSA seeks comment on both these changes 
and the validation of the unchanged technology assumptions and 
estimates.
    Availability: In the MY 2011 final rule, two of the engine 
technologies--EGR boost and combustion restart--were unavailable 
because they were not considered technologically feasible until beyond 
that rulemaking time frame. While both were described and discussed in 
the MY 2011 final rule, neither was applied in the modeling process 
that supported those standards.\466\ In this analysis, EGR boost 
becomes available in MY 2013, and combustion restart in MY 2014, so 
both are being applied by the Volpe model, as needed, in this analysis.
---------------------------------------------------------------------------

    \466\ As an additional note, since combustion restart was 
unavailable in the MY 2011 time frame, the technology titled diesel 
following combustion restart (DSLC), which as the name indicates was 
only applied after combustion restart, was also unavailable. 
Accordingly, DSLC, which was described and discussed in the MY 2011 
final rule, is now available in the current analysis.
---------------------------------------------------------------------------

    Merging of technologies: In the MY 2011 final rule, higher voltage 
and improved alternator (HVIA) was used to represent changes in the 
design of the alternator, effectively optimizing it for higher 
efficiency (instead of for low cost as is typically done). For purposes 
of this analysis, the HVIA technology is no longer represented 
individually, but instead has been incorporated into a new-to-this-
analysis technology called belt integrated starter generator, or BISG, 
as discussed next.
    New technology: In the MY 2011 final rule, two levels of mild 
hybrid technology were defined: A 12 volt micro-hybrid (MHEV) system, 
which utilized a belt-driven starter generator operating at 12 volts, 
and the more capable integrated starter generator technology (ISG) 
operating at higher voltages (100 volts). ISG envisioned both belt and 
crank configured starter generator systems. In the current proposal, 
and in an effort to offer a broader spectrum of more diversified mild 
hybrid technologies for the modeling process to choose from, NHTSA has 
added the BISG technology to the electrification decision tree, and 
redefined the ISG technology to be a crank mounted version of ISG, 
accordingly renamed to CISG.
    The BISG technology is a belt-coupled system like the 12-volt MHEV, 
but it operates at a higher voltage (e.g., 42 volts) and thus can make 
use of regenerative braking, as well as

[[Page 49656]]

potentially adding some limited motive power. Since BISG is a higher 
voltage system, optimization of the alternator occurs as part of the 
BISG technology application; hence the HVIA technology is no longer 
needed as a separate technology. Additionally, the CISG technology is 
now defined as a crank mounted system that operates at higher voltages 
(100 volts) than BISG, yet at lower voltage than the strong hybrids 
(300 volts) that make greater use of regenerative braking and provide 
greater motive power capability. Thus, three levels of mild hybrid 
technology exist in the current proposal, as opposed to the two levels 
offered in the MY 2011 final rule.
    Revisions and Deletions: The Mass Reduction/Material Substitution 
technologies have been revised for the current proposal. In the MY 2011 
final rule, the Volpe model used three levels of material substitution 
technologies, referred to as MS1, MS2, and MS5, which were 
progressively applied to vehicles with curb weights in excess of 5,000 
pounds (2,268 kg) so as to reduce weight by up to a 5 percent maximum. 
In keeping with the agency's desire to limit potential negative impacts 
to safety performance as a result of vehicle weight reduction, material 
substitution was not applied to vehicles with curb weights below 5,000 
pounds. In contrast, in the current analysis, and in keeping with some 
manufacturers' stated plans to decrease overall fleet weights 
regardless of subclass or curb weight, NHTSA now defines two Mass 
Reduction/Material Substitution technologies as follows:
    The Mass Reduction 1.5 percent (MS1) represents a 1.5 percent 
weight decrease through material substitution applicable to all vehicle 
subclasses, regardless of curb weight, that can be applied throughout 
the rulemaking period (and at refresh or redesign cycle times). This 
technology is similar to the MS1 technology used in the prior analysis 
in terms of the scale of the weight reduction (1 versus 1.5 percent), 
the methods and techniques manufacturers are anticipated to use in 
achieving the reductions, and when in the product cycle the model 
applies it (at refresh or redesign).
    A second technology, Mass Reduction 3.5-8.5 percent (MS2), has also 
been defined. The MS2 technology is unavailable until MY 2014, and can 
only be applied by the Volpe model at a product redesign cycle. MS2 
assumes a 3.5 to 8.5 percent weight reduction dependent on subclass 
(with the smaller/lighter subclasses receiving the lowest amounts of 
reduction, 3.5 percent, and the larger/heavier vehicles the 8.5 
percent) via the types of more intrusive and complex mass reduction 
associated with a complete vehicle redesign.\467\ MS2 is cumulative to 
MS1, as it is only applied after MS1, therefore the maximum weight 
reduction that can occur for smaller subclass vehicles is 5 percent, 
while large cars, truck, and SUVs could experience 10 percent weight 
reductions. Restricting weight reduction on smaller vehicle to lower 
limits, and vice versa for larger vehicles, is intended to mitigate or 
minimize the potential safety consequences from the modeled weight 
reductions. Postponing the availability of the technology until MY 2014 
recognizes the lead time required to implement platform redesigns that 
would be necessary for these levels of weight reduction and mass 
reduction. NHTSA seeks comment on the agency's use of a two-step 
process, with the higher applications of MS in MYs 2014 and beyond, and 
the process of applying smaller mass reductions to lighter vehicles and 
higher reductions to heavier vehicles for the purpose of maintaining 
safety neutrality.
---------------------------------------------------------------------------

    \467\ Examples of such weight savings associated with new 
platform introductions have been provided in confidential product 
plan information provided by some manufacturers.
---------------------------------------------------------------------------

    The MS5 technology used in the MY 2011 final rule is deleted.
    Additionally, for purposes of this NPRM, NHTSA has revised the 
applicability of the diesel technologies to restrict it to vehicles 
with engines of 6 cylinders or more. NHTSA seeks comment on its 
decision not to apply diesel technologies to vehicles with 4-cylinder 
engines. NHTSA also seeks comment on the revised costing methodology 
for diesel technologies.
    Besides these, all other technologies considered in this analysis 
were also considered in the analysis for the MY 2011 final rule, and 
although the costs and effectiveness estimates may have been revised as 
discussed further below, the other technologies remain otherwise 
unchanged for the purposes of this analysis in terms of their 
definition, functionality, and configuration. Thus, with this catalog 
of technologies as a starting point, NHTSA could then review and 
consider effectiveness and cost estimates for each technology, and, 
through the Volpe model analysis, how a manufacturer might feasibly 
apply these technologies to their MY 2012-2016 vehicles in order to 
achieve compliance with the proposed standards.
b. How Did NHTSA Determine the Costs and Effectiveness of Each of These 
Technologies for Use in Its Modeling Analysis?
    Building on NHTSA's estimates developed for the MY 2011 CAFE final 
rule and EPA's Advanced Notice of Proposed Rulemaking, which relied on 
the 2008 Staff Technical Report,\468\ the agencies took a fresh look at 
technology cost and effectiveness values for purposes of the joint 
proposal under the National Program. This joint work is reflected in 
Chapter 3 of the Draft Joint TSD and in Section II of this preamble, 
which is summarized below. For more detailed information on the 
effectiveness and cost of fuel-saving technologies, please refer to 
Chapter 3 of the joint TSD and Section V of NHTSA's PRIA.
---------------------------------------------------------------------------

    \468\ EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-Duty Vehicle Carbon 
Dioxide Emissions. EPA420-R-08-008, March 2008.
---------------------------------------------------------------------------

    Generally speaking, while NHTSA and EPA found that much of the cost 
information used in NHTSA's MY 2011 final rule and EPA's 2008 staff 
report was consistent to a great extent, the agencies, in reconsidering 
information from many sources, revised several component costs of 
several major technologies: turbocharging/downsizing, mild and strong 
hybrids, diesels, SGDI, and Valve Train Lift Technologies. These are 
discussed at length in the joint TSD and in NHTSA's PRIA. Additionally, 
most effectiveness estimates used in both the MY 2011 final rule and 
the 2008 EPA staff report were determined to be accurate and were 
carried forward without significant change into this rulemaking. When 
NHTSA and EPA's estimates for effectiveness diverged slightly due to 
differences in how agencies apply technologies to vehicles in their 
respective models, we report the ranges for the effectiveness values 
used in each model. For much more information on the costs and 
effectiveness of individual technologies, we refer the reader to 
Chapter 3 of the joint TSD and Section V of NHTSA's PRIA.
    NHTSA notes that, in developing technology cost and effectiveness 
estimates, the agencies have made every effort to hold constant aspects 
of vehicle performance and utility typically valued by consumers, such 
as horsepower, carrying capacity, and towing and hauling capacity. For 
example, NHTSA includes in its analysis technology cost and 
effectiveness estimates that are specific to performance passenger cars 
(i.e., sports cars), as compared to non-performance passenger cars. 
When

[[Page 49657]]

commenting on the agencies' technology cost and effectiveness 
estimates, NHTSA urges commenters either to place any related comments 
within the same context, or explain any assumptions or estimates 
regarding increases or decreases in vehicle performance or utility. 
Additionally, NHTSA seeks comment on the extent to which commenters 
believe that the agencies have been successful in holding constant 
these elements of vehicle performance and utility in developing the 
technology cost and effectiveness estimates.
    Additionally, NHTSA notes that the technology costs included in 
this NPRM take into account only those associated with the initial 
build of the vehicle. The agencies seek comments on the additional 
lifetime costs, if any, associated with the implementation of advanced 
technologies, including warranty, maintenance and replacement costs, 
such as the replacement costs for low rolling resistance tires, low 
friction lubricants, and hybrid batteries, and maintenance costs for 
diesel aftertreatment components.
    While the agencies believe that the ideal estimates for the final 
rule would be based on tear down studies or BOM approach and subjected 
to a transparent peer-reviewed process, NHTSA and EPA are confident 
that the thorough review conducted, led to the best available 
conclusion regarding technology costs and effectiveness estimates for 
the current rulemaking and resulted in excellent consistency between 
the agencies' respective analyses for developing the CAFE and 
CO2 standards.
    NHTSA seeks comment on the incremental cost and effectiveness 
estimates employed by the agency in the Volpe modeling analysis for 
this NPRM, examples of which are provided in table form below. These 
example Tables present effectiveness and cost estimates which are 
incremental in nature, according to the decision trees used in the 
Volpe modeling analysis. Thus, the effectiveness and cost estimates are 
not absolute to a single baseline vehicle, but are incremental to the 
technology that precedes it.
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[[Page 49659]]


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BILLING CODE 6560-50-C
c. How Does NHTSA Use These Assumptions in Its Modeling Analysis?
    NHTSA's analysis, using the Volpe model, relies on several inputs 
and data files to conduct the compliance analysis, as discussed further 
below and in Section V of the PRIA. For the purposes of applying 
technologies, the Volpe model primarily uses three data files, one that 
contains data on the vehicles expected to be manufactured in the model 
years covered by the rulemaking, one that identifies the appropriate 
stage within the vehicle's life-cycle for the technology to be applied, 
and one that contains data/parameters regarding the available 
technologies the model can apply. These inputs are discussed below.
    As discussed above, the Volpe model begins with an initial state of 
the domestic vehicle market, which in this case is the market for 
passenger cars and light trucks to be sold during the period covered by 
the proposed standards. The

[[Page 49660]]

vehicle market is defined on a model-by-model, engine-by-engine, and 
transmission-by-transmission basis, such that each defined vehicle 
model refers to a separately defined engine and a separately defined 
transmission.
    For the current proposal, which covers MYs 2012-2016, the light 
vehicle (passenger car and light truck) market forecast was developed 
jointly by NHTSA and EPA staff using MY 2008 CAFE compliance data. The 
MY 2008 compliance data includes about 1,100 vehicle models, about 400 
specific engines, and about 200 specific transmissions, which is a 
somewhat lower level of detail in the representation of the vehicle 
market than that used by NHTSA in recent CAFE analyses.\469\ However, 
within the limitations of information that can be made available to the 
public, it provides the foundation for a realistic analysis of 
manufacturer-specific costs and the analysis of attribute-based CAFE 
standards, and is much greater than the level of detail used by many 
other models and analyses relevant to light vehicle fuel economy.\470\
---------------------------------------------------------------------------

    \469\ The market file for the MY 2011 final rule, which included 
data for MYs 2011-2015, had 5500 records, or rows, about 5 times 
what we are using in this analysis of the MY 2008 certification 
data. However, both market files had the same number of fields, or 
rows.
    \470\ Because CAFE standards apply to the average performance of 
each manufacturer's fleet of cars and light trucks, the impact of 
potential standards on individual manufacturers cannot be credibly 
estimated without analysis of fleets manufacturers can be expected 
to produce in the future. Furthermore, because required CAFE levels 
under an attribute-based CAFE standard depend on manufacturers' 
fleet composition, the stringency of an attribute-based standard 
cannot be predicted without performing analysis at this level of 
detail.
---------------------------------------------------------------------------

    In addition to containing data about each vehicle, engine, and 
transmission, this file contains information for each technology under 
consideration as it pertains to the specific vehicle (whether the 
vehicle is equipped with it or not), the model year the vehicle is 
undergoing redesign, and information about the vehicle's subclass for 
purposes of technology application. In essence, the model considers 
whether it is appropriate to apply a technology to a vehicle.
    Is a vehicle already equipped, or can it not be equipped, with a 
particular technology?
    The market forecast file provides NHTSA the ability to identify, on 
a technology by technology basis, which technologies may already be 
present (manufactured) on a particular vehicle, engine, or 
transmission, or which technologies are not applicable (due to 
technical considerations) to a particular vehicle, engine, or 
transmission. These identifications are made on a model-by-model, 
engine-by-engine, and transmission-by-transmission basis. For example, 
if the market forecast file indicates that Manufacturer X's Vehicle Y 
is manufactured with Technology Z, then for this vehicle Technology Z 
will be shown as used. Additionally, NHTSA has determined that some 
technologies are only suitable or unsuitable when certain vehicle, 
engine, or transmission conditions exist. For example, secondary axle 
disconnect is only suitable for 4WD vehicles, and cylinder deactivation 
is unsuitable for any engine with fewer than 6 cylinders, while CVTs 
can only be applied to unibody vehicles. Similarly, comments received 
to the 2008 NPRM indicated that cylinder deactivation could not be 
applied to vehicles equipped with manual transmissions, due primarily 
to driveability and NVH concerns. The Volpe model employs ``engineering 
constraints'' to address issues like these, which are a programmatic 
method of controlling technology application that is independent of 
other constraints. Thus, the market forecast file would indicate that 
the technology in question should not be applied to the particular 
vehicle/engine/transmission (i.e., is unavailable). Since multiple 
vehicle models may be equipped with an engine or transmission, this may 
affect multiple models. In using this aspect of the market forecast 
file, NHTSA ensures the Volpe model only applies technologies in an 
appropriate manner, since before any application of a technology can 
occur, the model checks the market forecast to see if it is either 
already present or unavailable.
    NHTSA seeks comment on whether this approach is reasonable and 
ensures that technologies are applied in an appropriate manner.
    Is a vehicle being redesigned or refreshed?
    Manufacturers typically plan vehicle changes to coincide with 
certain stages of a vehicle's life cycle that are appropriate for the 
change, or in this case the technology being applied. In the automobile 
industry there are two terms that describe when technology changes to 
vehicles occur: redesign and refresh (i.e., freshening). Vehicle 
redesign usually refers to significant changes to a vehicle's 
appearance, shape, dimensions, and powertrain. Redesign is 
traditionally associated with the introduction of ``new'' vehicles into 
the market, often characterized as the ``next generation'' of a 
vehicle, or a new platform. Vehicle refresh usually refers to less 
extensive vehicle modifications, such as minor changes to a vehicle's 
appearance, a moderate upgrade to a powertrain system, or small changes 
to the vehicle's feature or safety equipment content. Refresh is 
traditionally associated with mid-cycle cosmetic changes to a vehicle, 
within its current generation, to make it appear ``fresh.'' Vehicle 
refresh generally occurs no earlier than two years after a vehicle 
redesign, or at least two years before a scheduled redesign. For the 
majority of technologies discussed today, manufacturers will only be 
able to apply them at a refresh or redesign, because their application 
would be significant enough to involve some level of engineering, 
testing, and calibration work.\471\
---------------------------------------------------------------------------

    \471\ For example, applying material substitution through weight 
reduction, or even something as simple as low rolling-resistance 
tires, to a vehicle will likely require some level of validation and 
testing to ensure that the vehicle may continue to be certified as 
compliant with NHTSA's Federal Motor Vehicle Safety Standards 
(FMVSS). Weight reduction might affect a vehicle's crashworthiness; 
low rolling-resistance tires might change vehicle's braking 
characteristics or how it performs in crash avoidance tests.
---------------------------------------------------------------------------

    Some technologies (e.g., those that require significant revision) 
are nearly always applied only when the vehicle is expected to be 
redesigned, like turbocharging and engine downsizing, or conversion to 
diesel or hybridization. Other technologies, like cylinder 
deactivation, electric power steering, and aerodynamic drag reduction 
can be applied either when the vehicle is expected to be refreshed or 
when it is expected to be redesigned, while a few others, like low 
friction lubricants, can be applied at any time, regardless of whether 
a refresh or redesign event is conducted. Accordingly, the model will 
only apply a technology at the particular point deemed suitable. These 
constraints are intended to produce results consistent with 
manufacturers' technology application practices. For each technology 
under consideration, NHTSA stipulates whether it can be applied any 
time, at refresh/redesign, or only at redesign. The data forms another 
input to the Volpe model. NHTSA develops redesign and refresh schedules 
for each of a manufacturer's vehicles included in the analysis, 
essentially based on the last known redesign year for each vehicle and 
projected forward in a 5-year redesign and a 2-3 year refresh cycle, 
and this data is also stored in the market forecast file. We note that 
this approach is different than NHTSA has employed previously for 
determining redesign and refresh schedules, where NHTSA included the 
redesign and refresh dates in the market forecast file as provided by 
manufacturers in confidential product plans. The new approach is 
necessary

[[Page 49661]]

given the nature of the new baseline which as a single year of data 
does not contain its own refresh and redesign cycle cues for future 
model years, and to ensure the complete transparency of the agency's 
analysis. Vehicle redesign/refresh assumptions are discussed in more 
detail in Section V of the PRIA and in Chapter 3 of the TSD. NHTSA 
seeks comment on its application for this proposal of refresh and 
redesign schedules to manufacturers' vehicles counting from the last 
known redesign in or prior to the baseline fleet, as compared to its 
approach in the MY 2011 final rule.
    Once the model has concluded that a technology should be applied to 
a vehicle, the model must evaluate which technology should be applied. 
This will depend on the vehicle subclass to which the vehicle is 
assigned; what technologies have already been applied to the vehicle 
(i.e., where in the ``decision tree'' the vehicle is); when the 
technology is first available (i.e., year of availability); whether the 
technology is still available (i.e., ``phase-in caps''); and the costs 
and effectiveness of the technologies being considered. Technology 
costs may be reduced, in turn, by learning effects, while technology 
effectiveness may be increased or reduced by synergistic effects 
between technologies. In the technology input file, NHTSA has developed 
a separate set of technology data variables for each of the twelve 
vehicle subclasses. Each set of variables is referred to as an ``input 
sheet,'' so for example, the subcompact input sheet holds the 
technology data that is appropriate for the subcompact subclass. Each 
input sheet contains a list of technologies available for members of 
the particular vehicle subclass. The following items are provided for 
each technology: the name of the technology, its abbreviation, the 
decision tree with which it is associated, the (first) year in which it 
is available, the upper and lower cost and effectiveness (fuel 
consumption reduction) estimates, the learning type and rate, the cost 
basis, its applicability, and the phase-in values.
    To which vehicle subclass is the vehicle assigned?
    As part of its consideration of technological feasibility, the 
agency evaluates whether each technology could be implemented on all 
types and sizes of vehicles, and whether some differentiation is 
necessary in applying certain technologies to certain types and sizes 
of vehicles, and with respect to the cost incurred and fuel consumption 
and CO2 emissions reduction achieved when doing so. The 2002 
NAS Report differentiated technology application using ten vehicle 
``classes'' (4 cars classes and 6 truck classes),\472\ but did not 
determine how cost and effectiveness values differ from class to class. 
NAS's purpose in separating vehicles into these classes was to create 
groups of ``like'' vehicles, i.e., vehicles similar in size, powertrain 
configuration, weight, and consumer use, and for which similar 
technologies are applicable. NHTSA similarly differentiates vehicles by 
``subclass'' for the purpose of applying technologies to vehicles and 
assessing their incremental costs and effectiveness. NHTSA assigns each 
vehicle manufactured in the rulemaking period to one of 12 subclasses: 
for passenger cars, Subcompact, Subcompact Performance, Compact, 
Compact Performance, Midsize, Midsize Performance, Large, and Large 
Performance; and for light trucks, Small SUV/Pickup/Van, Midsize SUV/
Pickup/Van, Large SUV/Pickup/Van, and Minivan.
---------------------------------------------------------------------------

    \472\ The NAS classes included subcompact cars, compact cars, 
midsize cars, large cars, small SUVs, midsize SUVs, large SUVs, 
small pickups, large pickups, and minivans.
---------------------------------------------------------------------------

    For this NPRM as for the MY 2011 final rule, NHTSA divides the 
vehicle fleet into subclasses based on model inputs, and applies 
subclass-specific estimates, also from model inputs, of the 
applicability, cost, and effectiveness of each fuel-saving technology. 
Therefore, the model's estimates of the cost to improve the fuel 
economy of each vehicle model depend upon the subclass to which the 
vehicle model is assigned.
    Each vehicle's subclass is stored in the market forecast file. When 
conducting a compliance analysis, if the Volpe model seeks to apply 
technology to a particular vehicle, it checks the market forecast to 
see if the technology is available and if the refresh/redesign criteria 
are met. If these conditions are satisfied, the model determines the 
vehicle's subclass from the market data file, which it then uses to 
reference another input called the technology input file. NHTSA 
reviewed its methodology for dividing vehicles into subclasses for 
purposes of technology application that it used in the MY 2011 final 
rule, and concluded that the same methodology would be appropriate for 
this NPRM for MYs 2012-2016, but the agency invites comments on the 
method of assigning vehicles to subclasses for the purposes of 
technology application in the CAFE model, and on the issue of 
technology-application subclasses generally. The subclasses and the 
methodology for dividing vehicles among them are discussed in more 
detail in Section V of the PRIA and in Chapter 3 of the TSD.
    For the reader's reference, the subclasses and example vehicles 
from the market forecast file are provided in the tables below.

           Passenger Car Subclasses Example (MY 2008) Vehicles
------------------------------------------------------------------------
                 Class                           Example vehicles
------------------------------------------------------------------------
Subcompact.............................  Chevy Aveo, Honda Civic.
Subcompact Performance.................  Mazda Miata, Saturn Sky.
Compact................................  Chevy Cobalt, Nissan Sentra and
                                          Altima.
Compact Performance....................  Audi S4 Quattro, Mazda RX8.
Midsize................................  Chevy Camaro (V6), Toyota
                                          Camry, Honda Accord, Hyundai
                                          Azera.
Midsize Performance....................  Chevy Corvette, Ford Mustang
                                          (V8), Nissan G37 Coupe.
Large..................................  Audi A8, Cadillac CTS and DTS.
Large Performance......................  Bentley Arnage, Daimler CL600.
------------------------------------------------------------------------


            Light Truck Subclasses Example (MY 2008) Vehicles
------------------------------------------------------------------------
                 Class                           Example vehicles
------------------------------------------------------------------------
Minivans...............................  Dodge Caravan, Toyota Sienna.

[[Page 49662]]

 
Small SUV/Pickup/Van...................  Ford Escape & Ranger, Nissan
                                          Rogue.
Midsize SUV/Pickup/Van.................  Chevy Colorado, Jeep Wrangler 4-
                                          door, Volvo XC70, Toyota
                                          Tacoma.
Large SUV/Pickup/Van...................  Chevy Silverado, Ford
                                          Econoline, Toyota Sequoia.
------------------------------------------------------------------------

    What technologies have already been applied to the vehicle (i.e., 
where in the ``decision trees'' is it)?
    NHTSA's methodology for technology application analysis developed 
out of the approach taken by NAS in the 2002 Report, and evaluates the 
application of individual technologies and their incremental costs and 
effectiveness. Incremental costs and effectiveness of individual 
technologies are relative to the prior technology state, which means 
that it is crucial to understand what technologies are already present 
on a vehicle in order to determine correct incremental cost and 
effectiveness values. The benefit of the incremental approach is 
transparency in accounting, insofar as when individual technologies are 
added incrementally to individual vehicles, it is clear and easy to 
determine how costs and effectiveness adds up as technology levels 
increase.
    To keep track of incremental costs and effectiveness and to know 
which technology to apply and in which order, the Volpe model's 
architecture uses a logical sequence, which NHTSA refers to as 
``decision trees,'' for applying fuel economy-improving technologies to 
individual vehicles. In the MY 2011 final rule, NHTSA worked with 
Ricardo to modify previously-employed decision trees in order to allow 
for a much more accurate application of technologies to vehicles. For 
purposes of the NPRM, NHTSA reviewed the technology sequencing 
architecture and updated, as appropriate, the decision trees used in 
the analysis reported in the final rule for MY 2011.
    In general, and as described in great detail in the MY 2011 final 
rule and in Section V of the current PRIA, each technology is assigned 
to one of the five following categories based on the system it affects 
or impacts: engine, transmission, electrification/accessory, hybrid or 
vehicle. Each of these categories has its own decision tree that the 
Volpe model uses to apply technologies sequentially during the 
compliance analysis. The decision trees were designed and configured to 
allow the Volpe model to apply technologies in a cost-effective, 
logical order that also considers ease of implementation. For example, 
software or control logic changes are implemented before replacing a 
component or system with a completely redesigned one, which is 
typically a much more expensive option. In some cases, and as 
appropriate, the model may combine the sequential technologies shown on 
a decision tree and apply them simultaneously, effectively developing 
dynamic technology packages on an as-needed basis. For example, if 
compliance demands indicate, the model may elect to apply LUB, EFR, and 
ICP on a dual overhead cam engine, if they are not already present, in 
one single step. An example simplified decision tree for engine 
technologies is provided below; the other simplified decision trees may 
be found in Chapter 3 of the joint TSD and in the PRIA. Expanded 
decision trees are available in the docket for this NPRM.
BILLING CODE 6560-50-C

[[Page 49663]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.032

BILLING CODE 6560-50-C
    Each technology within the decision trees has an incremental cost 
and an incremental effectiveness estimate associated with it, and 
estimates are specific to a particular vehicle subclass (see the tables 
in Section V of the PRIA). Each technology's incremental estimate takes 
into account its position in the decision tree path. If a technology is 
located further down the decision tree, the estimates for the costs and 
effectiveness values attributed to that technology are influenced by 
the incremental estimates of costs and effectiveness values for prior 
technology applications. In essence, this approach accounts for ``in-
path'' effectiveness synergies, as well as cost effects that occur 
between the technologies in the same path. When comparing cost and 
effectiveness estimates from various sources and those provided by 
commenters in the previous CAFE

[[Page 49664]]

rulemakings, it is important that the estimates evaluated are analyzed 
in the proper context, especially as concerns their likely position in 
the decision trees and other technologies that may be present or 
missing. Not all estimates available in the public domain or offered 
for the agencies' consideration during the comment period can be 
evaluated in an ``apples-to-apples'' comparison with those used by the 
Volpe model, since in some cases the order of application, or included 
technology content, is inconsistent with that assumed in the decision 
tree.
    The MY 2011 final rule discussed in detail the revisions and 
improvements made to the Volpe model and decision trees during that 
rulemaking process, including the improved handling and accuracy of 
valve train technology application and the development and 
implementation of a method for accounting path-dependent correction 
factors in order to ensure that technologies are evaluated within the 
proper context. The reader should consult the MY 2011 final rule 
documents for further information on these modeling techniques, all of 
which continued to be utilized in developing this proposal.\473\ To the 
extent that the decision trees have changed for purposes of this NPRM, 
it was due not to revisions in the order of technology application, but 
rather to redefinitions of technologies or addition or subtraction of 
technologies. NHTSA seeks comment on the decision trees described here 
and in the PRIA.
---------------------------------------------------------------------------

    \473\ See, e.g., 74 FR 14238-46 (Mar. 30, 2009) for a full 
discussion of the decision trees in NHTSA's MY 2011 final rule, and 
Docket No. NHTSA-2009-0062-0003.1 for an expanded decision tree used 
in that rulemaking.
---------------------------------------------------------------------------

    Is the next technology available in this model year?
    As discussed above, the majority of technologies considered are 
available on vehicles today, and thus will be available for application 
in the rulemaking time frame. Some technologies, however, will not 
become available for purposes of NHTSA's analysis until later in the 
rulemaking time frame. When the model is considering whether to add a 
technology to a vehicle, it checks its year of availability--if the 
technology is available, it may be added; if it is not available, the 
model will consider whether to switch to a different decision tree to 
look for another technology, or will skip to the next vehicle in a 
manufacturer's fleet. The year of availability for each technology is 
provided above in Table IV.C.2-1.
    Has the technology reached the phase-in cap for this model year?
    Besides the refresh/redesign cycles used in the Volpe model, which 
constrain the rate of technology application at the vehicle level so as 
to ensure a period of stability following any modeled technology 
applications, the other constraint on technology application employed 
in NHTSA's analysis is ``phase-in caps.'' Unlike vehicle-level cycle 
settings, phase-in caps constrain technology application at the vehicle 
manufacturer level.\474\ They are intended to reflect a manufacturer's 
overall resource capacity available for implementing new technologies 
(such as engineering and development personnel and financial 
resources), thereby ensuring that resource capacity is accounted for in 
the modeling process. At a high level, phase-in caps and refresh/
redesign cycles work in conjunction with one another to avoid the 
modeling process out-pacing an OEM's limited pool of available 
resources during the rulemaking time frame, especially in years where 
many models may be scheduled for refresh or redesign. This helps to 
ensure technological feasibility and economic practicability in 
determining the stringency of the standards.
---------------------------------------------------------------------------

    \474\ While phase-in caps are expressed as specific percentages 
of a manufacturer's fleet to which a technology may be applied in a 
given model year, phase-in caps cannot always be applied as precise 
limits, and the Volpe model in fact allows ``override'' of a cap in 
certain circumstances. When only a small portion of a phase-in cap 
limit remains, or when the cap is set to a very low value, or when a 
manufacturer has a very limited product line, the cap might prevent 
the technology from being applied at all since any application would 
cause the cap to be exceeded. Therefore, the Volpe model evaluates 
and enforces each phase-in cap constraint after it has been exceeded 
by the application of the technology (as opposed to evaluating it 
before application), which can result in the described overriding of 
the cap.
---------------------------------------------------------------------------

    NHTSA has been developing the concept of phase-in caps over the 
course of the last several CAFE rulemakings, as discussed in greater 
detail in the MY 2011 final rule,\475\ and in Section V of the PRIA and 
Chapter 3 of the joint TSD. The MY 2011 final rule employed non-linear 
phase-in caps (that is, caps that varied from year to year) that were 
designed to respond to comments raising lead-time concerns in reference 
to the agency's proposed MY 2011-2015 standards, but because the final 
rule covered only one model year, many phase-in caps for that model 
year were lower than had originally been proposed. NHTSA emphasized 
that the MY 2011 phase-in caps were based on assumptions for the full 
five year period of the proposal (2011-2015), and stated that it would 
reconsider the phase-in settings for all years beyond 2011 in a future 
rulemaking analysis.
---------------------------------------------------------------------------

    \475\ 74 FR 14268-14271 (Mar. 30, 2009).
---------------------------------------------------------------------------

    For purposes of the current proposal for MYs 2012-2016, as in the 
MY 2011 final rule, NHTSA combines phase-in caps for some groups of 
similar technologies, such as valve phasing technologies that are 
applicable to different forms of engine design (SOHC, DOHC, OHV), since 
they are very similar from an engineering and implementation 
standpoint. When the phase-in caps for two technologies are combined, 
the maximum total application of either or both to any manufacturer's 
fleet is limited to the value of the cap.\476\ In contrast to the 
phase-in caps used in the MY 2011 final rule, NHTSA has increased the 
phase-in caps for most of the technologies, as discussed below.
---------------------------------------------------------------------------

    \476\ See 74 FR 14270 (Mar 30, 2009) for further discussion and 
examples.
---------------------------------------------------------------------------

    In developing phase-in cap values for purposes of the current 
proposal, NHTSA initially considered the fact that many of the 
technologies commonly applied by the model, those placed near the top 
of the decision trees, such as low friction lubes, valve phasing, 
electric power steering, improved automatic transmission controls, and 
others, have been commonly available to manufacturers for several years 
now. Many technologies, in fact, precede the 2002 NAS Report, which 
estimated that such technologies would take 4 to 8 years to penetrate 
the fleet. Since the current proposal would take effect in MY 2012, 
nearly 10 years beyond the NAS report, and extends to MY 2016, and in 
the interest of harmonization with EPA's proposal, NHTSA tentatively 
determined that higher phase-in caps were likely justified. 
Additionally, NHTSA considered the fact that manufacturers, as part of 
the agreements supporting the National Program, appear to be 
anticipating higher technology application rates than those used in the 
MY 2011 final rule. This also supported higher phase-in caps for 
purposes of the proposal.
    Thus, while phase-in caps for the MY 2011 final rule reached a 
maximum of 50 percent for a couple of technologies and generally fell 
in the range between 0 and 20 percent, phase-in caps for this NPRM for 
the majority of technologies are set to reach 85 or 100 percent by MY 
2016, although more advanced technologies like diesels and strong 
hybrids reach only 15 percent by MY 2016.
    Theoretically, significantly higher phase-in caps, such as those 
used in the current proposal as compared to those used in the MY 2011 
final rule, should

[[Page 49665]]

result in higher levels of technology penetration in the modeling 
results. Reviewing the modeling output does not, however, indicate 
unreasonable levels of technology penetration for the proposed 
standards.\477\ NHTSA believes that this is due to the interaction of 
the various changes in methodology for the current proposal--changes to 
phase-in caps are but one of a number of revisions to the Volpe model 
and its inputs that could potentially impact the rate at which 
technologies are applied in this proposal as compared to prior 
rulemakings. Other revisions that could impact application rates 
include the use of transparent CAFE certification data in baseline 
fleet formulation and the use of other data for projecting it 
forward,\478\ or the use of a multi-year planning programming technique 
to apply technology retroactively to earlier-MY vehicles, both of which 
may have a direct impact on the modeling process. Conversely the model 
and inputs remain unchanged in other areas that also could impact 
technology application, such as in the refresh/redesign cycle settings, 
estimates used for the technologies, both of which remain largely 
unchanged from the MY 2011 final rule. These changes together make it 
difficult to predict how phase-in caps should be expected to function 
in the new modeling process.
---------------------------------------------------------------------------

    \477\ The modeling output for the analysis underlying these 
proposed standards is available on NHTSA's Web site.
    \478\ The baseline fleet sets the starting point, from a 
technology point of view, for where the model begins the technology 
application process, so changes have a direct impact on the net 
application of technology.
---------------------------------------------------------------------------

    Thus, after reviewing the output files, NHTSA tentatively concludes 
that the higher phase-in caps, and the resulting technology application 
rates produced by the Volpe model, at both the industry and 
manufacturer level, are appropriate for this proposal, achieving a 
suitable level of stringency without requiring unrealistic or 
unachievable penetration rates. However, the agency will consider 
comments received on this approach in determining what phase-in caps to 
employ in the analysis for the final rule, and may change the caps in 
response to comments and/or further analysis. One additional question 
the agency has, which may be primarily academic at this point, is what 
impact lower phase-in caps, such as those used in earlier rulemakings, 
would have on compliance costs (and whether they might counter-
intuitively increase costs by forcing more expensive technologies). 
NHTSA seeks comment on the revised phase-in caps as compared to the MY 
2011 final rule, and particularly on whether, combined with the refresh 
and redesign assumptions, they help to ensure sufficient lead time for 
manufacturers to make the technology changes required by the proposed 
standards. Readers are invited to review and assess the phase-in caps 
listed and described more fully in Section V of the PRIA, along with 
the application and penetration rates found in the Volpe model's output 
files, and after making their own assessment, provide comment and 
recommendations to the agency as appropriate.
    Is the technology less expensive due to learning effects?
    Historically, NHTSA did not explicitly account for the cost 
reductions a manufacturer might realize through learning achieved from 
experience in actually applying a technology. Since working with EPA to 
develop the 2008 NPRM for MYs 2011-2015, and with Ricardo to refine the 
concept for the March 2009 MY 2011 final rule, NHTSA has accounted for 
these cost reductions through two kinds of mutually exclusive learning, 
``volume-based'' and ``time-based'' which it continues to use in this 
proposal, as discussed below.
    In the 2008 NPRM, NHTSA applied learning factors to technology 
costs for the first time. These learning factors were developed using 
the parameters of learning threshold, learning rate, and the initial 
cost, and were based on the ``experience curve'' concept which 
describes reductions in production costs as a function of accumulated 
production volume. The typical curve shows a relatively steep initial 
decline in cost which flattens out to a gentle downwardly sloping line 
as the volume increase to large values. In the NPRM, NHTSA applied a 
learning rate discount of 20 percent for each successive doubling of 
production volume (on a per manufacturer basis), and a learning 
threshold of 25,000 units was assumed (thus a technology was viewed as 
being fully learned out at 100,000 units). The factor was only applied 
to certain technologies that were considered emerging or newly 
implemented on the basis that significant cost improvements would be 
achieved as economies of scale were realized (i.e., the technologies 
were on the steep part of the curve).
    In the MY 2011 final rule, NHTSA continued to use this learning 
factor, referring to it as volume-based learning since the cost 
reductions were determined by production volume increases, and again 
only applied it to emerging technologies. However, and in response to 
comments, NHTSA revised its assumptions on learning threshold, basing 
them instead on an industry-wide production basis, and increasing the 
threshold to 300,000 units annually.
    Commenters to the 2008 NPRM also described another type of learning 
factor which NHTSA decided to adopt and implement in the MY 2011 final 
rule. Commenters described a relatively small negotiated cost decrease 
that occurred on an annual basis through contractual agreements with 
first tier component and systems suppliers for readily available, high 
volume technologies commonly in use by multiple OEMs. Based on the same 
experience curve principal, however at production volumes that were on 
the flatter part of the curve (and thus the types of volumes that 
represent annual industry volumes), NHTSA adopted this type learning 
and referred to it as time-based learning. An annual cost reduction of 
3 percent in the second and each subsequent year, which was consistent 
with estimates from commenters and supported by work Ricardo conducted 
for NHTSA, was used in the final rule.
    In developing this proposal, NHTSA and EPA have reviewed both types 
of learning factors, and the thresholds (300,000) and reduction rates 
(20 percent for volume,\479\ 3 percent for time-based) they rely on, 
and as implemented in the MY 2011 final rule, and agreed that both 
factors continue to be accurate and appropriate; each agency has thus 
implemented time- and volume-based learning in their analyses. Noting 
that only one type of learning can be applied to any single technology, 
if any learning is applied at all, the agencies reviewed each to 
determine which learning factor was appropriate. Volume-based learning 
is applied to the higher complexity hybrid technologies, while no 
learning is applied to technologies likely to be affected by commodity 
costs (LUB, ROLL) or that have loosely-defined BOMs (EFR, LDB), as was 
the case in the MY 2011 final rule. Chapter 3 of the joint TSD shows 
the specific learning factors that NHTSA has applied in this analysis 
for each technology, and discusses learning factors and each agencies' 
use of them further. NHTSA seeks comment on its use of learning 
factors, including the types, the thresholds, and the reduction rates 
proposed, and particularly on the revisions to the learning (time- and 
volume-based) logic as compared to the MY 2011 final rule.
---------------------------------------------------------------------------

    \479\ NHTSA will conduct a sensitivity analysis on the volume-
based learning value of 20 percent for the final rule.
---------------------------------------------------------------------------

    Is the technology more or less effective due to synergistic 
effects?
    When two or more technologies are added to a particular vehicle 
model to

[[Page 49666]]

improve its fuel efficiency and reduce CO2 emissions, the 
resultant fuel consumption reduction may sometimes be higher or lower 
than the product of the individual effectiveness values for those 
items.\480\ This may occur because one or more technologies applied to 
the same vehicle partially address the same source (or sources) of 
engine, drivetrain or vehicle losses. Alternately, this effect may be 
seen when one technology shifts the engine operating points, and 
therefore increases or reduces the fuel consumption reduction achieved 
by another technology or set of technologies. The difference between 
the observed fuel consumption reduction associated with a set of 
technologies and the product of the individual effectiveness values in 
that set is referred to for purposes of this rulemaking as a 
``synergy.'' Synergies may be positive (increased fuel consumption 
reduction compared to the product of the individual effects) or 
negative (decreased fuel consumption reduction). An example of a 
positive synergy might be a vehicle technology that reduces road loads 
at highway speeds (e.g., lower aerodynamic drag or low rolling 
resistance tires), that could extend the vehicle operating range over 
which cylinder deactivation may be employed. An example of a negative 
synergy might be a variable valvetrain system technology, which reduces 
pumping losses by altering the profile of the engine speed/load map, 
and a six-speed automatic transmission, which shifts the engine 
operating points to a portion of the engine speed/load map where 
pumping losses are less significant. As the complexity of the 
technology combinations is increased, and the number of interacting 
technologies grows accordingly, it becomes increasingly important to 
account for these synergies.
---------------------------------------------------------------------------

    \480\ More specifically, the products of the differences between 
one and the technology-specific levels of effectiveness in reducing 
fuel consumption. For example, not accounting for interactions, if 
technologies A and B are estimated to reduce fuel consumption by 10% 
(i.e., 0.1) and 20% (i.e., 0.2) respectively, the ``product of the 
individual effectiveness values'' would be 1-0.1 times 1-0.2, or 0.9 
times 0.8, which equals 0.72, corresponding to a combined 
effectiveness of 28% rather than the 30% obtained by adding 10% to 
20%. The ``synergy factors'' discussed in this section further 
adjust these multiplicatively combined effectiveness values.
---------------------------------------------------------------------------

    NHTSA and EPA determined synergistic impacts for this rulemaking 
using EPA's ``lumped parameter'' analysis tool, which EPA described at 
length in its March 2008 Staff Technical Report.\481\ The lumped 
parameter tool is a spreadsheet model that represents energy 
consumption in terms of average performance over the fuel economy test 
procedure, rather than explicitly analyzing specific drive cycles. The 
tool begins with an apportionment of fuel consumption across several 
loss mechanisms and accounts for the average extent to which different 
technologies affect these loss mechanisms using estimates of engine, 
drivetrain and vehicle characteristics that are averaged over the EPA 
fuel economy drive cycle. Results of this analysis were generally 
consistent with those of full-scale vehicle simulation modeling 
performed in 2007 by Ricardo, Inc.
---------------------------------------------------------------------------

    \481\ EPA Staff Technical Report: Cost and Effectiveness 
Estimates of Technologies Used to Reduce Light-duty Vehicle Carbon 
Dioxide Emissions; EPA420-R-08-008, March 2008.
---------------------------------------------------------------------------

    For the current rulemaking, NHTSA used the lumped parameter tool as 
modified in the MY 2011 CAFE final rule. NHTSA modified the lumped 
parameter tool from the version described in the EPA Staff Technical 
Report in response to public comments received in its rulemaking. The 
modifications included updating the list of technologies and their 
associated effectiveness values to match the updated list of 
technologies used in the final rule. NHTSA also expanded the list of 
synergy pairings based on further consideration of the technologies for 
which a competition for losses would be expected. These losses are 
described in more detail in Section V of the PRIA.
    NHTSA and EPA incorporate synergistic impacts in their analyses in 
slightly different manners. Because NHTSA applies technologies 
individually in its modeling analysis, NHTSA incorporates synergistic 
effects between pairings of individual technologies. The use of 
discrete technology pair incremental synergies is similar to that in 
DOE's National Energy Modeling System (NEMS).\482\ Inputs to the Volpe 
model incorporate NEMS-identified pairs, as well as additional pairs 
from the set of technologies considered in the Volpe model.
---------------------------------------------------------------------------

    \482\ U.S. Department of Energy, Energy Information 
Administration, Transportation Sector Module of the National Energy 
Modeling System: Model Documentation 2007, May 2007, Washington, DC, 
DOE/EIAM070(2007), at 29-30. Available at http://tonto.eia.doe.gov/ftproot/modeldoc/m070(2007).pdf (last accessed Jul. 6, 2009).
---------------------------------------------------------------------------

    NHTSA notes that synergies that occur within a decision tree are 
already addressed within the incremental values assigned and therefore 
do not require a synergy pair to address. For example, all engine 
technologies take into account incremental synergy factors of preceding 
engine technologies, and all transmission technologies take into 
account incremental synergy factors of preceding transmission 
technologies. These factors are expressed in the fuel consumption 
improvement factors in the input files used by the Volpe model.
    For applying incremental synergy factors in separate path 
technologies, the Volpe model uses an input table (see the tables in 
Chapter 3 of the TSD and in the PRIA) which lists technology pairings 
and incremental synergy factors associated with those pairings, most of 
which are between engine technologies and transmission/electrification/
hybrid technologies. When a technology is applied to a vehicle by the 
Volpe model, all instances of that technology in the incremental 
synergy table which match technologies already applied to the vehicle 
(either pre-existing or previously applied by the Volpe model) are 
summed and applied to the fuel consumption improvement factor of the 
technology being applied. Synergies for the strong hybrid technology 
fuel consumption reductions are included in the incremental value for 
the specific hybrid technology block since the model applies 
technologies in the order of the most effectiveness for least cost and 
also applies all available electrification and transmission 
technologies before applying strong hybrid technologies. NHTSA seeks 
comment on whether the synergistic effects presented are accurate, and 
whether there are other synergies that the agency may have overlooked.
d. Where Can Readers Find More Detailed Information About NHTSA's 
Technology Analysis?
    Much more detailed information is provided in Section V of the 
PRIA, and a discussion of how NHTSA and EPA jointly reviewed and 
updated technology assumptions for purposes of this NPRM is available 
in Chapter 3 of the TSD. Additionally, all of NHTSA's model input and 
output files are now public and available for the reader's review and 
consideration. The technology input files can be found in the docket 
for this NPRM, Docket No. NHTSA-2009-0059, and on NHTSA's Web site. And 
finally, because much of NHTSA's technology analysis for purposes of 
this NPRM builds on the work that was done for the MY 2011 final rule, 
we refer readers to that document as well for background information 
concerning how NHTSA's methodology for technology application analysis 
has evolved over the past several rulemakings, both in response to 
comments and as a result of the agency's

[[Page 49667]]

growing experience with this type of analysis.\483\
---------------------------------------------------------------------------

    \483\ 74 FR 14233-308 (Mar. 30, 2009).
---------------------------------------------------------------------------

3. How Did NHTSA Develop the Economic Assumption Inputs?
    NHTSA's preliminary analysis of alternative CAFE standards for the 
model years covered by this proposed rulemaking relies on a range of 
forecast variables, economic assumptions, and parameter values. This 
section describes the proposed sources of these forecasts, the 
rationale underlying each assumption, and the agency's preliminary 
choices of specific parameter values. These proposed economic values 
play a significant role in determining the benefits of alternative CAFE 
standards, as they have for the last several CAFE rulemakings. Under 
those alternatives where standards would be established by reference to 
their costs and benefits, these economic values also affect the levels 
of the CAFE standards themselves. Some of these variables have more 
important effects on the level of CAFE standards and the benefits from 
requiring alternative increases in fuel economy than do others.
    In reviewing these variables and the agency's estimates of their 
values for purposes of this NPRM, NHTSA reconsidered previous comments 
it had received and reviewed newly available literature. As a 
consequence, the agency elected to revise some of its economic 
assumptions and parameter estimates, while retaining others. Some of 
the most important changes, which are discussed in greater detail 
below, as well as in Chapter 4 of the joint TSD and in Chapter VIII of 
the PRIA, include significant revisions to the markup factors for 
technology costs; reducing the rebound effect from 15 to 10 percent; 
and revising the value of reducing CO2 emissions based on 
recent interagency efforts to develop estimates of this value for 
government-wide use. For the reader's reference, Table IV.C.3-1 below 
summarizes the values used to calculate the economic benefits from each 
alternative. The agency seeks comment on the economic assumptions 
presented in the table and discussed below.

        Table IV.C.3-1--Economic Values for Benefits Computations
                                 (2007$)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Fuel Economy Rebound Effect.............................             10%
``Gap'' between test and on-road MPG....................             20%
Value of refueling time per ($ per vehicle-hour)........         $ 24.64
Annual growth in average vehicle use....................            1.1%
Fuel Prices (2012-50 average, $/gallon)                   ..............
    Retail gasoline price...............................           $3.77
    Pre-tax gasoline price..............................           $3.40
Economic Benefits from Reducing Oil Imports ($/gallon)    ..............
    ``Monopsony'' Component.............................          $ 0.00
    Price Shock Component...............................          $ 0.17
    Military Security Component.........................          $ 0.00
                                                         ---------------
        Total Economic Costs ($/gallon).................          $ 0.17
Emission Damage Costs (2020, $/ton or $/metric ton)       ..............
    Carbon monoxide.....................................             $ 0
    Volatile organic compounds (VOC)....................         $ 1,283
    Nitrogen oxides (NOx)--vehicle use..................         $ 5,116
    Nitrogen oxides (NOx)--fuel production and                   $ 5,339
     distribution.......................................
    Particulate matter (PM2.5)--vehicle use.............       $ 238,432
    Particulate matter (PM2.5)--fuel production and            $ 292,180
     distribution.......................................
    Sulfur dioxide (SO2)................................        $ 30,896
    Carbon dioxide (CO2)................................            $ 20
    Annual Increase in CO2 Damage Cost..................              3%
External Costs from Additional Automobile Use ($/vehicle- ..............
 mile)
    Congestion..........................................         $ 0.054
    Accidents...........................................         $ 0.023
    Noise...............................................         $ 0.001
                                                         ---------------
        Total External Costs............................         $ 0.078
External Costs from Additional Light Truck Use ($/        ..............
 vehicle-mile)
    Congestion..........................................          $0.048
    Accidents...........................................          $0.026
    Noise...............................................          $0.001
                                                         ---------------
        Total External Costs............................          $0.075
Discount Rate Applied to Future Benefits................              3%
------------------------------------------------------------------------

a. Costs of Fuel Economy-Improving Technologies
    We developed detailed estimates of the costs of applying fuel 
economy-improving technologies to vehicle models jointly with EPA for 
use in analyzing the impacts of alternative standards considered in 
this rulemaking. The estimates were based on those reported by the 2002 
NAS Report analyzing costs for increasing fuel economy, but were 
modified for purposes of this analysis as a result of extensive 
consultations among engineers from NHTSA, EPA, and the Volpe Center. As 
part of this process, the agency also developed varying cost estimates 
for applying certain fuel economy technologies to vehicles of different 
sizes and body styles. We may adjust these cost estimates based on 
comments received to this NPRM.
    The technology cost estimates used in this analysis are intended to 
represent

[[Page 49668]]

manufacturers' direct costs for high-volume production of vehicles with 
these technologies and sufficient experience with their application so 
that all remaining cost reductions due to ``learning curve'' effects 
have been fully realized. However, NHTSA recognizes that manufacturers' 
actual costs for employing these technologies include additional 
outlays for accompanying design or engineering changes to models that 
use them, development and testing of prototype versions, recalibrating 
engine operating parameters, and integrating the technology with other 
attributes of the vehicle. Manufacturers' indirect costs for employing 
these technologies also include expenses for product development and 
integration, modifying assembly processes and training assembly workers 
to install them, increased expenses for operation and maintaining 
assembly lines, higher initial warranty costs for new technologies, any 
added expenses for selling and distributing vehicles that use these 
technologies, and manufacturer and dealer profit. In previous CAFE 
rulemakings and in NHTSA's safety rulemakings, the agency has accounted 
for these additional costs by using a Retail Price Equivalent (RPE) 
multiplier of 1.5. For purposes of this rulemaking, based on recent 
work by EPA, NHTSA has applied indirect cost multipliers ranging from 
1.11 to 1.64 to the estimates of vehicle manufacturers' direct costs 
for producing or acquiring each technology to improve fuel 
economy.\484\ These multipliers vary with the complexity of each 
technology and the time frame over which costs are estimated. More 
complex technologies are associated with higher multipliers because of 
the larger increases in manufacturers' indirect costs for developing, 
producing (or procuring), and deploying these more complex 
technologies. The appropriate multipliers decline over time for 
technologies of all complexity levels, since increased familiarity and 
experience with their application is assumed to reduce manufacturers' 
indirect costs for employing them. NHTSA seeks comment regarding the 
new indirect cost multiplier approach to technology costs estimates. We 
note additionally that this issue will be addressed in the upcoming 
revised NAS report.
---------------------------------------------------------------------------

    \484\ NHTSA notes that in addition to the technology cost 
analysis employing this ``ICM'' approach, the PRIA contains a 
sensitivity analysis using a technology cost multiplier of 1.5.
---------------------------------------------------------------------------

b. Potential Opportunity Costs of Improved Fuel Economy
    An important concern is whether achieving the fuel economy 
improvements required by alternative CAFE standards would require 
manufacturers to compromise the performance, carrying capacity, safety, 
or comfort of their vehicle models. To the extent that it does so, the 
resulting sacrifice in the value of these attributes to consumers 
represents an additional cost of achieving the required improvements in 
fuel economy. While exact dollar values of these attributes to 
consumers are difficult to infer, differences in vehicle purchase 
prices and buyers' choices among competing models that feature 
different combinations of these characteristics clearly demonstrate 
that changing vehicle attributes clearly affect the utility and 
economic value that vehicles provide to potential buyers.\485\
---------------------------------------------------------------------------

    \485\ See, e.g., Kleit A.N., 1990. ``The Effect of Annual 
Changes in Automobile Fuel Economy Standards.'' Journal of 
Regulatory Economics 2: 151-172; Berry, Steven, James Levinsohn, and 
Ariel Pakes, 1995. ``Automobile Prices in Market Equilibrium,'' 
Econometrica 63(4): 841-940; McCarthy, Patrick S., 1996. ``Market 
Price and Income Elasticities of New Vehicle Demands.'' Review of 
Economics and Statistics 78: 543-547; and Goldberg, Pinelopi K., 
1998. ``The Effects of the Corporate Average Fuel Efficiency 
Standards in the US,'' Journal of Industrial Economics 46(1): 1-33.
---------------------------------------------------------------------------

    NHTSA and EPA have approached this potential problem by developing 
cost estimates for fuel economy-improving technologies that include any 
additional manufacturing costs that would be necessary to maintain the 
originally planned levels of performance, comfort, carrying capacity, 
and safety of any light-duty vehicle model to which those technologies 
are applied. In doing so, the agencies followed the precedent 
established by the 2002 NAS Report, which estimated ``constant 
performance and utility'' costs for fuel economy technologies. NHTSA 
has used these as the basis for its continuing efforts to refine the 
technology costs it uses to analyze manufacturer's costs for complying 
with alternative passenger car and light truck CAFE standards for MYs 
2012-2016. Although the agency has revised its estimates of 
manufacturers' costs for some technologies significantly for use in 
this rulemaking, these revised estimates are still intended to 
represent costs that would allow manufacturers to maintain the 
performance, carrying capacity, and utility of vehicle models while 
improving their fuel economy.
    Although we believe that our tentative cost estimates for fuel 
economy-improving technologies should be generally sufficient to 
prevent significant reductions in consumer welfare provided by vehicle 
models to which manufacturers apply those technologies, it is possible 
that they do not include adequate allowance for the necessary efforts 
by manufacturers to prevent sacrifices in these attributes on all 
vehicle models. If this is the case, the true economic costs of 
achieving higher fuel economy should include the opportunity costs to 
vehicle owners of any sacrifices in vehicles' performance, carrying 
capacity, and utility and the agency's estimated technology costs would 
underestimate the true economic costs of improving fuel economy.
    Recognizing this possibility, it may be preferable for NHTSA to 
estimate explicitly the changes in vehicle buyers' welfare from the 
combination of higher prices for new vehicle models, increases in their 
fuel economy, and any accompanying changes in vehicle attributes such 
as performance, passenger- and cargo-carrying capacity, or other 
dimensions of utility. The net change in buyer's welfare that results 
from the combination of these changes would provide a more accurate 
estimate of the true economic costs for improving fuel economy. The 
agency seeks comment on this or other possible ways to deal with this 
extremely important issue.
c. The On-Road Fuel Economy ``Gap''
    Actual fuel economy levels achieved by light-duty vehicles in on-
road driving fall somewhat short of their levels measured under the 
laboratory-like test conditions used by EPA to establish its published 
fuel economy ratings for different models. In analyzing the fuel 
savings from alternative CAFE standards, NHTSA has previously adjusted 
the actual fuel economy performance of each light truck model downward 
from its rated value to reflect the expected size of this on-road fuel 
economy ``gap.'' On December 27, 2006, EPA adopted changes to its 
regulations on fuel economy labeling, which were intended to bring 
vehicles' rated fuel economy levels closer to their actual on-road fuel 
economy levels.\486\
---------------------------------------------------------------------------

    \486\ 71 FR 77871 (Dec. 27, 2006).
---------------------------------------------------------------------------

    In its Final Rule, EPA estimated that actual on-road fuel economy 
for light-duty vehicles averages 20 percent lower than published fuel 
economy levels. For example, if the overall EPA fuel economy rating of 
a light truck is 20 mpg, the on-road fuel economy actually achieved by 
a typical driver of that vehicle is expected to be 16 mpg (20*.80). 
NHTSA employed EPA's revised estimate of this on-road fuel economy gap 
in its analysis of the fuel

[[Page 49669]]

savings resulting from alternative CAFE standards evaluated in the MY 
2011 final rule.
    For purposes of this NPRM, NHTSA conducted additional analysis of 
this issue. The agency used data on the number of passenger cars and 
light trucks of each model year that were registered for use during 
calendar years 2000 through 2006, average fuel economy for passenger 
cars and light trucks produced during each model year, and estimates of 
average miles driven per year by cars and light trucks of different 
ages. These data were combined to develop estimates of the average fuel 
economy that the U.S. passenger car and light truck fleets would have 
achieved from 2000 through 2006 under test conditions.
    NHTSA compared these estimates to the Federal Highway 
Administration's (FHWA) published values of actual on-road fuel economy 
for passenger cars and light trucks during each of those years.\487\ 
FHWA's estimates of actual fuel economy for passenger cars averaged 22 
percent lower than NHTSA's estimates of its fleet-wide average value 
under test conditions over this period, while FHWA's estimates for 
light trucks averaged 17 lower than NHTSA's estimates of average light 
truck fuel economy under test conditions. These results appear to 
confirm that the 20 percent on-road fuel economy discount or gap 
represents a reasonable estimate for use in evaluating the fuel savings 
likely to result from alternative CAFE standards for MY 2012-2016 
vehicles.
---------------------------------------------------------------------------

    \487\ Federal Highway Administration, Highway Statistics, 2000 
through 2006 editions, Table VM-1; see http://www.fhwa.dot.gov/policy/ohpi/hss/hsspubs.cfm (last accessed July 27, 2009).
---------------------------------------------------------------------------

d. Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the 
preliminary economic analysis of alternative CAFE standards, because 
they determine the value of fuel savings both to new vehicle buyers and 
to society. NHTSA relied on the most recent fuel price projections from 
the U.S. Energy Information Administration's (EIA) Annual Energy 
Outlook (AEO) for this analysis. Specifically, we used the AEO 2009 
(April 2009 release) Reference Case forecasts of inflation-adjusted 
(constant-dollar) retail gasoline and diesel fuel prices, which 
represent the EIA's most up-to-date estimate of the most likely course 
of future prices for petroleum products.\488\
---------------------------------------------------------------------------

    \488\ Energy Information Administration, Annual Energy Outlook 
2009, Revised Updated Reference Case (April 2009), Table 12. 
Available at http://www.eia.doe.gov/oiaf/servicerpt/stimulus/excel/aeostimtab_12.xls(last accessed July 26, 2009). EIA's Updated 
Reference Case reflects the effects of the American Reinvestment and 
Recovery Act of 2009, as well as the most recent revisions to the 
U.S. and global economic outlook.
---------------------------------------------------------------------------

    While NHTSA relied on the forecasts of fuel prices presented in AEO 
2008 High Price Case in the MY 2011 final rule, we noted at the time 
that we were relying on that estimate primarily because volatility in 
the oil market appeared to have overtaken the Reference Case, and that 
we anticipated that the Reference Case forecast would be significantly 
higher in the next AEO. In fact, EIA's AEO 2009 Reference Case forecast 
projects higher retail fuel prices in most future years than those 
forecast in the High Price Case from AEO 2008. NHTSA is thus confident 
that the AEO 2009 Reference Case is an appropriate forecast for 
projected future fuel prices.
    Measured in constant 2007 dollars, the Reference Case forecast of 
retail gasoline prices during calendar year 2020 is $3.62 per gallon, 
rising gradually to $3.82 by the year 2030 (these values include 
Federal, State and local taxes). To obtain fuel price forecasts for the 
years 2031 through 2050, the agency assumes that retail fuel prices 
will continue to increase after 2030 at the average annual rates 
projected for 2020-2030 in the AEO 2009 Revised Reference Case.\489\ 
This assumption results in a projected retail price of gasoline that 
reaches $4.25 in 2007 dollars by the year 2050.
---------------------------------------------------------------------------

    \489\ This projection uses the rate of increase in fuel prices 
for 2020-2030 rather than that over the complete forecast period 
(2009-2030) because there is extreme volatility in the forecasts for 
the years 2009 through approximately 2020. Using the average rate of 
change over the complete 2009-2030 forecast period would result in 
projections of declining fuel prices after 2030.
---------------------------------------------------------------------------

    The value of fuel savings resulting from improved fuel economy to 
buyers of light-duty vehicles is determined by the retail price of 
fuel, which includes Federal, State, and any local taxes imposed on 
fuel sales. Total taxes on gasoline, including Federal, State, and 
local levies averaged $0.42 per gallon during 2006, while those levied 
on diesel averaged $0.50. Because fuel taxes represent transfers of 
resources from fuel buyers to government agencies, however, rather than 
real resources that are consumed in the process of supplying or using 
fuel, their value must be deducted from retail fuel prices to determine 
the value of fuel savings resulting from more stringent CAFE standards 
to the U.S. economy as a whole.
    NHTSA follows the assumptions used by EIA in AEO 2009 that State 
and local gasoline taxes will keep pace with inflation in nominal 
terms, and thus remain constant when expressed in constant 2007 
dollars. In contrast, EIA assumes that Federal gasoline taxes will 
remain unchanged in nominal terms, and thus decline throughout the 
forecast period when expressed in constant 2007 dollars. These 
differing assumptions about the likely future behavior of Federal and 
State/local fuel taxes are consistent with recent historical 
experience, which reflects the fact that Federal as well as most State 
motor fuel taxes are specified on a cents-per-gallon basis, and 
typically require legislation to change.
    The projected value of total taxes is deducted from each future 
year's forecast of retail gasoline and diesel prices reported in AEO 
2009 to determine the economic value of each gallon of fuel saved 
during that year as a result of improved fuel economy. Subtracting fuel 
taxes results in a projected value for saving gasoline of $3.22 per 
gallon during 2020, rising to $3.45 per gallon by the year 2030.
    EIA includes ``High Price Case'' and ``Low Price Case'' forecasts 
in each AEO, which reflect uncertainties regarding future levels of oil 
production and demand. These alternative scenarios project retail 
gasoline prices that range from a low of $2.02 to a high of $5.04 per 
gallon during 2020, and from $2.04 to $5.47 per gallon during 2030. In 
conjunction with our assumption that fuel taxes will remain constant in 
real or inflation-adjusted terms over this period, these forecasts 
imply pre-tax values of saving fuel ranging from $1.63 to $4.65 per 
gallon during 2020, and from $1.67 to $5.10 per gallon in 2030. In 
conducting the preliminary analysis of uncertainty in benefits and 
costs from alternative CAFE standards required by OMB, NHTSA evaluated 
the sensitivity of its benefits estimates to these alternative 
forecasts of future fuel prices. The results of this sensitivity 
analysis can be found in the PRIA.
e. Consumer Valuation of Fuel Economy and Payback Period
    In estimating the value of fuel economy improvements that would 
result from alternative CAFE standards to potential vehicle buyers, 
NHTSA assumes, as in the MY 2011 final rule, that buyers value the 
resulting fuel savings over only part of the expected lifetime of the 
vehicles they purchase. Specifically, we assume that buyers value fuel 
savings over the first five years of a new vehicle's lifetime, and 
discount the value of these future fuel savings at a 3 percent annual 
rate. The five-year figure represents

[[Page 49670]]

approximately the current average term of consumer loans to finance the 
purchase of new vehicles. We recognize that the period over which 
individual buyers finance new vehicle purchases may not correspond 
exactly to the time horizons they apply in valuing fuel savings from 
higher fuel economy.
    The agency deducts the discounted present value of fuel savings 
over the first five years of a vehicle model's lifetime from the 
technology costs incurred by its manufacturer to improve that model's 
fuel economy to determine the increase in its ``effective price'' to 
buyers. The Volpe model uses these estimates of effective costs for 
increasing the fuel economy of each vehicle model to identify the order 
in which manufacturers would be likely to select models for the 
application of fuel economy-improving technologies in order to comply 
with stricter standards. The average value of the resulting increase in 
effective cost from each manufacturer's simulated compliance strategy 
is also used to estimate the impact of alternative standards on its 
total sales for future model years.
    However, it is important to recognize that NHTSA estimates the 
aggregate value to the U.S. economy of fuel savings resulting from 
alternative standards--or their ``social'' value--over the entire 
expected lifetimes of vehicles manufactured under those standards, 
rather than over this shorter ``payback period'' we assume for their 
buyers. The procedure the agency uses for doing so is discussed in 
detail in the following section.
f. Vehicle Survival and Use Assumptions
    NHTSA's first step in estimating lifetime fuel consumption by 
vehicles produced during a model year is to calculate the number 
expected to remain in service during each year following their 
production and sale.\490\ This is calculated by multiplying the number 
of vehicles originally produced during a model year by the proportion 
typically expected to remain in service at their age during each later 
year, often referred to as a ``survival rate.''
---------------------------------------------------------------------------

    \490\ Vehicles are defined to be of age 1 during the calendar 
year corresponding to the model year in which they are produced; 
thus for example, model year 2000 vehicles are considered to be of 
age 1 during calendar year 2000, age 1 during calendar year 2001, 
and to reach their maximum age of 26 years during calendar year 
2025. NHTSA considers the maximum lifetime of vehicles to be the age 
after which less than 2 percent of the vehicles originally produced 
during a model year remain in service. Applying these conventions to 
vehicle registration data indicates that passenger cars have a 
maximum age of 26 years, while light trucks have a maximum lifetime 
of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed July 27, 2009).
---------------------------------------------------------------------------

    To estimate production volumes of passenger cars and light trucks 
for individual manufacturers, NHTSA relied on a baseline market 
forecast constructed by EPA staff beginning with MY 2008 CAFE 
certification data. After constructing a MY 2008 baseline, EPA used 
projected car and truck volumes for this period from Energy Information 
Administration's (EIA's) 2009 Annual Energy Outlook (AEO).\491\ 
However, AEO projects sales only at the car and truck level, not at the 
manufacturer and model-specific level, which are needed in order to 
estimate the effects new standards will have on individual 
manufacturers.\492\ Therefore, EPA purchased data from CSM-Worldwide 
and used their projections of the number of vehicles of each type 
predicted to be sold by manufacturers in 2011-2015.\493\ This provided 
the year-by-year percentages of cars and trucks sold by each 
manufacturer as well as the percentages of each vehicle segment. 
Although it was thus necessary to assume the same manufacturer and 
segment shares in 2016 as in 2015, 2016 estimates from CSM should be 
available for the final rule. Using these percentages normalized to the 
AEO projected volumes then provided the manufacturer-specific market 
share and model-specific sales for model years 2011-2016.
---------------------------------------------------------------------------

    \491\ Available at http://www.eia.doe.gov/oiaf/aeo/index.html. 
NHTSA and EPA made the simplifying assumption that projected sales 
of cars and light trucks during each calendar year from 2012 through 
2016 represented the likely production volumes for the corresponding 
model year. The agency did not attempt to establish the exact 
correspondence between projected sales during individual calendar 
years and production volumes for specific model years.
    \492\ Because AEO 2009's ``car'' and ``truck'' classes did not 
reflect NHTSA's recent reclassification (in March 2009 for 
enforcement beginning MY 2011) of many two wheel drive SUVs from the 
nonpassenger (i.e., light truck) fleet to the passenger car fleet, 
EPA staff made adjustments to account for such vehicles in the 
baseline.
    \493\ EPA also considered other sources of similar information, 
such as J.D. Powers, and concluded that CSM was better able to 
provide forecasts at the requisite level of detail for most of the 
model years of interest.
---------------------------------------------------------------------------

    To estimate the number of passenger cars and light trucks 
originally produced during model years 2012 through 2016 that will 
remain in use during each subsequent year the agency applied age-
specific survival rates for cars and light trucks to these adjusted 
forecasts of passenger car and light truck sales. In 2008, NHTSA 
updated its previous estimates of car and light truck survival rates 
using the most current registration data for vehicles produced during 
recent model years, in order to ensure that they reflected recent 
increases in the durability and expected life spans of cars and light 
trucks.\494\
---------------------------------------------------------------------------

    \494\ Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed August 9, 2009). 
These updated survival rates suggest that the expected lifetimes of 
recent-model passenger cars and light trucks are 13.8 and 14.5 
years.
---------------------------------------------------------------------------

    The next step in estimating fuel use is to calculate the total 
number of miles that model year 2012-2016 cars and light trucks 
remaining in use will be driven each year. To estimate total miles 
driven, the number projected to remain in use during each future year 
is multiplied by the average number of miles they are expected to be 
driven at the age they will reach in that year. The agency estimated 
annual usage of cars and light trucks of each age using data from the 
Federal Highway Administration's 2001 National Household Transportation 
Survey (NHTS).\495\ Because these estimates reflect the historically 
low gasoline prices that prevailed at the time the 2001 NHTS was 
conducted, however, NHTSA adjusted them to account for the effect on 
vehicle use of subsequent increases in fuel prices. Details of this 
adjustment are provided in Chapter VIII of the PRIA and Chapter of the 
draft joint TSD.
---------------------------------------------------------------------------

    \495\ For a description of the Survey, see http://nhts.ornl.gov/quickStart.shtml (last accessed August 9, 2009).
---------------------------------------------------------------------------

    Increases in average annual use of cars and light trucks have been 
an important source of historical growth in the total number of miles 
they are driven each year. To estimate future growth in their average 
annual use for purposes of this rulemaking, NHTSA calculated the rate 
of growth in the adjusted mileage schedules derived from the 2001 NHTS 
necessary for total car and light truck travel to increase at the rate 
forecast in the AEO 2009 Reference Case.\496\ This rate was calculated 
to be consistent with future changes in the overall size and age 
distributions of the U.S. passenger car and light truck fleets that 
result from the agency's forecasts of total car and light truck sales 
and updated survival rates. The resulting growth rate in average annual 
car and light truck use of approximately 1.1 percent per year was

[[Page 49671]]

applied to the mileage figures derived from the 2001 NHTS to estimate 
annual mileage during each year of the expected lifetimes of MY 2012-
2016 cars and light trucks.\497\
---------------------------------------------------------------------------

    \496\ This approach differs from that used in the MY 2011 final 
rule, where it was assumed that future growth in the total number of 
cars and light trucks in use resulting from projected sales of new 
vehicles was adequate by itself to account for growth in total 
vehicle use, without assuming continuing growth in average vehicle 
use.
    \497\ While the adjustment for future fuel prices reduces 
average mileage at each age from the values derived from the 2001 
NHTS, the adjustment for expected future growth in average vehicle 
use increases it. The net effect of these two adjustments is to 
increase expected lifetime mileage by about 18 percent significantly 
for both passenger cars and about 16 percent for light trucks.
---------------------------------------------------------------------------

    Finally, the agency estimated total fuel consumption by passenger 
cars and light trucks remaining in use each year by dividing the total 
number of miles surviving vehicles are driven by the fuel economy they 
are expected to achieve under each alternative CAFE standard. Each 
model year's total lifetime fuel consumption is the sum of fuel use by 
the cars or light trucks produced during that model year during each 
year of their life spans. In turn, the savings in a model year's 
lifetime fuel use that will result from each alternative CAFE standard 
is the difference between its lifetime fuel use at the fuel economy 
level it attains under the Baseline alternative, and its lifetime fuel 
use at the higher fuel economy level it is projected to achieve under 
that alternative standard.\498\
---------------------------------------------------------------------------

    \498\ To illustrate these calculations, the agency's adjustment 
of the AEO 2009 Revised Reference Case forecast indicates that 9.26 
million passenger cars will be produced during 2012, and the 
agency's updated survival rates show that 83 percent of these 
vehicles, or 7.64 million, are projected to remain in service during 
the year 2022, when they will have reached an age of 10 years. At 
that age, passenger achieving the fuel economy level they are 
projected to achieve under the Baseline alternative are driven an 
average of about 800 miles, so surviving model year 2012 passenger 
cars will be driven a total of 82.5 billion miles (= 7.64 million 
surviving vehicles x 10,800 miles per vehicle) during 2022. Summing 
the results of similar calculations for each year of their 26-year 
maximum lifetime, model year 2012 passenger cars will be driven a 
total of 1,395 billion miles under the Baseline alternative. Under 
that alternative, they are projected to achieve a test fuel economy 
level of 32.4 mpg, which corresponds to actual on-road fuel economy 
of 25.9 mpg (= 32.4 mpg x 80 percent). Thus their lifetime fuel use 
under the Baseline alternative is projected to be 53.9 billion 
gallons (= 1,395 billion miles divided by 25.9 miles per gallon).
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g. Accounting for the Rebound Effect of Higher Fuel Economy
    The fuel economy rebound effect refers to the fraction of fuel 
savings expected to result from an increase in vehicle fuel economy--
particularly an increase required by the adoption of higher CAFE 
standards--that is offset by additional vehicle use. The increase in 
vehicle use occurs because higher fuel economy reduces the fuel cost of 
driving, typically the largest single component of the monetary cost of 
operating a vehicle, and vehicle owners respond to this reduction in 
operating costs by driving slightly more. By lowering the marginal cost 
of vehicle use, improved fuel economy may lead to an increase in the 
number of miles vehicles are driven each year and over their lifetimes. 
Even with their higher fuel economy, this additional driving consumes 
some fuel, so the rebound effect reduces the net fuel savings that 
result when new CAFE standards require manufacturers to improve fuel 
economy.
    The magnitude of the rebound effect is an important determinant of 
the actual fuel savings that are likely to result from adopting 
stricter CAFE standards. Research on the magnitude of the rebound 
effect in light-duty vehicle use dates to the early 1980s, and 
generally concludes that a statistically significant rebound effect 
occurs when vehicle fuel efficiency improves.\499\ The agency reviewed 
studies of the rebound effect it had previously relied upon, considered 
more recently published estimates, and developed new estimates of its 
magnitude for purposes of this NPRM.\500\ Recent studies provide some 
evidence that the rebound effect has been declining over time, and may 
decline further over the immediate future if incomes rise faster than 
gasoline prices. This result appears plausible, because the 
responsiveness of vehicle use to variation in fuel costs is expected to 
decline as they account for a smaller proportion of the total monetary 
cost of driving, which has been the case until very recently. At the 
same time, rising personal incomes would be expected to reduce the 
sensitivity of vehicle use to fuel costs as the time component of 
driving costs--which is likely to be related to income levels--accounts 
for a larger fraction the total cost of automobile travel. NHTSA 
developed new estimates of the rebound effect by using national data on 
light-duty vehicle travel over the period from 1950 through 2006 to 
estimate various econometric models of the relationship between vehicle 
miles-traveled and factors likely to influence it, including household 
income, fuel prices, vehicle fuel efficiency, road supply, the number 
of vehicles in use, vehicle prices, and other factors.\501\ The results 
of NHTSA's analysis are consistent with the findings from other recent 
research: The average long-run rebound effect ranged from 16 percent to 
30 percent over the period from 1950 through 2007, while estimates of 
the rebound effect in 2007 range from 8 percent to 14 percent. 
Projected values of the rebound effect for the period from 2010 through 
2030, which the agency developed using forecasts of personal income, 
fuel prices, and fuel efficiency from AEO 2009's Reference Case, range 
from 4 percent to 16 percent, depending on the specific model used to 
generate them.
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    \499\ Some studies estimate that the long-run rebound effect is 
significantly larger than the immediate response to increased fuel 
efficiency. Although their estimates of the adjustment period 
required for the rebound effect to reach its long-run magnitude 
vary, this long-run effect is most appropriate for evaluating the 
fuel savings and emissions reductions resulting from stricter 
standards that would apply to future model years.
    \500\ For details of the agency's analysis, see Chapter VIII of 
the PRIA and Chapter 4 of the draft joint TSD accompanying this 
proposed rule.
    \501\ The agency used several different model specifications and 
estimation procedures to control for the effect of fuel prices on 
fuel efficiency in order to obtain accurate estimates of the rebound 
effect.
---------------------------------------------------------------------------

    In light of these results, the agency's judgment is that the 
apparent decline over time in the magnitude of the rebound effect 
justifies using a value for future analysis that is lower than 
historical estimates, which average 15-25 percent. Because the 
lifetimes of vehicles affected by the alternative CAFE standards 
considered in this rulemaking will extend from 2012 until nearly 2050, 
a value that is significantly lower than historical estimates appears 
to be appropriate. Thus NHTSA has elected to use a 10 percent rebound 
effect in its analysis of fuel savings and other benefits from higher 
CAFE standards for this NPRM.
    NHTSA also invites comment on other alternatives for estimating the 
rebound effect. As one illustration, variation in the price per gallon 
of gasoline directly affects the per-mile cost of driving, and drivers 
may respond just as they would to a change in the cost of driving 
resulting from a change in fuel economy, by varying the number of miles 
they drive. Because vehicles' fuel economy is fixed in the short run, 
variation in the number of miles driven in response to changes in fuel 
prices will be reflected in changes in gasoline consumption. Under the 
assumption that drivers respond similarly to changes in the cost of 
driving whether they are caused by variation in fuel prices or fuel 
economy, the short-run price elasticity of gasoline--which measures the 
sensitivity of gasoline consumption to changes in its price per 
gallon--may provide some indication about the magnitude of the rebound 
effect itself. NHTSA invites comment on the extent to which the short-
run elasticity of demand for gasoline with respect to its price can 
provide useful information about the size of the rebound effect. 
Specifically, we seek comment on whether it would be

[[Page 49672]]

appropriate to use the price elasticity of demand for gasoline, or 
other alternative approaches, to guide the choice of a value for the 
rebound effect.
    Additionally, NHTSA recognizes that as the world price of oil falls 
in response to lower U.S. demand for oil, there is the potential for an 
increase in oil use and, in turn, greenhouse gas emissions outside the 
U.S. This so called international oil ``take back'' effect is difficult 
to estimate. Given that oil consumption patterns vary across countries, 
there will be different demand responses to a change in the world price 
of crude oil. In addition, many countries around the world subsidize 
their oil consumption. It is not clear how oil consumption would change 
due to changes in the market price of oil given the current pattern of 
demand and subsidies. Further, many countries, especially in the 
developed countries/regions (i.e., the European Union), already have or 
anticipate implementing policies to limit GHG emissions. Further out in 
the future, it is anticipated that developing countries would take 
actions to reduce their GHG emissions as well. Any increases in 
petroleum consumption and GHG emissions in other nations that occurs in 
response to a decline in world petroleum prices would be attributed to 
those nations, and recorded in their respective GHG emissions 
inventories. Thus, including the same increase in emissions as part of 
the impact of adopting CAFE standards in the U.S. would risk double-
counting of global emissions totals. NHTSA seeks comment on how to 
estimate the international ``take back'' effect and its impact on fuel 
consumption and GHG emissions. See the Energy Security section of the 
TSD, 4.2.8, for more discussion of the impact of the proposed vehicle 
rule on oil markets.
h. Benefits From Increased Vehicle Use
    The increase in vehicle use from the rebound effect provides 
additional benefits to their owners, who may make more frequent trips 
or travel farther to reach more desirable destinations. This additional 
travel provides benefits to drivers and their passengers by improving 
their access to social and economic opportunities away from home. As 
evidenced by their decisions to make more frequent or longer trips when 
improved fuel economy reduces their costs for driving, the benefits 
from this additional travel exceed the costs drivers and passengers 
incur in making more frequent or longer trips.
    The agency's analysis estimates the economic benefits from 
increased rebound-effect driving as the sum of fuel costs drivers incur 
plus the consumer surplus they receive from the additional 
accessibility it provides.\502\ Because the increase in travel depends 
on the extent of improvement in fuel economy, the value of benefits it 
provides differs among model years and alternative CAFE standards. 
Under even those alternatives that would impose the highest standards, 
however, the magnitude of these benefits represents a small fraction of 
total benefits.
---------------------------------------------------------------------------

    \502\ The consumer surplus provided by added travel is estimated 
as one-half of the product of the decline in fuel cost per mile and 
the resulting increase in the annual number of miles driven.
---------------------------------------------------------------------------

i. The Value of Increased Driving Range
    Improving vehicles' fuel economy may also increase their driving 
range before they require refueling. By reducing the frequency with 
which drivers typically refuel, and by extending the upper limit of the 
range they can travel before requiring refueling, improving fuel 
economy thus provides some additional benefits to their owners.\503\ 
NHTSA re-examined this issue for purposes of this rulemaking, and found 
no information in comments or elsewhere that would cause the agency to 
revise its previous approach. Since no direct estimates of the value of 
extended vehicle range are available, NHTSA calculates directly the 
reduction in the annual number of required refueling cycles that 
results from improved fuel economy, and applies DOT-recommended values 
of travel time savings to convert the resulting time savings to their 
economic value.\504\
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    \503\ If manufacturers respond to improved fuel economy by 
reducing the size of fuel tanks to maintain a constant driving 
range, the resulting cost savings will presumably be reflected in 
lower vehicle sales prices.
    \504\ See Department of Transportation, Guidance Memorandum, 
``The Value of Saving Travel Time: Departmental Guidance for 
Conducting Economic Evaluations,'' Apr. 9, 1997. http://ostpxweb.dot.gov/policy/Data/VOT97guid.pdf (last accessed August 9, 
2009); update available at http://ostpxweb.dot.gov/policy/Data/VOTrevision1_2-11-03.pdf (last accessed August 9, 2009).
---------------------------------------------------------------------------

    As an illustration, a typical small light truck model has an 
average fuel tank size of approximately 20 gallons. Assuming that 
drivers typically refuel when their tanks are 55 percent full (i.e., 11 
gallons in reserve), increasing this model's actual on-road fuel 
economy from 24 to 25 mpg would extend its driving range from 216 miles 
(= 9 gallons x 24 mpg) to 225 miles (= 9 gallons x 25 mpg). Assuming 
that it is driven 12,000 miles/year, this reduces the number of times 
it needs to be refueled each year from 55.6 (= 12,000 miles per year/
216 miles per refueling) to 53.3 (= 12,000 miles per year/225 miles per 
refueling), or by 2.3 refuelings per year.
    Weighted by the nationwide mix of urban and rural driving, personal 
and business travel in urban and rural areas, and average vehicle 
occupancy for driving trips, the DOT-recommended values of travel time 
per vehicle-hour is $24.64 (in 2007 dollars).\505\ Assuming that 
locating a station and filling up requires five minutes, the annual 
value of time saved as a result of less frequent refueling amounts to 
$4.72 (calculated as 5/60 x 2.3 x $24.64). This calculation is repeated 
for each future year that model year 2012-2016 cars and light trucks 
would remain in service. Like fuel savings and other benefits, the 
value of this benefit declines over a model year's lifetime, because a 
smaller number of vehicles originally produced during that model year 
remain in service each year, and those remaining in service are driven 
fewer miles.
---------------------------------------------------------------------------

    \505\ The hourly wage rate during 2008 is estimated to average 
$25.50 when expressed in 2007 dollars. Personal travel in urban 
areas (which represents 94 percent of urban travel) is valued at 50 
percent of the hourly wage rate, while business travel (the 
remaining 6 percent of urban travel) is valued at 100 percent of the 
hourly wage rate. For intercity travel, personal travel (87 percent 
of total intercity travel) is valued at 70 percent of the wage rate, 
while business travel (13 percent) is valued at 100 percent of the 
wage rate. The resulting values of travel time are $12.67 for urban 
travel and $17.66 for intercity travel, and must be multiplied by 
vehicle occupancy (1.6) to obtain the estimated values of time per 
vehicle hour in urban and rural driving. Finally, about 66% of 
driving occurs in urban areas, while the remaining 34% takes place 
in rural areas, and these percentages are used to calculate a 
weighted average of the value of time in all driving.
---------------------------------------------------------------------------

    NHTSA recognizes that many assumptions made in its estimate for the 
value of increased driving range are subject to uncertainty. Please see 
Chapter 4 of the TSD and Chapter 8 of NHTSA's PRIA for more information 
about the uncertainty regarding these assumptions.
j. Added Costs From Congestion, Crashes and Noise
    Increased vehicle use associated with the rebound effect also 
contributes to increased traffic congestion, motor vehicle accidents, 
and highway noise. NHTSA relies on estimates of per-mile congestion, 
accident, and noise costs caused by increased use of automobiles and 
light trucks developed by the Federal Highway Administration to 
estimate these increased costs.\506\ NHTSA employed these estimates 
previously in its analysis accompanying the MY 2011 final rule, and 
continues

[[Page 49673]]

to find them appropriate for this NPRM after reviewing the procedures 
used by FHWA to develop them and considering other available estimates 
of these values. The agency multiplies FHWA's estimates of per-mile 
costs by the annual increases in automobile and light truck use from 
the rebound effect to yield the estimated increases in congestion, 
accident, and noise externality costs during each future year.
---------------------------------------------------------------------------

    \506\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; see http://www.fhwa.dot.gov/policy/hcas/final/index.htm (last accessed August 9, 2009).
---------------------------------------------------------------------------

k. Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products also impose 
costs on the domestic economy that are not reflected in the market 
price for crude petroleum, or in the prices paid by consumers of 
petroleum products such as gasoline. These costs include (1) higher 
prices for petroleum products resulting from the effect of U.S. oil 
import demand on the world oil price; (2) the risk of disruptions to 
the U.S. economy caused by sudden reductions in the supply of imported 
oil to the U.S.; and (3) expenses for maintaining a U.S. military 
presence to secure imported oil supplies from unstable regions, and for 
maintaining the strategic petroleum reserve (SPR) to cushion against 
resulting price increases.\507\
---------------------------------------------------------------------------

    \507\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy, Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D. R., and M. A. Toman (1993). ``Energy and Security: Externalities 
and Policies,'' Energy Policy 21:1093-1109; and Toman, M. A. (1993). 
``The Economics of Energy Security: Theory, Evidence, Policy,'' in 
A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural 
Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, 
pp. 1167-1218.
---------------------------------------------------------------------------

    Higher U.S. imports of crude oil or refined petroleum products 
increase the magnitude of these external economic costs, thus 
increasing the true economic cost of supplying transportation fuels 
above their market prices. Conversely, lowering U.S. imports of crude 
petroleum or refined fuels by reducing domestic fuel consumption can 
reduce these external costs, and any reduction in their total value 
that results from improved fuel economy represents an economic benefit 
of more stringent CAFE standards, in addition to the value of saving 
fuel itself.
    NHTSA has carefully reviewed its assumptions regarding the 
appropriate value of these benefits for this proposed rule. In 
analyzing benefits from its recent actions to increase light truck CAFE 
standards for model years 2005-07 and 2008-11, NHTSA relied on a 1997 
study by Oak Ridge National Laboratory (ORNL) to estimate the value of 
reduced economic externalities from petroleum consumption and 
imports.\508\ More recently, ORNL updated its estimates of the value of 
these externalities, using the analytic framework developed in its 
original 1997 study in conjunction with recent estimates of the 
variables and parameters that determine their value.\509\ The updated 
ORNL study was subjected to a detailed peer review by experts selected 
by EPA, and its estimates of the value of oil import externalities were 
subsequently revised to reflect their comments and 
recommendations.\510\
---------------------------------------------------------------------------

    \508\ Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and 
Russell Lee, Oil Imports: An Assessment of Benefits and Costs, ORNL-
6851, Oak Ridge National Laboratory, November 1, 1997. Available at 
http://pzl1.ed.ornl.gov/ORNL6851.pdf (last accessed August 9, 2009).
    \509\ Leiby, Paul N. ``Estimating the Energy Security Benefits 
of Reduced U.S. Oil Imports,'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Revised July 23, 2007. Available at http://pzl1.ed.ornl.gov/energysecurity.html (click on link below ``Oil 
Imports Costs and Benefits'') (last accessed August 9, 2009).
    \510\ Peer Review Report Summary: Estimating the Energy Security 
Benefits of Reduced U.S. Oil Imports, ICF, Inc., September 2007.
---------------------------------------------------------------------------

    At the request of EPA, ORNL further revised its 2008 estimates of 
external costs from U.S. oil imports to reflect recent changes in the 
outlook for world petroleum prices and continuing changes in the 
structure and characteristics of global petroleum supply and demand.
    These most recent revisions increase ORNL's estimates of the 
``monopsony premium'' associated with U.S. oil imports, which measures 
the reduced value of payments from U.S. oil purchasers to foreign oil 
suppliers beyond the savings from reduced purchases of petroleum itself 
that results when lower U.S. import demand reduces the world price of 
petroleum.\511\ Consistency with NHTSA's use of estimates of the global 
benefits from reducing emissions of CO2 and other greenhouse 
gases in this analysis, however, requires the use of a global 
perspective for assessing their net value. From this perspective, 
reducing these payments simply results in a transfer of resources from 
foreign oil suppliers to U.S. purchasers (or more properly, in a 
savings in the value of resources previously transferred from U.S. 
purchasers to foreign producers), and provides no real savings in 
resources to the global economy. Thus NHTSA's analysis of the benefits 
from adopting higher CAFE standards for MY 2012-2016 cars and light 
trucks excludes the reduced value of monopsony payments by U.S. oil 
consumers that might result from lower fuel consumption by these 
vehicles.
---------------------------------------------------------------------------

    \511\ The reduction in payments from U.S. oil purchasers to 
domestic petroleum producers is not included as a benefit, since it 
represents a transfer that occurs entirely within the U.S. economy.
---------------------------------------------------------------------------

    The literature on the energy security for the last two decades has 
routinely combined the monopsony and the macroeconomic disruption 
components when calculating the total value of the energy security 
premium. However, in the context of using a global value for the Social 
Cost of Carbon (SCC) the question arises: How should the energy 
security premium be used when some benefits from the proposed rule, 
such as the benefits of reducing greenhouse gas emissions, are 
calculated at a global level? Monopsony benefits represent avoided 
payments by the U.S. to oil producers in foreign countries that result 
from a decrease in the world oil price as the U.S. decreases its 
consumption of imported oil. Although there is clearly a benefit to the 
U.S. when considered from the domestic perspective, the decrease in 
price due to decreased demand in the U.S. also represents a loss of 
income to oil-producing countries. Given the redistributive nature of 
this effect, do the negative effects on other countries ``net out'' the 
positive impacts to the U.S.? If this is the case, then, the monopsony 
portion of the energy security premium should be excluded from the net 
benefits calculation for the rule.
    As the preceding discussion has indicated, the agencies omitted the 
reduction in monopsony payments that occurs when U.S. petroleum 
consumption and imports are reduced from their estimates of economic 
benefits for the proposed rules. Since the reduction in monopsony 
payments by U.S. oil consumers is exactly offset by a decline in income 
to suppliers of imported oil, this omission ensures consistency of the 
agencies' analysis with the inclusion of global benefits from reducing 
emissions of greenhouse gas emissions. The agencies seek comment on 
whether, from other perspectives, it would be reasonable to include 
both the global value of reducing GHG emissions and the reduction in 
monopsony payments by U.S. consumers of petroleum products in their 
estimates of total economic benefits from reducing U.S. fuel 
consumption.
    ORNL's most recently revised estimates of the increase in the 
expected costs associated with potential disruptions in U.S. petroleum 
imports imply that each gallon of imported fuel or petroleum saved 
reduces the expected costs of oil supply disruptions

[[Page 49674]]

to the U.S. economy by $0.16 per gallon (in 2007$). The reduction in 
expected disruption costs represents a real savings in resources, and 
thus contributes economic benefits in addition to the savings in fuel 
production costs that result from increasing fuel economy. NHTSA 
employs this value in its evaluation of the economic benefits from 
adopting higher CAFE standards for MY 2012-2016 cars and light trucks.
    NHTSA's analysis does not include savings in budgetary outlays to 
support U.S. military activities among the benefits of higher fuel 
economy and the resulting fuel savings.\512\ NHTSA's analysis of 
benefits from alternative CAFE standards for MY 2012-2016 also excludes 
any cost savings from maintaining a smaller SPR from its estimates of 
the external benefits of reducing gasoline consumption and petroleum 
imports. This view concurs with that of the recent ORNL study of 
economic costs from U.S. oil imports, which concludes that savings in 
government outlays for these purposes are unlikely to result from 
reductions in consumption of petroleum products and oil imports on the 
scale of those resulting from higher CAFE standards.
---------------------------------------------------------------------------

    \512\ However, the agency conducted a sensitivity analysis of 
the potential effect of assuming that some reduction military 
spending would result from fuel savings and reduced petroleum 
imports in order to investigate its impacts on the standards and 
fuel savings.
---------------------------------------------------------------------------

    Based on a detailed analysis of differences in fuel consumption, 
petroleum imports, and imports of refined petroleum products among the 
Reference Case, High Economic Growth, and Low Economic Growth Scenarios 
presented in AEO 2009, NHTSA estimates that approximately 50 percent of 
the reduction in fuel consumption resulting from adopting higher CAFE 
standards is likely to be reflected in reduced U.S. imports of refined 
fuel, while the remaining 50 percent would be reduce domestic fuel 
refining.\513\ Of this latter figure, 90 percent is anticipated to 
reduce U.S. imports of crude petroleum for use as a refinery feedstock, 
while the remaining 10 percent is expected to reduce U.S. domestic 
production of crude petroleum.\514\ Thus on balance, each 100 gallons 
of fuel saved as a consequence of higher CAFE standards is anticipated 
to reduce total U.S. imports of crude petroleum or refined fuel by 95 
gallons.\515\
---------------------------------------------------------------------------

    \513\ Differences between forecast annual U.S. imports of crude 
petroleum and refined products among these three scenarios range 
from 24-89 percent of differences in projected annual gasoline and 
diesel fuel consumption in the U.S. These differences average 49 
percent over the forecast period spanned by AEO 2009.
    \514\ Differences between forecast annual U.S. imports of crude 
petroleum among these three scenarios range from 67-97 percent of 
differences in total U.S. refining of crude petroleum, and average 
85 percent over the forecast period spanned by AEO 2009.
    \515\ This figure is calculated as 50 gallons + 50 gallons * 90% 
= 50 gallons + 45 gallons = 95 gallons.
---------------------------------------------------------------------------

l. Air Pollutant Emissions
i. Impacts on Criteria Air Pollutant Emissions
    Criteria air pollutants emitted by vehicles and during fuel 
production include carbon monoxide (CO), hydrocarbon compounds (usually 
referred to as ``volatile organic compounds,'' or VOC), nitrogen oxides 
(NOX), fine particulate matter (PM2.5), and 
sulfur oxides (SOX). While reductions in domestic fuel 
refining and distribution that result from lower fuel consumption will 
reduce U.S. emissions of these pollutants, additional vehicle use 
associated with the rebound effect from higher fuel economy will 
increase their emissions. Thus the net effect of stricter CAFE 
standards on emissions of each criteria pollutant depends on the 
relative magnitudes of its reduced emissions in fuel refining and 
distribution, and increases in its emissions from vehicle use. Because 
the relationship between emissions in fuel refining and vehicle use is 
different for each criteria pollutant, the net effect of fuel savings 
from the proposed standards on total emissions of each pollutant is 
likely to differ. We note that any benefits in terms of criteria air 
pollutant reductions resulting from this rule would not be direct 
benefits.
    With the exception of SO2, NHTSA calculated annual 
emissions of each criteria pollutant resulting from vehicle use by 
multiplying its estimates of car and light truck use during each year 
over their expected lifetimes by per-mile emission rates appropriate to 
each vehicle type, fuel, model year, and age. These emission rates were 
developed by U.S. EPA using its Motor Vehicle Emission Simulator (Draft 
MOVES 2009).\516\ Emission rates for SO2 were calculated by 
NHTSA using average fuel sulfur content estimates supplied by EPA, 
together with the assumption that the entire sulfur content of fuel is 
emitted in the form of SO2.\517\ Total SO2 
emissions under each alternative CAFE standard were calculated by 
applying the resulting emission rates directly to estimated annual 
gasoline and diesel fuel use by cars and light trucks.
---------------------------------------------------------------------------

    \516\ The MOVES model assumes that the per-mile rates at which 
these pollutants are emitted are determined by EPA regulations and 
the effectiveness of catalytic after-treatment of engine exhaust 
emissions, and are thus unaffected by changes in car and light truck 
fuel economy.
    \517\ These are 30 and 15 parts per million (ppm, measured on a 
mass basis) for gasoline and diesel respectively, which produces 
emission rates of 0.17 grams of SO2 per gallon of 
gasoline and 0.10 grams per gallon of diesel.
---------------------------------------------------------------------------

    As with other impacts, the changes in emissions of criteria air 
pollutants resulting from alternative increases in CAFE standards for 
MY 2012-2016 cars and light trucks were calculated from the differences 
between emissions under each alternative that would increase CAFE 
standards, and emissions under the baseline alternative.
    NHTSA estimated the reductions in criteria pollutant emissions from 
producing and distributing fuel that would occur under alternative CAFE 
standards using emission rates obtained by EPA from Argonne National 
Laboratories' Greenhouse Gases and Regulated Emissions in 
Transportation (GREET) model.\518\ The GREET model provides separate 
estimates of air pollutant emissions that occur in different phases of 
fuel production and distribution, including crude oil extraction, 
transportation, and storage, fuel refining, and fuel distribution and 
storage.\519\ EPA modified the GREET model to change certain 
assumptions about emissions during crude petroleum extraction and 
transportation, as well as to update its emission rates to reflect 
adopted and pending EPA emission standards. NHTSA converted these 
emission rates from the mass per fuel energy content basis on which 
GREET reports them to mass per gallon of fuel supplied using estimates 
of fuel energy content supplied by GREET.
---------------------------------------------------------------------------

    \518\ Argonne National Laboratories, The Greenhouse Gas and 
Regulated Emissions from Transportation (GREET) Model, Version 1.8, 
June 2007, available at http://www.transportation.anl.gov/modeling_simulation/GREET/index.html (last accessed August 9, 2009).
    \519\ Emissions that occur during vehicle refueling at retail 
gasoline stations (primarily evaporative emissions of volatile 
organic compounds, or VOCs) are already accounted for in the 
``tailpipe'' emission factors used to estimate the emissions 
generated by increased light truck use. GREET estimates emissions in 
each phase of gasoline production and distribution in mass per unit 
of gasoline energy content; these factors are then converted to mass 
per gallon of gasoline using the average energy content of gasoline.
---------------------------------------------------------------------------

    The resulting emission rates were applied to the agency's estimates 
of fuel consumption under each alternative CAFE standard to develop 
estimates of total emissions of each criteria pollutant during fuel 
production and distribution. The assumptions about the effects of 
changes in fuel consumption on domestic and imported sources of fuel 
supply discussed above were then employed to calculate the effects of

[[Page 49675]]

reductions in fuel use from alternative CAFE standards on changes in 
imports of refined fuel and domestic refining. NHTSA's analysis assumes 
that reductions in imports of refined fuel would reduce criteria 
pollutant emissions during fuel storage and distribution only. 
Reductions in domestic fuel refining using imported crude oil as a 
feedstock are assumed to reduce emissions during fuel refining, 
storage, and distribution, because each of these activities would be 
reduced. Reduced domestic fuel refining using domestically-produced 
crude oil is assumed to reduce emissions during all four phases of fuel 
production and distribution.\520\
---------------------------------------------------------------------------

    \520\ In effect, this assumes that the distances crude oil 
travels to U.S. refineries are approximately the same regardless of 
whether it travels from domestic oilfields or import terminals, and 
that the distances that gasoline travels from refineries to retail 
stations are approximately the same as those from import terminals 
to gasoline stations.
---------------------------------------------------------------------------

    Finally, NHTSA calculated the net changes in domestic emissions of 
each criteria pollutant by summing the increases in emissions projected 
to result from increased vehicle use, and the reductions anticipated to 
result from lower domestic fuel refining and distribution.\521\ As 
indicated previously, the effect of adopting higher CAFE standards on 
total emissions of each criteria pollutant depends on the relative 
magnitudes of the resulting reduction in emissions from fuel refining 
and distribution, and the increase in emissions from additional vehicle 
use. Although these net changes vary significantly among individual 
criteria pollutants, the agency projects that on balance, adopting 
higher CAFE standards would reduce emissions of all criteria air 
pollutants except carbon monoxide (CO).
---------------------------------------------------------------------------

    \521\ All emissions from increased vehicle use are assumed to 
occur within the U.S., since CAFE standards would apply only to 
vehicles produced for sale in the U.S.
---------------------------------------------------------------------------

    The net changes in domestic emissions of fine particulates 
(PM2.5) and its chemical precursors (such as NOX, 
SOX, and VOCs) are converted to economic values using 
estimates of the reductions in health damage costs per ton of emissions 
of each pollutant that is avoided, which were developed and recently 
revised by EPA. These savings represent the estimated reductions in the 
value of damages to human health resulting from lower atmospheric 
concentrations and population exposure to air pollution that occur when 
emissions of each pollutant that contributes to atmospheric 
PM2.5 concentrations are reduced. The value of reductions in 
the risk of premature death due to exposure to fine particulate 
pollution (PM2.5) account for a majority of EPA's estimated 
values of reducing criteria pollutant emissions, although the value of 
avoiding other health impacts is also included in these estimates. 
These values do not include a number of unquantified benefits, such as 
reduction in the welfare and environmental impacts of PM2.5 
pollution, or reductions in health and welfare impacts related to other 
criteria pollutants (ozone, NO2, and SO2) and air 
toxics. EPA estimates different PM-related per-ton values for reducing 
emissions from vehicle use than for reductions in emissions of that 
occur during fuel production and distribution.\522\ NHTSA applies these 
separate values to its estimates of changes in emissions from vehicle 
use and fuel production and distribution to determine the net change in 
total economic damages from emissions of these pollutants.
---------------------------------------------------------------------------

    \522\ These reflect differences in the typical geographic 
distributions of emissions of each pollutant, their contributions to 
ambient PM2.5 concentrations, pollution levels 
(predominantly those of PM2.5), and resulting changes in 
population exposure.
---------------------------------------------------------------------------

    EPA projects that the per-ton values for reducing emissions of 
criteria pollutants from both mobile sources (including motor vehicles) 
and stationary sources such as fuel refineries and storage facilities 
will increase over time. These projected increases reflect rising 
income levels, which are assumed to increase affected individuals' 
willingness to pay for reduced exposure to health threats from air 
pollution, as well as future population growth, which increases 
population exposure to future levels of air pollution.
ii. Reductions in CO2 Emissions
    Emissions of carbon dioxide and other greenhouse gases (GHGs) occur 
throughout the process of producing and distributing transportation 
fuels, as well as from fuel combustion itself. By reducing the volume 
of fuel consumed by passenger cars and light trucks, higher CAFE 
standards will reduce GHG emissions generated by fuel use, as well as 
throughout the fuel supply cycle. Lowering these emissions is likely to 
slow the projected pace and reduce the ultimate extent of future 
changes in the global climate, thus reducing future economic damages 
that changes in the global climate are expected to cause. By reducing 
the probability that climate changes with potentially catastrophic 
economic or environmental impacts will occur, lowering GHG emissions 
may also result in economic benefits that exceed the resulting 
reduction in the expected future economic costs caused by gradual 
changes in the earth's climatic systems.
    Quantifying and monetizing benefits from reducing GHG emissions is 
thus an important step in estimating the total economic benefits likely 
to result from establishing higher CAFE standards. The agency estimated 
emissions of CO2 from passenger car and light truck use by 
multiplying the number of gallons of each type of fuel (gasoline and 
diesel) they are projected to consume under alternative CAFE standards 
by the quantity or mass of CO2 emissions released per gallon 
of fuel consumed. This calculation assumes that the entire carbon 
content of each fuel is converted to CO2 emissions during 
the combustion process. Carbon dioxide emissions account for nearly 95 
percent of total GHG emissions that result from fuel combustion during 
vehicle use.
iii. Economic Value of Reductions in CO2 Emissions
    NHTSA has taken the economic benefits of reducing CO2 
emission into account in this rulemaking, both in developing proposed 
CAFE standards and in assessing the economic benefits of each 
alternative that was considered. Since direct estimates of the economic 
benefits from reducing GHG emissions are generally not reported in 
published literature on the impacts of climate change, these benefits 
are typically assumed to be the ``mirror image'' of the estimated 
incremental costs resulting from an increase in those emissions. That 
is, the benefits from reducing emissions are usually measured by the 
savings in estimated economic damages that an equivalent increase in 
emissions would otherwise have caused.
    The ``social cost of carbon'' (SCC) is intended to be a monetary 
measure of the incremental damage resulting from carbon dioxide 
(CO2) emissions, including (but not limited to) net 
agricultural productivity loss, human health effects, property damages 
from sea level rise, and changes in ecosystem services. Any effort to 
quantify and to monetize the consequences associated with climate 
change will raise serious questions of science, economics, and ethics. 
But with full regard for the limits of both quantification and 
monetization, the SCC can be used to provide an estimate of the social 
benefits of reductions in GHG emissions.
    For at least four reasons, any particular figure will be 
contestable. First, scientific and economic knowledge about the impacts 
of climate change continues to grow. With new and better information 
about relevant questions, including the cost, burdens, and possibility 
of adaptation, current

[[Page 49676]]

estimates will inevitably change over time. Second, some of the likely 
and potential damages from climate change--for example, the loss of 
endangered species--are generally not included in current SCC 
estimates. These omissions may turn out to be significant; in the sense 
that they may mean that the best current estimates are too low. As 
noted by the IPCC Fourth Assessment Report, ``It is very likely that 
globally aggregated figures underestimate the damage costs because they 
cannot include many non-quantifiable impacts.'' Third, it is unlikely 
that the damage estimates account for the directed technological change 
that will lead to innovations that reduce the costs of responding to 
climate change--for example, it is likely that scientists will develop 
crops that are better able to withstand high temperatures. In this 
respect, the current estimates may overstate the likely damages. 
Fourth, controversial ethical judgments, including those involving the 
treatment of future generations, play a role in judgments about the SCC 
(see in particular the discussion of the discount rate, below).
    To date, SCC estimates presented in recent regulatory documents 
have varied within and among agencies, including DOT, DOE, and EPA. For 
example, a regulation proposed by DOT in 2008 assumed a value of $7 per 
ton CO2 \523\ (2006$) for 2011 emission reductions (with a 
range of $0-14 for sensitivity analysis). A regulation finalized by DOE 
used a range of $0-$20 (2007$). Both of these ranges were designed to 
reflect the value of damages to the United States resulting from carbon 
emissions, or the ``domestic'' SCC. In the final MY 2011 CAFE EIS, DOT 
used both a domestic SCC value of $2/tCO2 and a global SCC 
value of $33/tCO2 (with sensitivity analysis at $80/
tCO2), increasing at 2.4 percent per year thereafter. The 
final MY 2011 CAFE rule also presented a range from $2 to $80/
tCO2. EPA's Advance Notice of Proposed Rulemaking for 
Greenhouse Gases discussed the benefits of reducing GHG emissions and 
identified what it described as ``very preliminary'' SCC estimates 
``subject to revision'' that spanned three orders of magnitude. EPA's 
global mean values were $68 and $40/tCO2 for discount rates 
of 2 percent and 3 percent respectively (in 2006 real dollars for 2007 
emissions).\524\
---------------------------------------------------------------------------

    \523\ For the purposes of this discussion, we present all values 
of the SCC as the cost per ton of CO2 emissions. Some 
discussions of the SCC in the literature use an alternative 
presentation of a dollar per ton of Carbon. The standard adjustment 
factor is 3.67, which means, for example, that a SCC of $10 per ton 
of CO2 would be equivalent to a cost of $36.70 for a ton 
of carbon emitted.
    \524\ 73 FR 44416 (July 30, 2008). EPA, ``Advance Notice of 
Proposed Rulemaking for Greenhouse Gases Under the Clean Air Act, 
Technical Support Document on Benefits of Reducing GHG Emissions,'' 
June 2008. www.regulations.gov. Search for ID ``EPA-HQ-OAR-2008-
0318-0078.''
---------------------------------------------------------------------------

    The current Administration has worked to develop a transparent 
methodology for selecting a set of interim SCC estimates to use in 
regulatory analyses until a more comprehensive characterization of the 
distribution of SCC is developed. This discussion proposes a set of 
values for the interim social cost of carbon. It should be emphasized 
that the analysis here is preliminary. Today's proposed joint 
rulemaking presents SCC estimates that reflect the Administration's 
current understanding of the relevant literature. These interim 
estimates are being used for the short-term while an interagency group 
develops a more comprehensive characterization of the distribution of 
SCC values for future economic and regulatory analyses. The interim 
values should not be viewed as a statement about the results of the 
longer-term process. The Administration will be evaluating and seeking 
comment in the preamble to today's proposed rule on all of the 
scientific, economic, and ethical issues before establishing final 
estimates for use in future rulemakings.
    The outcomes of the Administration's process to develop interim 
values are judgments in favor of (a) global rather than domestic 
values, (b) an annual growth rate of 3%, and (c) interim global SCC 
estimates for 2007 (in 2006 dollars) of $55, $33, $19, $10, and $5 per 
ton of CO2. Notably, we have centered our current attention 
on a SCC of $19. The proposed figures are based on the following 
judgments.
    1. Global and domestic measures. Because of the distinctive nature 
of the climate change problem, we present both a global SCC and a 
fraction of that value that represents impacts that may occur within 
the borders of the U.S. alone, or a ``domestic'' SCC, but center our 
current attention on the global measure. This approach represents a 
departure from past practices, which relied, for the most part, on 
domestic measures. As a matter of law, both global and domestic values 
are permissible; the relevant statutory provisions are ambiguous and 
allow selection of either measure.\525\
---------------------------------------------------------------------------

    \525\ It is true that Federal statutes are presumed not to have 
extraterritorial effect, in part to ensure that the laws of the 
United States respect the interests of foreign sovereigns. But use 
of a global measure for the SCC does not give extraterritorial 
effect to Federal law and hence does not intrude on such interests.
---------------------------------------------------------------------------

    It is true that under OMB guidance, analysis from the domestic 
perspective is required, while analysis from the international 
perspective is optional. The domestic decisions of one nation are not 
typically based on a judgment about the effects of those decisions on 
other nations. But the climate change problem is highly unusual in the 
sense that it involves (a) a global public good in which (b) the 
emissions of one nation may inflict significant damages on other 
nations and (c) the United States is actively engaged in promoting an 
international agreement to reduce worldwide emissions.
    In these circumstances, we believe the global measure is preferred. 
Use of a global measure reflects the reality of the problem and is 
expected to contribute to the continuing efforts of the United States 
to ensure that emissions reductions occur in many nations.
    Domestic SCC values are also presented. The development of a 
domestic SCC is greatly complicated by the relatively few region- or 
country-specific estimates of the SCC in the literature. One potential 
source of estimates comes from a recent unpublished EPA modeling effort 
using the FUND model. The resulting estimates suggest that the ratio of 
domestic to global benefits varies with key parameter assumptions. With 
a 3 percent discount rate, for example, the U.S. benefit is about 6 
percent of the global benefit for the ``central'' (mean) FUND results, 
while, for the corresponding ``high'' estimates associated with a 
higher climate sensitivity and lower global economic growth, the U.S. 
benefit is less than 4 percent of the global benefit. With a 2 percent 
discount rate, the U.S. share is about 2-5 percent of the global 
estimate.
    Based on this available evidence, an interim domestic SCC value 
equal to 6 percent of the global damages is proposed. This figure is in 
the middle of the range of available estimates from the literature. It 
is recognized that the 6 percent figure is approximate and highly 
speculative and alternative approaches will be explored before 
establishing final values for future rulemakings.
    2. Filtering existing analyses. There are numerous SCC estimates in 
the existing literature, and it is reasonable to make use of those 
estimates in order to produce a figure for current use. A starting 
point is provided by the meta-analysis in Richard Tol, 2008.\526\ With

[[Page 49677]]

that starting point, the Administration proposes to ``filter'' existing 
SCC estimates by using those that (1) are derived from peer-reviewed 
studies; (2) do not weight the monetized damages to one country more 
than those in other countries; (3) use a ``business as usual'' climate 
scenario; and (4) are based on the most recent published version of 
each of the three major integrated assessment models (IAMs): FUND, 
PAGE, and DICE.
---------------------------------------------------------------------------

    \526\ Richard Tol, The Social Cost of Carbon: Trends, Outliers, 
and Catastrophes, Economics: The Open-Access, Open-Assessment E-
Journal, Vol. 2, 2008-25. http://www.economics-ejournal.org/economics/journalarticles/2008-25 (2008).
---------------------------------------------------------------------------

    Proposal (1) is based on the view that those studies that have been 
subject to peer review are more likely to be reliable than those that 
have not been. Proposal (2) is based on a principle of neutrality and 
simplicity; it does not treat the citizens of one nation (or different 
citizens within the U.S.) differently on the basis of speculative or 
controversial considerations. Further, it is consistent with the 
potential compensation tests of Kaldor (1939) and Hicks (1940), which 
use unweighted sums of willingness to pay. Finally, this is the 
approach used in rulemakings across a variety of settings and 
consequently keeps U.S. government policy consistent across contexts.
    Proposal (3) stems from the judgment that as a general rule, the 
proper way to assess a policy decision is by comparing the 
implementation of the policy against a counterfactual state where the 
policy is not implemented. In addition, our expectation is that most 
policies to be evaluated using these interim SCC estimates will 
constitute small enough changes to the larger economy to safely assume 
that the marginal benefits of emissions reductions will not change 
between the baseline and policy scenarios. A departure from this 
approach would be to consider a more dynamic setting in which other 
countries might implement policies to reduce GHG emissions at an 
unknown future date and the U.S. could choose to implement such a 
policy now or at a future date.
    Proposal (4) is based on four complementary judgments. First, the 
FUND, PAGE, and DICE models now stand as the most comprehensive and 
reliable efforts to measure the economic damages from climate change. 
Second, the latest versions of the three IAMs are likely to reflect the 
most recent evidence and learning, and hence they are presumed to be 
superior to those that preceded them. Third, any effort to choose among 
them, or to reject one in favor of the others, would be difficult to 
defend at the present time. In the absence of a clear reason to choose 
among them, it is reasonable to base the SCC on all of them. Fourth, in 
light of the uncertainties associated with the SCC, the additional 
information offered by different models is important.
    3. Use a model-weighted average of the estimates at each discount 
rate. At this time, a scientifically valid reason to prefer any of the 
three major IAMs (FUND, PAGE, and DICE) has not been identified. 
Accordingly, to address the concern that certain models not be given 
unequal weight relative to the other models, the estimates are based on 
an equal weighting of the means of the estimates from each of the 
models. Among estimates that remain after applying the filter, we begin 
by taking the average of all estimates within a model. The estimated 
SCC is then calculated as the average of the three model-specific 
averages. This approach is used to ensure that models with a greater 
number of published results do not exert unequal weight on the interim 
SCC estimates.
    4. Apply a 3 percent annual growth rate to the chosen SCC values. 
SCC is assumed to increase over time, because future emissions are 
expected to produce larger incremental damages as physical and economic 
systems become more stressed as the magnitude of climate change 
increases. Indeed, an implied growth rate in the SCC can be produced by 
most of the models that estimate economic damages caused by increased 
GHG emissions in future years. But neither the rate itself nor the 
information necessary to derive its implied value is commonly reported. 
In light of the limited amount of debate thus far about the appropriate 
growth rate of the SCC, applying a rate of 3 percent per year seems 
appropriate at this stage. This value is consistent with the range 
recommended by IPCC (2007) and close to the latest published estimate 
(Hope 2008).
(1) Discount Rates
    For estimation of the benefits associated with the mitigation of 
climate change, one of the most complex issues involves the appropriate 
discount rate. OMB's current guidance offers a detailed discussion of 
the relevant issues and calls for discount rates of 3 percent and 7 
percent. It also permits a sensitivity analysis with low rates (1-3 
percent) for intergenerational problems: ``If your rule will have 
important intergenerational benefits or costs you might consider a 
further sensitivity analysis using a lower but positive discount rate 
in addition to calculating net benefits using discount rates of 3 and 7 
percent.'' \527\
---------------------------------------------------------------------------

    \527\ See OMB Circular A-4, pp. 35-36, citing Portney and 
Weyant, eds. (1999), Discounting and Intergenerational Equity, 
Resources for the Future, Washington, DC.
---------------------------------------------------------------------------

    The choice of a discount rate, especially over long periods of 
time, raises highly contested and exceedingly difficult questions of 
science, economics, philosophy, and law. See, e.g., William Nordhaus, 
The Challenge of Global Warming (2008); Nicholas Stern, The Economics 
of Climate Change (2007); Discounting and Intergenerational Equity 
(Paul Portney and John Weyant eds. 1999). It is not clear that future 
generations would be willing to trade environmental quality for 
consumption at the same rate as the current generations. Under 
imaginable assumptions, decisions based on cost-benefit analysis with 
high discount rates might harm future generations--at least if 
investments are not made for the benefit of those generations. See 
Robert Lind, Analysis for Intergenerational Discounting, id. at 173, 
176-177. It is also possible that the use of low discount rates for 
particular projects might itself harm future generations, by ensuring 
that resources are not used in a way that would greatly benefit them. 
In the context of climate change, questions of intergenerational equity 
are especially important.
    Reasonable arguments support the use of a 3 percent discount rate. 
First, that rate is among the two figures suggested by OMB guidance, 
and hence it fits with existing national policy. Second, it is standard 
to base the discount rate on the compensation that people receive for 
delaying consumption, and the 3 percent is close to the risk-free rate 
of return, proxied by the return on long term inflation-adjusted U.S. 
Treasury Bonds, as of this writing. Although these rates are currently 
closer to 2.5 percent, the use of 3 percent provides an adjustment for 
the liquidity premium that is reflected in these bonds' returns.
    At the same time, others would argue that a 5 percent discount rate 
can be supported. The argument relies on several assumptions. First, 
that rate can also be justified by reference to the level of 
compensation for delaying consumption, because it fits with market 
behavior with respect to individuals' willingness to trade-off 
consumption across periods as measured by the estimated post-tax 
average real returns to risky private investments (e.g., the S&P 500). 
In the climate setting, the 5 percent discount rate may be preferable 
to the riskless rate because it is based on risky investments and the 
return to projects to mitigate climate change is also risky. In 
contrast, the 3 percent riskless rate may be a more appropriate 
discount rate for

[[Page 49678]]

projects where the return is known with a high degree of confidence 
(e.g., highway guardrails). In principal, the correct discount rate 
would reflect the variance in payoff from climate mitigation policy and 
the correlation between the payoffs of the policy and the broader 
economy.\528\
---------------------------------------------------------------------------

    \528\ Specifically, if the benefits of the policy are highly 
correlated with the returns from broader economy, then the market 
rate should be used to discount the benefits. If the benefits are 
uncorrelated with the broader economy the long term government bond 
rate should be applied. Furthermore, if the benefits are negatively 
correlated with the broader economy a rate less than that on long 
term government bonds should be used (Lind, 1982 pp. 89-90).
---------------------------------------------------------------------------

    Second, 5 percent, and not 3 percent, is roughly consistent with 
estimates implied by reasonable inputs to the theoretically derived 
Ramsey equation, which specifies the optimal time path for consumption. 
That equation specifies the optimal discount rate as the sum of two 
components. The first term (the product of the elasticity of the 
marginal utility of consumption and the growth rate of consumption) 
reflects the fact that consumption in the future is likely to be higher 
than consumption today, so diminishing marginal utility implies that 
the same monetary damage will cause a smaller reduction of utility in 
the future. Standard estimates of this term from the economics 
literature are in the range of 3 percent-5 percent. The second 
component reflects the possibility that a lower weight should be placed 
on utility in the future, to account for social impatience or 
extinction risk, which is specified by a pure rate of time preference 
(PRTP). A common estimate of the PRTP is 2 percent, though some 
observers believe that a principle of intergenerational equity suggests 
that the PRTP should be close to zero. It follows that discount rate of 
5 percent is near the middle of the range of values that are able to be 
derived from the Ramsey equation.
    It is recognized that the arguments above--for use of market 
behavior and the Ramsey equation--face objections in the context of 
climate change, and of course there are alternative approaches. In 
light of climate change, it is possible that consumption in the future 
will not be higher than consumption today, and if so, the Ramsey 
equation will suggest a lower figure. However, the historical evidence 
is consistent with rising consumption over time.
    Some critics note that using observed interest rates for inter-
generational decisions imposes current preferences on future 
generations, which some economists say may not be appropriate. For 
generational equity, they argue that the discount rate should be below 
market rates to correct for market distortions and inefficiencies in 
inter-generational transfers of wealth (which are presumed to 
compensate future generations for damage), and to treat generations 
equitably based on ethical principles (see Broome 2008).\529\
---------------------------------------------------------------------------

    \529\ See Arrow, K.J., W.R. Cline, K-G Maler, M. Munasinghe, R. 
Squiteri, J.E. Stiglitz, 1996. ``Intertemporal equity, discounting 
and economic efficiency,'' in Climate Change 1995: Economic and 
Social Dimensions of Climate Change, Contribution of Working Group 
III to the Second Assessment Report of the Intergovernmental Panel 
on Climate Change. See also Weitzman, M.L., 1999. In Portney, P.R. 
and Weyant J.P. (eds.), Discounting and Intergenerational Equity, 
Resources for the Future, Washington, DC.
---------------------------------------------------------------------------

    Additionally, some analyses attempt to deal with uncertainty with 
respect to interest rates over time. We explore below how this might be 
done.\530\
---------------------------------------------------------------------------

    \530\ Richard Newell and William Pizer, Discounting the distant 
future: how much do uncertain rates increase valuations? J. Environ. 
Econ. Manage. 46 (2003) 52-71.
---------------------------------------------------------------------------

(2) Proposed Interim Estimates
    The application of the methodology outlined above yields interim 
estimates of the SCC that are reported in Table IV.C.3-2. These 
estimates are reported separately using 3 percent and 5 percent 
discount rates. The cells are empty in rows 10 and 11, because these 
studies did not report estimates of the SCC at a 3 percent discount 
rate. The model-weighted means are reported in the final or summary 
row; they are $33 per tCO2 at a 3 percent discount rate and 
$5 per tCO2 with a 5 percent discount rate.
---------------------------------------------------------------------------

    \531\ Most of the estimates in Table 1 rely on climate scenarios 
developed by the Intergovernmental Panel on Climate Change (IPCC). 
The IPCC published a new set of scenarios in 2000 for use in the 
Third Assessment Report (Special Report on Emissions Scenarios--
SRES). The SRES scenarios define four narrative storylines: A1, A2, 
B1 and B2, describing the relationships between the forces driving 
greenhouse gas and aerosol emissions and their evolution during the 
21st century for large world regions and globally. Each storyline 
represents different demographic, social, economic, technological, 
and environmental developments that diverge in increasingly 
irreversible ways. The storylines are summarized in Nakicenovic et 
al., 2000 (see also http://sedac.ciesin.columbia.edu/ddc/sres/). 
Because the B1 and B2 storylines represent policy cases rather than 
business-as-usual projections, estimates derived from these 
scenarios to be less appropriate for use in benefit-cost analysis. 
They are therefore excluded.
    \532\ Guo et al. (2006) report estimates based on two Gollier 
discounting schemes. The Gollier discounting assumes complex 
specifications about individual utility functions and risk 
preferences. After various conditions are satisfied, declining 
social discount rates emerge. Gollier Discounting Scheme 1 employs a 
certainty-equivalent social rate of time preference (SRTP) derived 
by assuming the regional growth rate is equally likely to be 1% 
above or below the original forecast growth rate. Gollier 
Discounting Scheme 2 calculates a certainty-equivalent social rate 
of time preference (SRTP) using five possible growth rates, and 
applies the new SRTP instead of the original. Hope (2008) conducts 
Monte Carlo analysis on the PRTP component of the discount rate. The 
PRTP is modeled as a triangular distribution with a min value of 1%/
yr, a most likely value of 2%/yr, and a max value of 3%/yr.

    Table IV.C.3-2--Global Social Cost of Carbon (SCC) Estimates ($/tCO2 in 2007 (2006$)), Based on 3% and 5%
                                                 Discount Rates*
----------------------------------------------------------------------------------------------------------------
                  Model                              Study                 Climate scenario         3%      5%
----------------------------------------------------------------------------------------------------------------
1 FUND..................................  Anthoff et al. 2009.......  FUND default..............       6      -1
2 FUND..................................  Anthoff et al. 2009.......  SRES A1b..................       1      -1
3 FUND..................................  Anthoff et al. 2009.......  SRES A2...................       9      -1
4 FUND..................................  Link and Tol 2004.........  No THC....................      12       3
5 FUND..................................  Link and Tol 2004.........  THC continues.............      12       2
6 FUND..................................  Guo et al. 2006...........  Constant PRTP.............       5      -1
7 FUND..................................  Guo et al. 2006...........  Gollier discount 1........      14       0
8 FUND..................................  Guo et al. 2006...........  Gollier discount 2........       7      -1
                                                                      FUND Mean.................    8.25       0
9 PAGE..................................  Wahba & Hope 2006.........  A2-scen...................      57       7
10 PAGE.................................  Hope 2006.................  ..........................  ......       7
11 DICE.................................  Nordhaus 2008.............  ..........................  ......       8

[[Page 49679]]

 
Summary.................................  ..........................  Model-weighted Mean.......      33       5
----------------------------------------------------------------------------------------------------------------
* The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus (2008),
  Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND, PAGE, or
  DICE and use business-as-usual climate scenarios.531 532 All values are based on the best available
  information from the underlying studies about the base year and year dollars, rather than the Tol (2008)
  assumption that all estimates included in his review are 1995 values in 1995$. All values were updated to 2007
  using a 3 percent annual growth rate in the SCC, and adjusted for inflation using GDP deflator.

    Analyses have been conducted at $33 and $5 as these represent the 
estimates associated with the 3 percent and 5 percent discount rates, 
respectively.\533\ The 3 percent and 5 percent estimates have 
independent appeal, and at this time a clear preference for one over 
the other is not warranted. Thus, we have also included--and centered 
our current attention on--the average of the estimates associated with 
these discount rates, which is $19. (Based on the $19 global value, the 
approximate domestic fraction of these benefits would be $1.14 per ton 
of CO2 assuming that domestic benefits are 6 percent of the 
global benefits.
---------------------------------------------------------------------------

    \533\ It should be noted that reported discount rates may not be 
consistently derived across models or specific applications of 
models: While the discount rate may be identical, it may reflect 
different assumptions about the individual components of the Ramsey 
equation identified earlier.
---------------------------------------------------------------------------

    It is true that there is uncertainty about interest rates over long 
time horizons. Recognizing that point, Newell and Pizer (2003) have 
made a careful effort to adjust for that uncertainty. The Newell-Pizer 
approach models discount rate uncertainty as something that evolves 
over time.\534\ This is a relatively recent contribution to the 
literature, and estimates based on this method are included with the 
aim of soliciting comment.
---------------------------------------------------------------------------

    \534\ In contrast, an alternative approach based on Weitzman 
(2001) would assume that there is a constant discount rate that is 
uncertain and represented by a probability distribution. The Newell 
and Pizer, and Weitzman approaches are relatively recent 
contributions, and we invite comment on the advantages and 
disadvantages of each.
---------------------------------------------------------------------------

    There are several concerns with using this approach in this 
context. First, it would be a departure from current OMB guidance. 
Second, an approach that would average what emerges from discount rates 
of 3 percent and 5 percent reflects uncertainty about the discount 
rate, but based on a different model of uncertainty. The Newell-Pizer 
approach models discount rate uncertainty as something that evolves 
over time; in contrast, the preferred approach (outlined above) assumes 
that there is a single discount rate with equal probability of 3 
percent and 5 percent.
    Table IV.C.3-3 reports on the application of the Newell-Pizer 
adjustments. The precise numbers depend on the assumptions about the 
data generating process that governs interest rates. Columns (1a) and 
(1b) assume that ``random walk'' model best describes the data and uses 
3 percent and 5 percent discount rates, respectively. Columns (2a) and 
(2b) repeat this, except that it assumes a ``mean-reverting'' process. 
While the empirical evidence does not rule out a mean-reverting model, 
Newell and Pizer find stronger empirical support for the random walk 
model.

  Table IV.C.3-3--Global Social Cost of Carbon (SCC) Estimates ($/tCO2 in 2007 (2006$))*, Using Newell & Pizer
                            (2003) Adjustment for Future Discount Rate Uncertainty**
----------------------------------------------------------------------------------------------------------------
                                                                                    Random-walk        Mean-
                                                                                       model         reverting
                                                                                 ----------------      model
               Model                        Study             Climate scenario                   ---------------
                                                                                    3%      5%      3%      5%
                                                                                   (1a)    (1b)    (2a)    (2b)
----------------------------------------------------------------------------------------------------------------
1 FUND............................  Anthoff et al. 2009..  FUND default.........      10       0       7      -1
2 FUND............................  Anthoff et al. 2009..  SRES A1b.............       2       0       1      -1
3 FUND............................  Anthoff et al. 2009..  SRES A2..............      15       0      10      -1
4 FUND............................  Link and Tol 2004....  No THC...............      20       6      13       4
5 FUND............................  Link and Tol 2004....  THC continues........      20       4      13       2
6 FUND............................  Guo et al. 2006......  Constant PRTP........       9       0       6      -1
7 FUND............................  Guo et al. 2006......  Gollier discount 1...      14       0      14       0
8 FUND............................  Guo et al. 2006......  Gollier discount 2...       7      -1       7      -1
                                                           FUND Mean............      12       1       9       0
9 PAGE............................  Wahba & Hope 2006....  A2-scen..............      97      13      63       8
10 PAGE...........................  Hope 2006............  .....................  ......      13  ......       8
11 DICE...........................  Nordhaus 2008........  .....................  ......      15  ......       9
Summary...........................  .....................  Model-weighted Mean..      55      10      36       6
----------------------------------------------------------------------------------------------------------------
* The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus (2008),
  Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND, PAGE, or
  DICE and use business-as-usual climate scenarios. All values are based on the best available information from
  the underlying studies about the base year and year dollars, rather than the Tol (2008) assumption that all
  estimates included in his review are 1995 values in 1995$. All values were updated to 2007 using a 3 percent
  annual growth rate in the SCC, and adjusted for inflation using GDP deflator. See the Notes to Table 1 for
  further details.
** Assumes a starting discount rate of 3 percent or 5 percent. Newell and Pizer (2003) based adjustment factors
  are not applied to estimates from Guo et al. (2006) that use a different approach to account for discount rate
  uncertainty (rows 7-8).
Note that the correction factor from Newell and Pizer is based on the DICE model. The proper adjustment may
  differ for other integrated assessment models that produce different time schedules of marginal damages. We
  would expect this difference to be minor.


[[Page 49680]]

    The resulting estimates of the social cost of carbon are 
necessarily greater. When the adjustments from the random walk model 
are applied, the estimates of the social cost of carbon are $10 and $55 
per ton of CO2, with the 5 percent and 3 percent discount 
rates, respectively. The application of the mean-reverting adjustment 
yields estimates of $6 and $36. Relying on the random walk model, 
analyses are also conducted with the value of the SCC set at $10 and 
$55.
(3) Caveats
    There are at least four caveats to the approach outlined above.
    First, the impacts of climate change are expected to be widespread, 
diverse, and heterogeneous. In addition, the exact magnitude of these 
impacts is uncertain, because of the inherent randomness in the Earth's 
atmospheric processes, the U.S. and global economies, and the behaviors 
of current and future populations. Current IAM do not currently 
individually account for and assign value to all of the important 
physical and other impacts of climate change that are recognized in the 
climate change literature. Although it is likely that our capability to 
quantify and monetize impacts will improve with time, it is also likely 
that even in future applications, there are a number of potentially 
significant benefits categories that will remain unmonetized.
    Second, in the opposite direction, it is unlikely that the damage 
estimates adequately account for the directed technological change that 
climate change will cause. In particular, climate change will increase 
the return on investment to develop technologies that allow individuals 
to better cope with climate change. For example, it is likely that 
scientists will develop crops that are better able to withstand high 
temperatures. In this respect, the current estimates may overstate the 
likely damages.
    Third, there has been considerable recent discussion of the risk of 
catastrophic impacts and of how best to account for worst-case 
scenarios. Recent research by Weitzman (2009) specifies some conditions 
under which the possibility of catastrophe would undermine the use of 
IAMs and conventional cost-benefit analysis. This research requires 
further exploration before its generality is known and the optimal way 
to incorporate it into regulatory reviews is understood.
    Fourth, it is also worth noting that the SCC estimates are only 
relevant for incremental policies relative to the projected baselines, 
which capture business-as-usual scenarios. To evaluate non-marginal 
changes, such as might occur if the U.S. acts in tandem with other 
nations, then it might be necessary to go beyond the simple expedient 
of using the SCC along the BAU path. In particular, it would be correct 
to calculate the aggregate WTP to move from the BAU scenario to the 
policy scenario, without imposing the restriction that the marginal 
benefit remains constant over this range.
    All of the values derived from this process are expressed in 2006 
dollars. NHTSA has adjusted them to their equivalent values in 2007 
dollars for consistency with other values used in its analysis of 
benefits from adopting higher CAFE standards for MY 2012-2016 passenger 
cars and light trucks. The resulting value upon which we have centered 
our analysis, which is derived from the figures reported in the tables 
above, is equivalent to $20 per metric ton of CO2 emissions 
avoided when expressed in 2007$, and the agency has relied on this 
value in its analysis. NHTSA has also analyzed the sensitivity of its 
benefit estimates to alternative values of $5, $10, $34, and $56 per 
metric ton of CO2 emissions avoided, with all figures again 
in 2007$. Each of these values applies to emissions during 2007, and 
are assumed to grow in real terms by 3 percent annually beginning in 
2007. NHTSA seeks comments on these values and the approach used to 
derive them.
m. Discounting Future Benefits and Costs
    Discounting future fuel savings and other benefits is intended to 
account for the reduction in their value to society when they are 
deferred until some future date, rather than received immediately. The 
discount rate expresses the percent decline in the value of these 
benefits--as viewed from today's perspective--for each year they are 
deferred into the future. In evaluating the benefits from alternative 
increases in CAFE standards for MY 2012-2016 passenger cars and light 
trucks, NHTSA has employed a discount rate of 3 percent per year. The 
agency has also tested the sensitivity of these benefit and cost 
estimates to the use of a 7 percent discount rate. Although these are 
the same discount rates analyzed in the MY 2011 final rule, NHTSA has 
chosen to use 3 percent as the basis for the Reference Case in this 
proposed rule rather than the 7 percent rate it employed previously, 
for the reasons discussed below.
    The primary reason that NHTSA has selected 3 percent as the 
appropriate rate for discounting future benefits from increased CAFE 
standards is that most or all of vehicle manufacturers' costs for 
complying with higher CAFE standards are likely to be reflected in 
higher sales prices for their new vehicle models. By increasing sales 
prices for new cars and light trucks, CAFE regulation will thus 
primarily affect vehicle purchases and other private consumption 
decisions. Both economic theory and OMB guidance on discounting 
indicate that the future benefits and costs of regulations that mainly 
affect private consumption should be discounted at the social rate of 
time preference.\535\
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    \535\ Id.
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    OMB guidance also indicates that savers appear to discount future 
consumption at an average real (that is, adjusted to remove the effect 
of inflation) rate of about 3 percent when they face little risk about 
its likely level. Since the real rate that savers use to discount 
future consumption represents a reasonable estimate of the social rate 
of time preference, NHTSA has employed the 3 percent rate to discount 
projected future benefits and costs resulting from higher CAFE 
standards for MY 2012-2016 passenger cars and light trucks.\536\
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    \536\ Office of Management and Budget, Circular A-4, 
``Regulatory Analysis,'' September 17, 2003, 33. Available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf (last accessed August 
9, 2009).
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    Because there is some uncertainty about the extent to which vehicle 
manufacturers will be able to recover their costs for complying with 
higher CAFE standards by increasing vehicle sales prices, however, 
NHTSA has also tested the sensitivity of these benefit and cost 
estimates to the use of a higher percent discount rate. OMB guidance 
indicates that the real economy-wide opportunity cost of capital is the 
appropriate discount rate to apply to future benefits and costs when 
the primary effect of a regulation is ``* * * to displace or alter the 
use of capital in the private sector,'' and estimates that this rate 
currently averages about 7 percent.\537\ Thus the agency has also 
tested the sensitivity of its benefit and cost estimates for 
alternative MY 2012-2016 CAFE standards to the use of a 7 percent real 
discount rate. NHTSA seeks comment on whether it should evaluate CAFE 
standards using a discount rate of 3 percent, 7 percent, or an 
alternative value.
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    \537\ Id.
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n. Accounting for Uncertainty in Benefits and Costs
    In analyzing the uncertainty surrounding its estimates of benefits 
and costs from alternative CAFE standards,

[[Page 49681]]

NHTSA has considered alternative estimates of those assumptions and 
parameters likely to have the largest effect. These include the 
projected costs of fuel economy-improving technologies and their 
expected effectiveness in reducing vehicle fuel consumption, forecasts 
of future fuel prices, the magnitude of the rebound effect, the 
reduction in external economic costs resulting from lower U.S. oil 
imports, the value to the U.S. economy of reducing carbon dioxide 
emissions, and the discount rate applied to future benefits and costs. 
The range for each of these variables employed in the uncertainty 
analysis is presented in the section of this notice discussing each 
variable.
    The uncertainty analysis was conducted by assuming independent 
normal probability distributions for each of these variables, using the 
low and high estimates for each variable as the values below which 5 
percent and 95 percent of observed values are believed to fall. Each 
trial of the uncertainty analysis employed a set of values randomly 
drawn from each of these probability distributions, assuming that the 
value of each variable is independent of the others. Benefits and costs 
of each alternative standard were estimated using each combination of 
variables. A total of 1,000 trials were used to establish the likely 
probability distributions of estimated benefits and costs for each 
alternative standard.
o. Where Can Readers Find More Information About the Economic 
Assumptions?
    Much more detailed information is provided in Chapter VIII of the 
PRIA, and a discussion of how NHTSA and EPA jointly reviewed and 
updated economic assumptions for purposes of this NPRM is available in 
Chapter 4 of the TSD. In addition, all of NHTSA's model input and 
output files are now public and available for the reader's review and 
consideration. The economic input files can be found in the docket for 
this NPRM, NHTSA-2009-0059, and on NHTSA's Web site. Finally, because 
much of NHTSA's economic analysis for purposes of this NPRM builds on 
the work that was done for the MY 2011 final rule, we refer readers to 
that document as well for background information concerning how NHTSA's 
assumptions regarding economic inputs for CAFE analysis have evolved 
over the past several rulemakings, both in response to comments and as 
a result of the agency's growing experience with this type of 
analysis.\538\
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    \538\ 74 FR 14308-14358 (Mar. 30, 2009).
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4. How Does NHTSA Use the Assumptions in Its Modeling Analysis?
    In developing today's proposed CAFE standards, NHTSA has made 
significant use of results produced by the CAFE Compliance and Effects 
Model (commonly referred to as ``the CAFE model'' or ``the Volpe 
model''), which DOT's Volpe National Transportation Systems Center 
developed specifically to support NHTSA's CAFE rulemakings. The model, 
which has been constructed specifically for the purpose of analyzing 
potential CAFE standards, integrates the following core capabilities:
    (1) Estimating how manufacturers could apply technologies in 
response to new fuel economy standards,
    (2) Estimating the costs that would be incurred in applying these 
technologies,
    (3) Estimating the physical effects resulting from the application 
of these technologies, such as changes in travel demand, fuel 
consumption, and emissions of carbon dioxide and criteria pollutants, 
and
    (4) Estimating the monetized societal benefits of these physical 
effects.
    An overview of the model follows below. Separate model 
documentation provides a detailed explanation of the functions the 
model performs, the calculations it performs in doing so, and how to 
install the model, construct inputs to the model, and interpret the 
model's outputs. Documentation of the model, along with model 
installation files, source code, and sample inputs are available at 
NHTSA's web site. The model documentation is also available in the 
docket for today's proposed rule, as are inputs for and outputs from 
analysis of today's proposed CAFE standards.
a. How Does the Model Operate?
    As discussed above, the agency uses the Volpe model to estimate the 
extent to which manufacturers could attempt to comply with a given CAFE 
standard by adding technology to fleets that the agency anticipates 
they will produce in future model years. This exercise constitutes a 
simulation of manufacturers' decisions regarding compliance with CAFE 
standards.
    This compliance simulation begins with the following inputs: (a) 
The baseline market forecast discussed above in Section IV.C.1, (b) 
technology-related estimates discussed above in Section IV.C.2, (c) 
economic inputs discussed above in Section IV.C.3, and (d) inputs 
defining the characteristics of potential new CAFE standards. For each 
manufacturer, the model applies technologies in a sequence that follows 
a defined engineering logic (``decision trees'' discussed in the MY 
2011 final rule and in the model documentation) and a cost-minimizing 
strategy in order to identify a set of technologies the manufacturer 
could apply in response to new CAFE standards. The model applies 
technologies to each of the projected individual vehicles in a 
manufacturer's fleet, until one of three things occurs:
    (1) The manufacturer's fleet achieves compliance with the 
applicable standard;
    (2) The manufacturer ``exhausts'' \539\ available technologies; or
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    \539\ In a given model year, the model makes additional 
technologies available to each vehicle model within several 
constraints, including (a) whether or not the technology is 
applicable to the vehicle model's technology class, (b) whether the 
vehicle is undergoing a redesign or freshening in the given model 
year, (c) whether engineering aspects of the vehicle make the 
technology unavailable (e.g., secondary axle disconnect cannot be 
applied to two-wheel drive vehicles), and (d) whether technology 
application remains within ``phase in caps'' constraining the 
overall share of a manufacturer's fleet to which the technology can 
be added in a given model year. Once enough technology is added to a 
given manufacturer's fleet in a given model year that these 
constraints make further technology application unavailable, 
technologies are exhausted for that manufacturer in that model year.
---------------------------------------------------------------------------

    (3) For manufacturers estimated to be willing to pay civil 
penalties, the manufacturer reaches the point at which doing so would 
be more cost-effective (from the manufacturer's perspective) than 
adding further technology.\540\
---------------------------------------------------------------------------

    \540\ This possibility was added to the model to account for the 
fact that under EPCA/EISA, manufacturers must pay fines if they do 
not achieve compliance with applicable CAFE standards. 49 U.S.C. 
32912(b). NHTSA recognizes that some manufacturers will find it more 
cost-effective to pay fines than to achieve compliance, and believes 
that to assume these manufacturers would exhaust available 
technologies before paying fines would cause unrealistically high 
estimates of market penetration of expensive technologies such as 
diesel engines and strong hybrid electric vehicles, as well as 
correspondingly inflated estimates of both the costs and benefits of 
any potential CAFE standards.
---------------------------------------------------------------------------

    As discussed below, the model has also been modified in order to 
apply additional technology in early model years if doing so will 
facilitate compliance in later model years.
    The model accounts explicitly for each model year, applying most 
technologies when vehicles are scheduled to be redesigned or freshened, 
and carrying forward technologies between model years. The CAFE model 
accounts explicitly for each model year because EPCA requires that 
NHTSA make a year-by-year determination of the appropriate level of

[[Page 49682]]

stringency and then set the standard at that level, while ensuring 
ratable increases in average fuel economy.\541\
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    \541\ 49 U.S.C. 32902(a) states that at least 18 months before 
the beginning of each model year, the Secretary of Transportation 
shall prescribe by regulation average fuel economy standards for 
automobiles manufactured by a manufacturer in that model year, and 
that each standard shall be the maximum feasible average fuel 
economy level that the Secretary decides the manufacturers can 
achieve in that year. NHTSA has long interpreted this statutory 
language to require year-by-year assessment of manufacturer 
capabilities. 49 U.S.C. 32902(b)(2)(C) also requires that standards 
increase ratably between MY 2011 and MY 2020.
---------------------------------------------------------------------------

    The model also calculates the costs, effects, and benefits of 
technologies that it estimates could be added in response to a given 
CAFE standard.\542\ It calculates costs by applying the cost estimation 
techniques discussed above in Section IV.C.2, and by accounting for the 
number of affected vehicles. It accounts for effects such as changes in 
vehicle travel, changes in fuel consumption, and changes in greenhouse 
gas and criteria pollutant emissions. It does so by applying the fuel 
consumption estimation techniques also discussed in Section IV.C.2, and 
the vehicle survival and mileage accumulation forecasts, the rebound 
effect estimate and the fuel properties and emission factors discussed 
in Section IV.C.3. Considering changes in travel demand and fuel 
consumption, the model estimates the monetized value of accompanying 
benefits to society, as discussed in Section IV.C.3. The model 
calculates both the undiscounted and discounted value of benefits that 
accrue over time in the future.
---------------------------------------------------------------------------

    \542\ As for all of its other rulemakings, NHTSA is required by 
Executive Order 12866 and DOT regulations to analyze the costs and 
benefits of CAFE standards. Executive Order 12866, 58 FR 51735 (Oct. 
4, 1993); DOT Order 2100.5, ``Regulatory Policies and Procedures,'' 
1979, available at http://regs.dot.gov/rulemakingrequirements.htm 
(last accessed August 21, 2009).
---------------------------------------------------------------------------

    The Volpe model has other capabilities that facilitate the 
development of a CAFE standard. It can be used to fit a mathematical 
function forming the basis for an attribute-based CAFE standard, 
following the steps described below. It can also be used to evaluate 
many (e.g., 200 per model year) potential levels of stringency 
sequentially, and identify the stringency at which specific criteria 
are met. For example, it can identify the stringency at which net 
benefits to society are maximized, the stringency at which a specified 
total cost is reached, or the stringency at which a given average 
required fuel economy level is attained. This allows the agency to 
compare more easily the impacts in terms of fuel savings, emissions 
reductions, and costs and benefits of achieving different levels of 
stringency according to different criteria. The model can also be used 
to perform uncertainty analysis (i.e., Monte Carlo simulation), in 
which input estimates are varied randomly according to specified 
probability distributions, such that the uncertainty of key measures 
(e.g., fuel consumption, costs, benefits) can be evaluated.
b. Has NHTSA Considered Other Models?
    Nothing in EPCA requires NHTSA to use the Volpe model. In 
principle, NHTSA could perform all of these tasks through other means. 
For example, in developing the standards proposed today, the agency did 
not use the Volpe model's curve fitting routines, because they could 
not be modified in time to reflect the change in the mathematical 
function defining the proposed CAFE standards. The Volpe model may be 
modified to do so for the final rule, although the agency can also 
continue to fit the mathematical function outside the model. In 
general, though, these model capabilities have greatly increased the 
agency's ability to rapidly, systematically, and reproducibly conduct 
key analyses relevant to the formulation and evaluation of new CAFE 
standards.
    During its previous rulemaking, which led to the final MY 2011 
standards promulgated earlier this year, NHTSA received comments from 
the Alliance and CARB encouraging NHTSA to examine the usefulness of 
other models. As discussed in that final rule, NHTSA, having undertaken 
such consideration, concluded that the Volpe model is a sound and 
reliable tool for the development and evaluation of potential CAFE 
standards.\543\
---------------------------------------------------------------------------

    \543\ 74 FR 14372 (Mar. 30, 2009).
---------------------------------------------------------------------------

    In reconsidering and reaffirming this conclusion for purposes of 
this NPRM, NHTSA notes that the Volpe model not only has been formally 
peer-reviewed and tested through three rulemakings, but also has some 
features especially important for the analysis of CAFE standards under 
EPCA/EISA. Among these are the ability to perform year-by-year 
analysis, and the ability to account for engineering differences 
between specific vehicle models.
    EPCA requires that NHTSA set CAFE standards for each model year at 
the level appropriate for that year.\544\ Doing so requires the ability 
to analyze each model year and, when developing regulations covering 
multiple model years, to account for the interdependency of model years 
in terms of the appropriate levels of stringency for each one. Also, as 
part of the evaluation of the economic practicability of the standards, 
as required by EPCA, NHTSA has traditionally assessed the annual costs 
and benefits of the standards as it is permitted to do so. The first 
(2002) version of DOT's model treated each model year separately, and 
did not perform this type of explicit accounting. Manufacturers took 
strong exception to these shortcomings. For example, GM commented in 
2002 that ``although the table suggests that the proposed standard for 
MY 2007, considered in isolation, promises benefits exceeding costs, 
that anomalous outcome is merely an artifact of the peculiar Volpe 
methodology, which treats each year independently of any other * * *.'' 
In 2002, GM also criticized DOT's analysis for, in some cases, adding a 
technology in MY 2006 and then replacing it with another technology in 
MY 2007. GM (and other manufacturers) argued that this completely 
failed to represent true manufacturer product-development cycles, and 
therefore could not be technologically feasible or economically 
practicable.
---------------------------------------------------------------------------

    \544\ 49 U.S.C. 32902(a).
---------------------------------------------------------------------------

    In response to these concerns, and related concerns expressed by 
other manufacturers, DOT modified the CAFE model in order to account 
for dependencies between model years and to better represent 
manufacturers' planning cycles, in a way that still allowed NHTSA to 
comply with the statutory requirement to determine the appropriate 
level of the standards for each model year. This was accomplished by 
limiting the application of many technologies to model years in which 
vehicle models are scheduled to be redesigned (or, for some 
technologies, ``freshened''), and by causing the model to ``carry 
forward'' applied technologies from one model year to the next.
    During the recent rulemaking for MY 2011 passenger cars and light 
trucks, DOT further modified the CAFE model to account for cost 
reductions attributable to ``learning effects'' related to volume 
(i.e., economies of scale) and the passage of time (i.e., time-based 
learning), both of which evolve on year-by-year basis. These changes 
were implemented in response to comments by environmental groups and 
other stakeholders.
    The Volpe model is also able to account for important engineering 
differences between specific vehicle models, and to thereby reduce the 
risk of applying technologies that may be incompatible with or already 
present on

[[Page 49683]]

a given vehicle model. Some commenters have previously suggested that 
manufacturers are most likely to broadly apply generic technology 
``packages,'' and the Volpe model does tend to form ``packages'' 
dynamically, based on vehicle characteristics, redesign schedules, and 
schedules for increases in CAFE standards. For example, under the 
proposed CAFE standards for passenger cars, the CAFE model estimated 
that manufacturers could apply turbocharged SGDI engines mated with 
dual-clutch AMTs to 1.8 million passenger cars in MY 2016, about 16 
percent of the MY 2016 passenger car fleet. Recent modifications to the 
model, discussed below, to represent multi-year planning, increase the 
model's tendency to add relatively cost-effective technologies when 
vehicles are estimated to be redesigned, and thereby increase the 
model's tendency to form such packages.
    On the other hand, some manufacturers have indicated that 
especially when faced with significant progressive increases in the 
stringency of new CAFE standards, they are likely to also look for 
narrower opportunities to apply specific technologies. By progressively 
applying specific technologies to specific vehicle models, the CAFE 
model also produces such outcomes. For example, under the proposed CAFE 
standards for passenger cars, the CAFE model estimated that in MY 2012, 
some manufacturers could find it advantageous to apply SIDI to some 
vehicle models without also adding turbochargers.
    By following this approach of combining technologies incrementally 
and on a model-by-model basis, the CAFE model is able to account for 
important engineering differences between vehicle models and avoid 
unlikely technology combinations. For example, the model does not apply 
dual-clutch AMTs (or strong hybrid systems) to vehicle models with 6-
speed manual transmissions. Some vehicle buyers prefer a manual 
transmission; this preference cannot be assumed away. The model's 
accounting for manual transmissions is also important for vehicles with 
larger engines: For example, cylinder deactivation cannot be applied to 
vehicles with manual transmissions, because there is no reliable means 
of predicting when the driver will change gears. By retaining cylinder 
deactivation as a specific technology rather than part of a pre-
determined package and by retaining differentiation between vehicles 
with different transmissions, DOT's model is able to target cylinder 
deactivation only to vehicle models for which it is technologically 
feasible.
    The Volpe model also produces a single vehicle-level output file 
that, for each vehicle model, shows which technologies were present at 
the outset of modeling, which technologies were superseded by other 
technologies, and which technologies were ultimately present at the 
conclusion of modeling. For each vehicle, the same file shows resultant 
changes in vehicle weight, fuel economy, and cost. This provides for 
efficient identification, analysis, and correction of errors, a task 
with which the public can now assist the agency, since all inputs and 
outputs are public.
    Such considerations, as well as those related to the efficiency 
with which the Volpe model is able to analyze attribute-based CAFE 
standards and changes in vehicle classification, and to perform higher-
level analysis such as stringency estimation (to meet predetermined 
criteria), sensitivity analysis, and uncertainty analysis, lead the 
agency to conclude that the model remains the best available to the 
agency for the purposes of analyzing potential new CAFE standards.
c. What Changes Has DOT Made to the Model?
    Prior to being used for analysis supporting today's proposal, the 
Volpe model was revised to make some minor improvements, and to add one 
significant new capability: the ability to simulate manufacturers' 
ability to engage in ``multi-year planning.'' Multi-year planning 
refers to the fact that when redesigning or freshening vehicles, 
manufacturers can anticipate future fuel economy or CO2 
standards, and add technologies accounting for these standards. For 
example, a manufacturer might choose to over-comply in a given model 
year when many vehicle models are scheduled for redesign, in order to 
facilitate compliance in a later model year when standards will be more 
stringent yet few vehicle models are scheduled for redesign.\545\ Prior 
comments have indicated that the Volpe model, by not representing such 
manufacturer choices, tended to overestimate compliance costs. However, 
because of the technical complexity involved in representing these 
choices when, as in the Volpe model, each model year is accounted for 
separately and explicitly, the model could not be modified to add this 
capability prior to the statutory deadline for the MY 2011 final 
standards.
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    \545\ Although a manufacturer may, in addition, generate CAFE 
credits in early model years for use in later model years (or, less 
likely, in later years for use in early years), EPCA does not allow 
NHTSA, when setting CAFE standards, to account for manufacturers' 
use of CAFE credits.
---------------------------------------------------------------------------

    The model now includes this capability, and NHTSA has applied it in 
analyzing the standards proposed today. Consequently, this often 
produces results indicating that manufacturers could over-comply in 
some model years (with corresponding increases in costs and benefits in 
those model years) and thereby ``carry forward'' technology into later 
model years in order to reduce compliance costs in those later model 
years. NHTSA believes this better represents how manufacturers would 
actually respond to new CAFE standards, and thereby produces more 
realistic estimates of the costs and benefits of such standards.
    The Volpe model has also been modified to accommodate inputs 
specifying the amount of CAFE credit to be applied to each 
manufacturer's fleet. Although the model is not currently capable of 
estimating manufacturers' decisions regarding the generation and use of 
CAFE credits, and EPCA does not allow NHTSA, in setting CAFE standards, 
to take into account manufacturers' potential use of credits, this 
additional capability in the Volpe model provides a basis for more 
accurately estimating costs, effects, and benefits that may actually 
result from new CAFE standards. Insofar as some manufacturers actually 
do earn and use CAFE credits, this provides NHTSA with some ability to 
examine outcomes more realistically than EPCA allows for purposes of 
setting new CAFE standards.
    In comments on recent NHTSA rulemakings, some reviewers have 
suggested that the Volpe model should be modified to estimate the 
extent to which new CAFE standards would induce changes in the mix of 
vehicles in the new vehicle fleet. NHTSA, like EPA, agrees that a 
``market shift'' model, also called a consumer vehicle choice model, 
could provide useful information regarding the possible effects of 
potential new CAFE standards. An earlier experimental version of the 
Volpe model included a multinomial logit model that estimated changes 
in sales resulting from CAFE-induced increases in new vehicle fuel 
economy and prices. A fuller description of this attempt can be found 
in Section V of the PRIA. However, NHTSA has thus far been unable to 
develop credible coefficients specifying such a model. In addition, as 
discussed in Section II.H.4, such a model is sensitive to the 
coefficients used in it, and there is great variation over some key 
values of these coefficients in published studies. NHTSA seeks comment 
on ways to

[[Page 49684]]

improve on this earlier work and develop this capability effectively. 
If the agency is able to do so prior to conducting analysis supporting 
decisions regarding final CAFE standards, it will attempt to 
reintegrate this capability in the Volpe model and include these 
effects in its analysis of final standards. If not, NHTSA will continue 
efforts to develop and make use of this capability in future 
rulemakings.
d. Does the Model Set the Standards?
    Although NHTSA currently uses the Volpe model as a tool to inform 
its consideration of potential CAFE standards, the Volpe model does not 
determine the CAFE standards that NHTSA proposes or promulgates as 
final regulations. The results it produces are completely dependent on 
inputs selected by NHTSA, based on the best available information and 
data available in the agency's estimation at the time standards are 
set. Although the model has been programmed in previous rulemakings to 
estimate at what stringency net benefits are maximized, NHTSA has not 
done so here and has instead used the Volpe model to estimate 
stringency levels that produce roughly constant rates of increase in 
the combined average required fuel economy. Ultimately, NHTSA's 
selection of a CAFE standard is governed and guided by the statutory 
requirements of EPCA, as amended by EISA: NHTSA sets the standard at 
the maximum feasible average fuel economy level that it determines is 
achievable during a particular model year, considering technological 
feasibility, economic practicability, the effect of other standards of 
the Government on fuel economy, and the need of the nation to conserve 
energy.
    NHTSA considers the results of analyses conducted by the Volpe 
model and analyses conducted outside of the Volpe model, including 
analysis of the impacts of carbon dioxide and criteria pollutant 
emissions, analysis of technologies that may be available in the long 
term and whether NHTSA could expedite their entry into the market 
through these standards, and analysis of the extent to which changes in 
vehicle prices and fuel economy might affect vehicle production and 
sales. Using all of this information--not solely that from the Volpe 
model--the agency considers the governing statutory factors, along with 
environmental issues and other relevant societal issues such as safety, 
and promulgates the standards based on its best judgment on how to 
balance these factors.
    This is why the agency considered eight regulatory alternatives, 
only one of which reflects the agency's proposed standards, based on 
the agency's determinations and assumptions. Others assess alternative 
standards, some of which exceed the proposed standards and/or the point 
at which net benefits are maximized. These comprehensive analyses, 
which also included scenarios with different economic input assumptions 
as presented in the FEIS and FRIA, are intended to inform and 
contribute to the agency's consideration of the ``need of the United 
States to conserve energy,'' as well as the other statutory factors. 49 
U.S.C. 32902(f). Additionally, the agency's analysis considers the need 
of the nation to conserve energy by accounting for economic 
externalities of petroleum consumption and monetizing the economic 
costs of incremental CO2 emissions in the social cost of 
carbon. NHTSA uses information from the model when considering what 
standards to propose and finalize, but the model does not determine the 
standards.
e. How Does NHTSA Make the Model Available and Transparent?
    Model documentation, which is publicly available in the rulemaking 
docket and on NHTSA's web site, explains how the model is installed, 
how the model inputs (all of which are available to the public) \546\ 
and outputs are structured, and how the model is used. The model can be 
used on any Windows-based personal computer with Microsoft Office 2003 
and the Microsoft .NET framework installed (the latter available 
without charge from Microsoft). The executable version of the model and 
the underlying source code are also available at NHTSA's Web site. The 
input files used to conduct the core analysis documented in this 
proposed rule are available in the public docket. With the model and 
these input files, anyone is capable of independently running the model 
to repeat, evaluate, and/or modify the agency's analysis.
---------------------------------------------------------------------------

    \546\ We note, however, that files from any supplemental 
analysis conducted that relied in part on confidential manufacturer 
product plans cannot be made public, as prohibited under 49 CFR part 
512.
---------------------------------------------------------------------------

5. How Did NHTSA Develop the Shape of the Target Curves for the 
Proposed Standards?
    In developing the shape of the target curves for today's proposed 
standards, NHTSA took a new approach, primarily in response to comments 
received in the MY 2011 rulemaking. NHTSA's authority under EISA allows 
consideration of any ``attribute related to fuel economy'' and any 
``mathematical function.'' While the attribute, footprint, is the same 
for these proposed standards as the attribute used for the MY 2011 
standards, the mathematical function is new.
    Both vehicle manufacturers and public interest groups expressed 
concern in the MY 2011 rulemaking process that the constrained logistic 
function, particularly the function for the passenger car standards, 
was overly steep and could lead, on the one hand, to fuel economy 
targets that were overly stringent for small footprint vehicles, and on 
the other hand, to a greater incentive for manufacturers to upsize 
vehicles in order to reduce their compliance obligation (because 
larger-footprint vehicles have less stringent targets) in ways that 
could compromise energy and environmental benefits. We tentatively 
believe that the constrained linear function developed here 
significantly mitigates steepness concerns, but we seek comment on 
whether readers agree, and whether there are any other issues relating 
to the new approach that NHTSA should consider in developing the curves 
for the final rule.
a. Standards Are Attribute-Based and Defined by a Mathematical Function
    EPCA, as amended by EISA, expressly requires that CAFE standards 
for passenger cars and light trucks be based on one or more vehicle 
attributes related to fuel economy, and be expressed in the form of a 
mathematical function.\547\ Like the MY 2011 standards, the MY 2012-
2016 passenger car and light truck standards are attribute-based and 
defined by a mathematical function.\548\ Also like the MY 2011 
standards, the MY 2012-2016 standards are based on the footprint 
attribute. However, unlike the MY 2011 standards, the MY 2012-2016 
standards are defined by a constrained linear rather than a constrained 
logistic function. The reasons for these similarities and differences 
are explained below.
---------------------------------------------------------------------------

    \547\ 49 U.S.C. 32902(a)(3)(A).
    \548\ As discussed in Chapter 2 of the TSD, EPA is also 
proposing to set attribute-based CO2 standards that are 
defined by a mathematical function, given the advantages of using 
attribute-based standards and given the goal of coordinating and 
harmonizing the CAFE and CO2 standards as expressed by 
President Obama in his announcement of the new National Program and 
in the joint NOI.
---------------------------------------------------------------------------

    As discussed above in Section II, under attribute-based standards, 
the fleet-wide average fuel economy that a particular manufacturer must 
achieve in a given model year depends on the mix of vehicles that it 
produces for sale.

[[Page 49685]]

Until NHTSA began to set ``Reformed'' attribute-based standards for 
light trucks in MYs 2008-2011, and until EISA gave NHTSA authority to 
set attribute-based standards for passenger cars beginning in MY 2011, 
NHTSA set ``universal'' or ``flat'' industry-wide average CAFE 
standards. Attribute-based standards are preferable to universal 
industry-wide average standards for several reasons. First, attribute-
based standards increase fuel savings and reduce emissions when 
compared to an equivalent universal industry-wide standard under which 
each manufacturer is subject to the same numerical requirement. Absent 
a policy to require all full-line manufacturers to produce and sell 
essentially the same mix of vehicles, the stringency of the universal 
industry-wide standards is constrained by the capability of those full-
line manufacturers whose product mix includes a relatively high 
proportion of larger and heavier vehicles. In effect, the standards are 
based on the mix of those manufacturers. As a result, the standards are 
generally set below the capabilities of full-line and limited-line 
manufacturers that sell predominantly lighter and smaller vehicles.
    Under an attribute-based system, in contrast, every manufacturer is 
more likely to be required to continue adding more fuel-saving 
technology each year because the level of the compliance obligation of 
each manufacturer is based on its own particular product mix. Thus, the 
compliance obligation of a manufacturer with a higher percentage of 
lighter and smaller vehicles will have a higher compliance obligation 
than a manufacturer with a lower percentage of such vehicles. As a 
result, all manufacturers must use technologies to enhance the fuel 
economy levels of the vehicles they sell. Therefore, fuel savings and 
CO2 emissions reductions should be higher under an 
attribute-based system than under a comparable industry-wide standard.
    Second, attribute-based standards minimize the incentive for 
manufacturers to respond to CAFE in ways harmful to safety.\549\ 
Because each vehicle model has its own target (based on the attribute 
chosen), attribute-based standards provide no incentive to build 
smaller vehicles simply to meet a fleet-wide average. Since smaller 
vehicles are subject to more stringent fuel economy targets, a 
manufacturer's increasing its proportion of smaller vehicles would 
simply cause its compliance obligation to increase.
---------------------------------------------------------------------------

    \549\ The 2002 NAS Report described at length and quantified the 
potential safety problem with average fuel economy standards that 
specify a single numerical requirement for the entire industry. See 
NAS Report at 5, finding 12.
---------------------------------------------------------------------------

    Third, attribute-based standards provide a more equitable 
regulatory framework for different vehicle manufacturers.\550\ A 
universal industry-wide average standard imposes disproportionate cost 
burdens and compliance difficulties on the manufacturers that need to 
change their product plans and no obligation on those manufacturers 
that have no need to change their plans. Attribute-based standards 
spread the regulatory cost burden for fuel economy more broadly across 
all of the vehicle manufacturers within the industry.
---------------------------------------------------------------------------

    \550\ Id. at 4-5, finding 10.
---------------------------------------------------------------------------

    And fourth, attribute-based standards respect economic conditions 
and consumer choice, instead of having the government mandate a certain 
fleet mix. Manufacturers are required to invest in technologies that 
improve the fuel economy of their fleets, regardless of vehicle mix. 
Additionally, attribute-based standards help to avoid the need to 
conduct rulemakings to amend standards if economic conditions change, 
causing a shift in the mix of vehicles demanded by the public. NHTSA 
conducted three rulemakings during the 1980s to amend passenger car 
standards for MYs 1986-1989 in response to unexpected drops in fuel 
prices and resulting shifts in consumer demand that made the passenger 
car standard of 27.5 mpg infeasible for several years following the 
change in fuel prices.
    As discussed above in Section II, for purposes of the CAFE 
standards proposed in this NPRM, NHTSA recognizes that the risk, even 
if small, does exist that low fuel prices in MYs 2012-2016 might lead 
indirectly to less than currently anticipated fuel savings and 
emissions reductions. Thus, we seek comment on whether backstop 
standards, or any other method within the agencies' statutory 
authority, should and can be implemented for the import and light truck 
fleets in order to achieve the fuel savings that attribute-based 
standards might not absolutely guarantee. Commenters are encouraged, 
but not required, to review and respond to NHTSA's discussion of this 
issue in the MY 2011 final rule as a starting point.\551\
---------------------------------------------------------------------------

    \551\ 74 FR 14409-14412 (Mar. 30, 2009).
---------------------------------------------------------------------------

b. What Attribute Does NHTSA Use, and Why?
    Consistent with the MY 2011 CAFE standards, NHTSA is proposing to 
use footprint as the attribute for the MY 2012-2016 CAFE standards. 
There are several policy reasons why NHTSA and EPA both believe that 
footprint is the most appropriate attribute on which to base the 
standards, as discussed below.
    As discussed in the PRIA, in NHTSA's judgment, from the standpoint 
of vehicle safety, it is important that the CAFE standards be set in a 
way that does not encourage manufacturers to respond by selling 
vehicles that are in any way less safe. While NHTSA's research also 
indicates that reductions in vehicle mass tend to compromise vehicle 
safety, footprint-based standards provide an incentive to use advanced 
lightweight materials and structures that would be discouraged by 
weight-based standards, because manufacturers can use them to improve a 
vehicle's fuel economy without their use necessarily resulting in a 
change in the vehicle's target level of fuel economy.
    Further, although we recognize that weight is better correlated 
with fuel economy than is footprint, we continue to believe that there 
is less risk of ``gaming'' (artificial manipulation of the attribute(s) 
to achieve a more favorable target) by increasing footprint under 
footprint-based standards than by increasing vehicle mass under weight-
based standards--it is relatively easy for a manufacturer to add enough 
weight to a vehicle to decrease its applicable fuel economy target a 
significant amount, as compared to increasing vehicle footprint. We 
also agree with concerns raised in 2008 by some commenters in the MY 
2011 CAFE rulemaking that there would be greater potential for gaming 
under multi-attribute standards, such as standards under which targets 
would also depend on attributes such as weight, torque, power, towing 
capability, and/or off-road capability. Standards that incorporate such 
attributes in conjunction with footprint would not only be 
significantly more complex, but by providing degrees of freedom with 
respect to more easily-adjusted attributes, they would make it less 
certain that the future fleet would actually achieve the projected 
average fuel economy and CO2 reduction levels.
    However, while NHTSA tentatively concludes that footprint is the 
most appropriate attribute upon which to base the proposed standards, 
recognizing strong public interest in this issue, we seek comment on 
whether the agency should consider setting standards for the final rule 
based on another attribute or another combination of attributes. If 
commenters suggest that the agency should consider another attribute or 
another combination of attributes, the agency specifically requests 
that the commenters address the concerns raised

[[Page 49686]]

in the paragraphs above regarding the use of other attributes, and 
explain how standards should be developed using the other attribute(s) 
in a way that contributes more to fuel savings and CO2 
reductions than the footprint-based standards, without compromising 
safety.
c. What Mathematical Function Did NHTSA Use for the Recently-
Promulgated MY 2011 CAFE Standards?
    The MY 2011 CAFE standards are defined by a continuous, constrained 
logistic function, which takes the form of an S-curve, and is defined 
according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP28SE09.052

    Here, TARGET is the fuel economy target (in mpg) applicable to 
vehicles of a given footprint (FOOTPRINT, in square feet), b and a 
are the function's lower and upper asymptotes (also in mpg), e is 
approximately equal to 2.718,\552\ c is the footprint (in square 
feet) at which the inverse of the fuel economy target falls halfway 
between the inverses of the lower and upper asymptotes, and d is a 
parameter (in square feet) that determines how gradually the fuel 
economy target transitions from the upper toward the lower asymptote 
as the footprint increases.

    \552\ e is the irrational number for which the slope of the 
function y = number\x\ is equal to 1 when x is equal to zero. The 
first 8 digits of e are 2.7182818.
---------------------------------------------------------------------------

    After fitting this mathematical form (separately) to the passenger 
car and light truck fleets and determining the stringency of the 
standards (i.e., the vertical positions of the curves), NHTSA arrived 
at the following curves to define the MY 2011 standards:
[GRAPHIC] [TIFF OMITTED] TP28SE09.031

d. What Mathematical Function is NHTSA Proposing to Use for New CAFE 
Standards, and Why?
    In finalizing the MY 2011 standards, NHTSA noted that the agency is 
not required to use a constrained logistic function and indicated that 
the agency may consider defining future CAFE standards in terms of a 
different mathematical function. NHTSA has done so in preparation for 
the proposed CAFE standards.
    In revisiting this question, NHTSA found that the final MY 2011 
CAFE standard for passenger cars, though less

[[Page 49687]]

steep than the MY 2011 standard NHTSA proposed in 2008, continues to 
concentrate the sloped portion of the curve (from a compliance 
perspective, the area in which upsizing results in a slightly lower 
applicable target) within a relatively narrow footprint range 
(approximately 47-55 square feet). Further, most passenger car models 
have footprints smaller than the curve's 51.4 square foot inflection 
point, and many passenger car models have footprints at which the curve 
is relatively flat.
    For both passenger cars and light trucks, a mathematical function 
that has some slope at most footprints where vehicles are produced is 
advantageous in terms of fairly balancing regulatory burdens among 
manufacturers, and in terms of providing a disincentive to respond to 
new standards by downsizing vehicles in ways that compromise vehicle 
safety. For example, a flat standard may be very difficult for a full-
line manufacturer to meet, while requiring very little of a 
manufacturer concentrating on small vehicles, and a flat standard may 
provide an incentive to manufacturers to downsize certain vehicles, in 
order to ``balance out'' other vehicles subject to the same standard.
    As a potential alternative to the constrained logistic function, 
NHTSA had, in proposing MY 2011 standards, presented information 
regarding a constrained linear function. As shown in the 2008 NPRM, a 
constrained linear function has the potential to avoid creating a 
localized region (in terms of vehicle footprint) over which the slope 
of the function is relatively steep. Although NHTSA did not receive 
public comments on this option, the agency indicated that it still 
believed a linear function constrained by upper (on a gpm basis) and 
possibly lower limits could merit reconsideration in future CAFE 
rulemakings.
    Having re-examined a constrained linear function for purposes of 
the proposed standards, NHTSA tentatively concludes that for both 
passenger cars and light trucks, it remains meaningfully sloped over a 
wide footprint range, thereby providing a well-distributed disincentive 
to downsize vehicles in ways that could compromise highway safety. 
Further, the constrained linear function proposed today is not so 
steeply sloped that it would provide a strong incentive to increase 
vehicle size in order to obtain a lower CAFE requirement and higher 
CO2 limit, thereby compromising energy and environmental 
benefits. Therefore, the CAFE standards proposed today are defined by 
constrained linear functions.
    The constrained linear function is defined according to the 
following formula:
[GRAPHIC] [TIFF OMITTED] TP28SE09.053

    Here, TARGET is the fuel economy target (in mpg) applicable to 
vehicles of a given footprint (FOOTPRINT, in square feet), b and a 
are the function's lower and upper asymptotes (also in mpg), 
respectively, c is the slope (in gpm per square foot) of the sloped 
portion of the function, and d is the intercept (in gpm) of the 
sloped portion of the function (that is, the value the sloped 
portion would take if extended to a footprint of 0 square feet. The 
MIN and MAX functions take the minimum and maximum, respectively of 
the included values; for example, MIN(1,2) = 1, MAX(1,2) = 2, and 
MIN[MAX(1,2),3)]=2. The following chart shows an example of a linear 
target function, where a = 0.0241 gpm (41.6 mpg), b = 0.032 gpm 
(31.2 mpg), c = 0.000531 gpm per square foot, and d = 0.002292 gpm 
(436 mpg). Because the function is linear on a gpm basis, not an mpg 
basis, it is plotted on this basis.
e. How Did NHTSA Fit the Coefficients That Determine the Shape of the 
Proposed Curves?
    For purposes of this NPRM, and for EPA's use in developing new 
CO2 emissions standards, the basic curve shapes were 
developed using methods similar to those applied by NHTSA in fitting 
the curves defining the MY 2011 standards. We began with the market 
inputs discussed above, but because the baseline fleet is 
technologically heterogeneous, NHTSA used the CAFE model to develop a 
fleet to which nearly all the technologies discussed in Section V of 
the PRIA and Chapter 3 of the joint TSD \553\ were applied, by taking 
the following steps: (1) Treating all manufacturers as unwilling to pay 
civil penalties rather than applying technology, (2) applying any 
technology at any time, irrespective of scheduled vehicle redesigns or 
freshening, and (3) ignoring ``phase-in caps'' that constrain the 
overall amount of technology that can be applied by the model to a 
given manufacturer's fleet. These steps helped to increase 
technological parity among vehicle models, thereby providing a better 
basis (than the baseline fleet) for estimating the statistical 
relationship between vehicle size and fuel economy.
---------------------------------------------------------------------------

    \553\ The agencies excluded diesel engines and strong hybrid 
vehicle technologies from this exercise (and only this exercise) 
because the agencies expect that manufacturers would not need to 
rely heavily on these technologies in order to comply with the 
proposed standards. NHTSA and EPA did include diesel engines and 
strong hybrid vehicle technologies in all other portions of their 
analyses.
---------------------------------------------------------------------------

    More information on the process for fitting the passenger car and 
light truck curves for MYs 2012-2016 is available above in Section 
II.C, and NHTSA refers the reader to that section and to Chapter 2 of 
the joint TSD. NHTSA seeks comment on this approach to fitting the 
curves. We note that final decisions on this issue will play an 
important role in determining the form and stringency of the final CAFE 
and CO2 standards, the incentives those standards will 
provide (e.g., with respect to downsizing small vehicles), and the 
relative compliance burden faced by each manufacturer.

D. Statutory Requirements

1. EPCA, as Amended by EISA
a. Standard Setting
    NHTSA must establish separate standards for MY 2011-2020 passenger 
cars and light trucks, subject to two principal requirements.\554\ 
First, the standards are subject to a minimum requirement regarding 
stringency: They must be set at levels high enough to ensure that the 
combined U.S. passenger car and light truck fleet achieves an average 
fuel economy level of not less than 35 mpg not later than MY 2020.\555\ 
Second, as discussed above and at length in the March 2009 final rule 
establishing the MY 2011 CAFE standards, EPCA requires that the

[[Page 49688]]

agency establish standards for all new passenger cars and light trucks 
at the maximum feasible average fuel economy level that the Secretary 
decides the manufacturers can achieve in that model year.\556\ The 
implication of this second requirement is that it calls for exceeding 
the minimum requirement if the agency determines that the manufacturers 
can achieve a higher level. When determining the level achievable by 
the manufacturers, EPCA requires that the agency consider the four 
statutory factors of technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy. In addition, the agency has the authority to and 
traditionally does consider other relevant factors, such as the effect 
of the CAFE standards on motor vehicle safety.
---------------------------------------------------------------------------

    \554\ EISA added the following additional requirements. 
Standards must be attribute-based and expressed in the form of a 
mathematical function. 49 U.S.C. 32902(b)(3)(A). Standards for MYs 
2011-2020 must ``increase ratably'' in each model year. 49 U.S.C. 
32902(b)(2)(C). NHTSA interprets this requirement, in combination 
with the requirement to set the standards for each model year at the 
level determined to be the maximum feasible level for that model 
year, to mean that the annual increases should not be 
disproportionately large or small in relation to each other.
    \555\ 49 U.S.C. 32902(b)(2)(A).
    \556\ 49 U.S.C. 32902(a).
---------------------------------------------------------------------------

i. Statutory Factors Considered in Determining the Achievable Level of 
Average Fuel Economy
    As none of the four factors is defined in EPCA and each remains 
interpreted only to a limited degree by case law, NHTSA has 
considerable latitude in interpreting them. NHTSA interprets the four 
statutory factors as set forth below.
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular 
technology for improving fuel economy is available or can become 
available for commercial application in the model year for which a 
standard is being established. Thus, the agency is not limited in 
determining the level of new standards to technology that is already 
being commercially applied at the time of the rulemaking. It can, 
instead, set technology-forcing standards, i.e., ones that make it 
necessary for manufacturers to engage in research and development in 
order to bring a new technology to market.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' 
\557\ In an attempt to ensure the economic practicability, the agency 
considers a variety of factors, including the annual rate at which 
manufacturers can increase the percentage of its fleet that has a 
particular type of fuel saving technology, and cost to consumers. 
Consumer acceptability is also an element of economic practicability.
---------------------------------------------------------------------------

    \557\ 67 FR 77015, 77021 (Dec. 16, 2002).
---------------------------------------------------------------------------

    At the same time, the law does not preclude a CAFE standard that 
poses considerable challenges to any individual manufacturer. The 
Conference Report for EPCA, as enacted in 1975, makes clear, and the 
case law affirms, ``(A) determination of maximum feasible average fuel 
economy should not be keyed to the single manufacturer which might have 
the most difficulty achieving a given level of average fuel economy.'' 
\558\ Instead, the agency is compelled ``to weigh the benefits to the 
nation of a higher fuel economy standard against the difficulties of 
individual automobile manufacturers.'' Id. The law permits CAFE 
standards exceeding the projected capability of any particular 
manufacturer as long as the standard is economically practicable for 
the industry as a whole. Thus, while a particular CAFE standard may 
pose difficulties for one manufacturer, it may also present 
opportunities for another. The CAFE program is not necessarily intended 
to maintain the competitive positioning of each particular company. 
Rather, it is intended to enhance fuel economy of the vehicle fleet on 
American roads, while protecting motor vehicle safety and being mindful 
of the risk of harm to the overall United States economy.
---------------------------------------------------------------------------

    \558\ CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).
---------------------------------------------------------------------------

    Thus, NHTSA believes that this term must be applied in the context 
of the competing concerns associated with different levels of 
standards. Prior to switching to attribute-based standards in the MY 
2008-2011 rulemaking, the agency sought to ensure the economy 
practicability of standards in part by setting them at or near the 
capability of the ``least capable manufacturer'' with a significant 
share of the market, i.e., typically the manufacturer whose vehicles 
are, on average, the heaviest and largest. In the first several 
rulemakings to establish attribute based standards, the agency applied 
marginal cost benefit analysis. This ensured that the agency's 
application of technologies was limited to those that would pay for 
themselves and thus would have significant appeal to consumers. 
However, the agency can and has limited its application of technologies 
to those technologies, with or without the use of such analysis.
(3) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy,'' involves an analysis of the effects of compliance with 
emission,\559\ safety, noise, or damageability standards on fuel 
economy capability and thus on average fuel economy. In previous CAFE 
rulemakings, the agency has said that pursuant to this provision, it 
considers the adverse effects of other motor vehicle standards on fuel 
economy. It said so because, from the CAFE program's earliest years 
\560\ until present, the effects of such compliance on fuel economy 
capability over the history of the CAFE program have been negative 
ones. In those instances in which the effects are negative, NHTSA is 
called upon to ``mak[e] a straightforward adjustment to the fuel 
economy improvement projections to account for the impacts of other 
Federal standards, principally those in the areas of emission control, 
occupant safety, vehicle damageability, and vehicle noise. However, 
only the unavoidable consequences should be accounted for. The 
automobile manufacturers must be expected to adopt those feasible 
methods of achieving compliance with other Federal standards which 
minimize any adverse fuel economy effects of those standards.'' \561\ 
For example, safety standards that have the effect of increasing 
vehicle weight lower vehicle fuel economy capability and thus decrease 
the level of average fuel economy that the agency can determine to be 
feasible.
---------------------------------------------------------------------------

    \559\ In the case of emission standards, this includes standards 
adopted by the Federal Government and can include standards adopted 
by the States as well, since in certain circumstances the Clean Air 
Act allows States to adopt and enforce State standards different 
from the Federal ones.
    \560\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
    \561\ 42 FR 33534, 33537 (Jun. 30, 1977).
---------------------------------------------------------------------------

    The ``other motor vehicle standards'' consideration has thus in 
practice functioned in a fashion similar to the provision in EPCA, as 
originally enacted, for adjusting the statutorily-specified CAFE 
standards for MY 1978-1980 passengers cars.\562\ EPCA did not permit 
NHTSA to amend those standards based on a finding that the maximum 
feasible level of average fuel economy for any of those three years was 
greater or less than the standard specified for that year. Instead, it 
provided that the agency could only reduce the standards and only on 
one basis: if the agency found that there had been a Federal standards 
fuel economy reduction, i.e., a reduction in fuel economy due to 
changes in the Federal vehicle standards, e.g., emissions and safety, 
relative to the year of enactment, 1975.
---------------------------------------------------------------------------

    \562\ That provision was deleted as obsolete when EPCA was 
codified in 1994.

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

[[Page 49689]]

    The ``other motor vehicle standards'' provision is broader than the 
Federal standards fuel economy reduction provision. Although the 
effects analyzed to date under the ``other motor vehicle standards'' 
provision have been negative, there could be circumstances in which the 
effects are positive. In the event that the agency encountered such 
circumstances, it would be required to consider those positive effects. 
For example, if changes in vehicle safety technology led to NHTSA's 
amending a safety standard in a way that permits manufacturers to 
reduce the weight added in complying with that standard, that weight 
reduction would increase vehicle fuel economy capability and thus 
increase the level of average fuel economy that could be determined to 
be feasible.
    In the wake of Massachusetts v. EPA and of EPA's proposed 
endangerment finding, granting of a waiver to California for its motor 
vehicle GHG standards, and its own proposal of GHG standards, the 
agency is confronted with the issue of how to treat those standards 
under the ``other motor vehicle standards'' provision. To the extent 
the GHG standards result in increases in fuel economy, they would do so 
almost exclusively as a result of inducing manufacturers to install the 
same types of technologies used by manufacturers in complying with the 
CAFE standards. The primary exception would involve increases in the 
efficiency of air conditioners.
    Thus, NHTSA tentatively concludes that the effects of the EPA and 
California standards are neither positive nor negative because the 
proposed rule results in consistent standards among all components of 
the National Program. Comment is requested on whether and in what way 
the effects of the California and EPA standards should be considered 
under the ``other motor vehicle standards'' provision or other 
provisions of EPCA in 49 U.S.C. 32902, consistent with NHTSA's 
independent obligation under EPCA/EISA to issue CAFE standards? The 
agency has already considered EPA's proposal and the harmonization 
benefits of the National Program in developing its own proposal.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \563\ Environmental implications 
principally include those associated with reductions in emissions of 
criteria pollutants and CO2. A prime example of foreign 
policy implications are energy independence and security concerns.
---------------------------------------------------------------------------

    \563\ 42 FR 63184, 63188 (1977).
---------------------------------------------------------------------------

ii. Other Factors Considered by NHTSA
    The agency historically has considered the potential for adverse 
safety consequences in setting CAFE standards. This practice is 
recognized approvingly in case law. As the courts have recognized, 
``NHTSA has always examined the safety consequences of the CAFE 
standards in its overall consideration of relevant factors since its 
earliest rulemaking under the CAFE program.'' Competitive Enterprise 
Institute v. NHTSA, 901 F.2d 107, 120 n. 11 (DC Cir. 1990) (``CEI I'') 
(citing 42 Fed. Reg. 33534, 33551 (June 30, 1977)). The courts have 
consistently upheld NHTSA's implementation of EPCA in this manner. See, 
e.g., Competitive Enterprise Institute v. NHTSA, 956 F.2d 321, 322 
(D.C. Cir. 1992) (``CEI II'') (in determining the maximum feasible fuel 
economy standard, ``NHTSA has always taken passenger safety into 
account.'') (citing CEI I, 901 F.2d at 120 n. 11); Competitive 
Enterprise Institute v. NHTSA, 45 F.3d 481, 482-83 (D.C. Cir. 1995) 
(``CEI III'') (same); Center for Biological Diversity v. NHTSA, 538 
F.3d 1172, 1203-04 (9th Cir. 2008) (upholding NHTSA's analysis of 
vehicle safety issues associated with weight in connection with the MY 
2008-11 light truck CAFE rule). Thus, in evaluating what levels of 
stringency would result in maximum feasible standards, NHTSA assesses 
the potential safety impacts and considers them in balancing the 
statutory considerations and to determine the appropriate level of the 
standards.
    Under the universal or ``flat'' CAFE standards that NHTSA was 
previously authorized to establish, the primary risk to safety came 
from the possibility that manufacturers would respond to higher 
standards by building smaller, less safe vehicles in order to ``balance 
out'' the larger, safer vehicles that the public generally preferred to 
buy. Under the attribute-based standards being proposed today, that 
risk is reduced because building smaller vehicles would tend to raise a 
manufacturer's overall CAFE obligation, rather than only raising its 
fleet average CAFE. However, even if the manufacturers did not engage 
in any downsizing under attribute-based standards, there is still the 
possibility that manufacturers would rely on downweighting to improve 
their fuel economy (for a given vehicle at a given footprint target) in 
ways that may reduce safety to a greater or lesser extent. While NHTSA 
recognizes that manufacturers may nonetheless choose this option for 
raising their CAFE levels, in prior rulemakings we have limited the 
application of downweighting/material substitution in our modeling 
analysis to vehicles over 5,000 lbs GVWR.\564\
---------------------------------------------------------------------------

    \564\ See 74 FR 14396-14407 (Mar. 30, 2009).
---------------------------------------------------------------------------

    For purposes of today's proposed standards, however, NHTSA has 
revised its modeling analysis to allow some application of 
downweighting/material substitution for all vehicles, including those 
under 5,000 lbs GVWR, because we believe that this is more consistent 
with how manufacturers will actually respond to the standards. However, 
as discussed above, NHTSA does not mandate the use of any particular 
technology by manufacturers in meeting the standards. More information 
on the new approach to modeling manufacturer use of downweighting/
material substitution is available in Chapter 3 of the draft joint TSD 
and in Section V of the PRIA; and the estimated safety impacts that may 
be due to the proposed standards are described below.
iii. Factors That NHTSA Is Prohibited From Considering
    EPCA also provides that in determining the level at which it should 
set CAFE standards for a particular model year, NHTSA may not consider 
the ability of manufacturers to take advantage of several EPCA 
provisions that facilitate compliance with the CAFE standards and 
thereby reduce the costs of compliance.\565\ As discussed further 
below, manufacturers can earn compliance credits by exceeding the CAFE 
standards and then use those credits to achieve compliance in years in 
which their measured average fuel economy falls below the standards. 
Manufacturers can also increase their CAFE levels through MY 2019 by 
producing alternative fuel vehicles. EPCA provides an incentive for 
producing these vehicles by specifying that their fuel economy is to be 
determined using a special calculation procedure that results in those 
vehicles being assigned a high fuel economy level.
---------------------------------------------------------------------------

    \565\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    The effect of the prohibitions against considering these 
flexibilities in setting the CAFE standards is that the flexibilities 
remain voluntarily-employed measures. If the agency were

[[Page 49690]]

instead to assume manufacturer use of those flexibilities in setting 
new standards, that assumption would result in higher standards and 
thus tend to require manufacturers to use those flexibilities.
iv. Determining the Level of the Standards by Balancing the Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the appropriate levels of average fuel economy at which to 
set the CAFE standards for each model year. Congress ``specifically 
delegated the process of setting * * * fuel economy standards with 
broad guidelines concerning the factors that the agency must 
consider.'' \566\ The breadth of those guidelines, the absence of any 
statutorily prescribed formula for balancing the factors, the fact that 
the relative weight to be given to the various factors may change from 
rulemaking to rulemaking as the underlying facts change, and the fact 
that the factors may often be conflicting with respect to whether they 
militate toward higher or lower standards give NHTSA discretion to 
decide what weight to give each of the competing policies and concerns 
and then determine how to balance them. The exercise of that discretion 
is subject to the necessity of ensuring that NHTSA's balancing does not 
undermine the fundamental purpose of the EPCA: Energy 
conservation,\567\ and as long as that balancing reasonably 
accommodates ``conflicting policies that were committed to the agency's 
care by the statute.'' \568\ The balancing of the factors in any given 
rulemaking is highly dependent on the factual and policy context of 
that rulemaking. Given the changes over time in facts bearing on 
assessment of the various factors, such as those relating to the 
economic conditions, fuel prices and the state of climate change 
science, the agency recognizes that what was a reasonable balancing of 
competing statutory priorities in one rulemaking may not be a 
reasonable balancing of those priorities in another rulemaking.\569\ 
Nevertheless, the agency retains substantial discretion under EPCA to 
choose among reasonable alternatives.
---------------------------------------------------------------------------

    \566\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1341 
(C.A.D.C. 1986).
    \567\ Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 
1195 (9th Cir. 2008).
    \568\ CAS, 1338 (quoting Chevron U.S.A., Inc. v. Natural 
Resources Defense Council, Inc., 467 U.S. 837, 845).
    \569\ CBD v. NHTSA, 538 F.3d 1172, 1198 (9th Cir. 2008).
---------------------------------------------------------------------------

    EPCA neither requires nor precludes the use of any type of cost-
benefit analysis as a tool to help inform the balancing process. While 
NHTSA used marginal cost-benefit analysis in the first two rulemakings 
to establish attribute-based CAFE standards, it was not required to do 
so and is not required to continue to do so. Regardless of what type of 
analysis is or is not used, considerations relating to costs and 
benefits remain an important part of CAFE standard setting.
    Because the relevant considerations and factors can reasonably be 
balanced in a variety of ways under EPCA, and because of uncertainties 
associated with the many technological and cost inputs, NHTSA considers 
a wide variety of alternative sets of standards, each reflecting 
different balancing of those policies and concerns, to aid it in 
discerning reasonable outcomes. Among the alternatives providing for an 
increase in the standards in this rulemaking, the alternatives range in 
stringency from a set of standards that increase, on average, 3 percent 
annually to a set of standards that increase, on average, 7 percent 
annually.
2. Administrative Procedure Act
    To be upheld under the ``arbitrary and capricious'' standard of 
judicial review in the APA, an agency rule must be rational, based on 
consideration of the relevant factors, and within the scope of the 
authority delegated to the agency by the statute. The agency must 
examine the relevant data and articulate a satisfactory explanation for 
its action including a ``rational connection between the facts found 
and the choice made.'' Burlington Truck Lines, Inc. v. United States, 
371 U.S. 156, 168 (1962).
    Statutory interpretations included in an agency's rule are 
subjected to the two-step analysis of Chevron, U.S.A., Inc. v. Natural 
Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 
(1984). Under step one, where a statute ``has directly spoken to the 
precise question at issue,'' id. at 842, 104 S.Ct. 2778, the court and 
the agency ``must give effect to the unambiguously expressed intent of 
Congress,'' id. at 843, 104 S.Ct. 2778. If the statute is silent or 
ambiguous regarding the specific question, the court proceeds to step 
two and asks ``whether the agency's answer is based on a permissible 
construction of the statute.'' Id.
    If an agency's interpretation differs from the one that it has 
previously adopted, the agency need not demonstrate that the prior 
position was wrong or even less desirable. Rather, the agency would 
need only to demonstrate that its new position is consistent with the 
statute and supported by the record, and acknowledge that this is a 
departure from past positions. The Supreme Court emphasized this 
recently in FCC v. Fox Television, 129 S.Ct. 1800 (2009). When an 
agency changes course from earlier regulations, ``the requirement that 
an agency provide reasoned explanation for its action would ordinarily 
demand that it display awareness that it is changing position,'' but 
``need not demonstrate to a court's satisfaction that the reasons for 
the new policy are better than the reasons for the old one; it suffices 
that the new policy is permissible under the statute, that there are 
good reasons for it, and that the agency believes it to be better, 
which the conscious change of course adequately indicates.'' \570\
---------------------------------------------------------------------------

    \570\ Ibid., 1181.
---------------------------------------------------------------------------

3. National Environmental Policy Act
    As discussed above, EPCA requires the agency to determine what 
level at which to set the CAFE standards for each model year by 
considering the four factors of technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy. NEPA directs that environmental considerations be 
integrated into that process. To accomplish that purpose, NEPA requires 
an agency to compare the potential environmental impacts of its 
proposed action to those of a reasonable range of alternatives.
    To explore the environmental consequences in depth, NHTSA has 
prepared a draft environmental impact statement. The purpose of an EIS 
is to ``provide full and fair discussion of significant environmental 
impacts and [to] inform decisionmakers and the public of the reasonable 
alternatives which would avoid or minimize adverse impacts or enhance 
the quality of the human environment.'' 40 CFR 1502.1.
    NEPA is ``a procedural statute that mandates a process rather than 
a particular result.'' Stewart Park & Reserve Coal., Inc. v. Slater, 
352 F.3d at 557. The agency's overall EIS-related obligation is to 
``take a `hard look' at the environmental consequences before taking a 
major action.'' Baltimore Gas & Elec. Co. v. Natural Res. Def. Council, 
Inc., 462 U.S. 87, 97, 103 S.Ct. 2246, 76 L.Ed.2d 437 (1983). 
Significantly, ``[i]f the adverse environmental effects of the proposed 
action are adequately identified and evaluated, the agency is not 
constrained by NEPA from deciding that other values outweigh the 
environmental costs.'' Robertson v. Methow Valley Citizens Council, 490 
U.S. 332, 350, 109 S.Ct. 1835, 104 L.Ed.2d 351 (1989).

[[Page 49691]]

    The agency must identify the ``environmentally preferable'' 
alternative, but need not adopt it. ``Congress in enacting NEPA * * * 
did not require agencies to elevate environmental concerns over other 
appropriate considerations.'' Baltimore Gas and Elec. Co. v. Natural 
Resources Defense Council, Inc., 462 U.S. 87, 97 (1983). Instead, NEPA 
requires an agency to develop alternatives to the proposed action in 
preparing an EIS. 42 U.S.C. 4332(2)(C)(iii). The statute does not 
command the agency to favor an environmentally preferable course of 
action, only that it make its decision to proceed with the action after 
taking a hard look at environmental consequences.

E. What Are the Proposed CAFE Standards?

1. Form of the Standards
    Each of the CAFE standards that NHTSA is proposing today for 
passenger cars and light trucks is expressed as a mathematical function 
that defines a fuel economy target applicable to each vehicle model 
and, for each fleet, establishes a required CAFE level determined by 
computing the sales-weighted harmonic average of those targets.\571\
---------------------------------------------------------------------------

    \571\ Required CAFE levels shown here are estimated required 
levels based on NHTSA's current projection of manufacturers' vehicle 
fleets in MYs 2012-2016. Actual required levels are not determined 
until the end of each model year, when all of the vehicles produced 
by a manufacturer in that model year are known and their compliance 
obligation can be determined with certainty. The target curves, as 
defined by the constrained linear function, and as embedded in the 
function for the sales-weighted harmonic average, are the real 
``standards'' being proposed today.
---------------------------------------------------------------------------

    As discussed above in Section II.C, NHTSA is proposing to determine 
fuel economy targets using a constrained linear function defined 
according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP28SE09.054

    Here, TARGET is the fuel economy target (in mpg) applicable to 
vehicles of a given footprint (FOOTPRINT, in square feet), b and a 
are the function's lower and upper asymptotes (also in mpg), 
respectively, c is the slope (in gpm per square foot) of the sloped 
portion of the function, and d is the intercept (in gpm) of the 
sloped portion of the function (that is, the value the sloped 
portion would take if extended to a footprint of 0 square feet). The 
MIN and MAX functions take the minimum and maximum, respectively of 
the included values.

    As also discussed in Section II.C, under the proposed standards (as 
under the recently-promulgated MY 2011 standards), the CAFE level 
required of any given manufacturer will be determined by calculating 
the production-weighted harmonic average of the fuel economy targets 
applicable to each vehicle model:
[GRAPHIC] [TIFF OMITTED] TP28SE09.055

    Here, CAFErequired is the required level for a given fleet, 
SALESi is the number of units of model i produced for 
sale in the United States, TARGETi is the fuel economy target 
applicable to model i (according to the equation shown in Chapter II 
and based on the footprint of model i), and the summations in the 
numerator and denominator are both performed over all models in the 
fleet in question.

    The proposed standards are, therefore, specified by the four 
coefficients defining fuel economy targets:

a = upper limit (mpg)
b = lower limit (mpg)
c = slope (gpm per square foot)
d = intercept (gpm)

    The values of the coefficients are different for the passenger car 
standards and the light truck standards.
2. Passenger Car Standards for MYs 2012-2016
    For passenger cars, NHTSA is proposing CAFE standards defined by 
the following coefficients during MY 2012-2016:

       Table IV.E.2-1--Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Passenger Cars
----------------------------------------------------------------------------------------------------------------
           Coefficient                 2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
a (mpg).........................      36.23           37.15           38.08           39.55           41.38
b (mpg).........................      28.12           28.67           29.22           30.08           31.12
c (gpm/sf)......................       0.0005308       0.0005308       0.0005308       0.0005308       0.0005308
d (gpm).........................       0.005842        0.005153        0.004498        0.003520        0.002406
----------------------------------------------------------------------------------------------------------------

    These coefficients result in footprint-dependent target curves 
shown graphically below. The MY 2011 final standard, which is specified 
by a constrained logistic function rather than a constrained linear 
function, is shown for comparison.

[[Page 49692]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.033

    As discussed, the CAFE levels required of individual manufacturers 
will depend on the mix of vehicles they produce for sale in the United 
States. Based on the market forecast of future sales that NHTSA has 
used to examine today's proposed CAFE standards, the agency estimates 
that the targets shown above will result in the following average 
required fuel economy levels for individual manufacturers during MYs 
2012-2016 (an updated estimate of the average required fuel economy 
level under the final MY 2011 standard is shown for comparison): \572\
---------------------------------------------------------------------------

    \572\ In the March 2009 final rule establishing MY 2011 
standards for passenger cars and light trucks, NHTSA estimated that 
the required fuel economy levels for passenger cars would average 
30.2 mpg under the MY 2011 passenger car standard. Based on the 
agency's current forecast of the MY 2011 passenger car market, which 
anticipates greater numbers of passenger cars than the forecast used 
in the MY 2011 final rule, NHTSA now estimates that the average 
required fuel economy level for passenger cars will be 30.5 mpg in 
MY 2011.

         Table IV.E.2-2--Estimated Average Fuel Economy Required Under Final MY 2011 and Proposed MY 2012-2016 CAFE Standards for Passenger Cars
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      Manufacturer                            MY 2011         MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.....................................................            30.2            33.2            34.0            34.8            36.0            37.5
Chrysler................................................            29.6            33.0            33.7            34.5            35.3            36.8
Daimler.................................................            29.4            32.6            33.1            33.8            35.0            36.4
Ford....................................................            29.8            33.0            33.7            34.5            35.8            37.3
General Motors..........................................            30.3            33.0            33.8            34.6            35.8            37.3
Honda...................................................            30.8            33.9            34.7            35.5            36.8            38.4
Hyundai.................................................            30.8            33.8            34.6            35.5            36.8            38.3
Kia.....................................................            30.6            33.6            34.4            35.2            36.5            38.0
Mazda...................................................            30.7            34.1            34.8            35.7            37.0            38.6
Mitsubishi..............................................            31.0            34.4            35.3            36.1            37.4            39.2
Nissan..................................................            30.7            33.5            34.2            35.0            36.2            37.8
Porsche.................................................            31.2            36.2            37.2            38.1            39.6            41.4
Subaru..................................................            31.0            34.8            35.7            36.5            37.9            39.6
Suzuki..................................................            31.2            35.9            36.8            37.7            39.2            41.0
Tata....................................................            27.8            30.7            31.4            32.1            33.1            34.4
Toyota..................................................            30.8            34.1            34.9            35.7            37.0            38.6
Volkswagen..............................................            30.8            34.6            35.4            36.2            37.5            39.1
                                                         -----------------------------------------------------------------------------------------------
    Average.............................................            30.5            33.6            34.4            35.2            36.4            38.0
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49693]]

    We note that a manufacturer's required average fuel economy level 
for a model year under the proposed standards would be based on its 
actual production numbers in that model year. Therefore, its official 
required fuel economy level would not be known until the end of that 
model year. However, because the targets for each vehicle footprint 
would be established in advance of the model year, a manufacturer 
should be able to estimate its required level accurately.
3. Minimum Domestic Passenger Car Standards
    EISA expressly requires each manufacturer to meet a minimum fuel 
economy standard for domestically manufactured passenger cars in 
addition to meeting the standards set by NHTSA. According to the 
statute (49 U.S.C. 32902(b)(4)) the minimum standard shall be the 
greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average 
fuel economy projected by the Secretary for the combined domestic and 
non-domestic passenger automobile fleets manufactured for sale in the 
United States by all manufacturers in the model year. The agency must 
publish the projected minimum standards in the Federal Register when 
the passenger car standards for the model year in question are 
promulgated.
    Based on NHTSA's current market forecast, the agency's estimates of 
these minimum standards under the proposed MY 2012-2016 CAFE standards 
(and, for comparison, the final MY 2011 standard) are summarized below 
in Table IV.E.2-1.\573\ For eventual compliance calculations, the final 
calculated minimum standards will be updated to reflect any changes in 
the average fuel economy level required under the final standards.
---------------------------------------------------------------------------

    \573\ In the March 2009 final rule establishing MY 2011 
standards for passenger cars and light trucks, NHTSA estimated that 
the minimum required CAFE standard for domestically manufactured 
passenger cars would be 27.8 mpg under the MY 2011 passenger car 
standard. Based on the agency's current forecast of the MY 2011 
passenger car market, NHTSA now estimates that the minimum required 
CAFE standard will be 28.0 mpg in MY 2011.

 Table IV.E.3-1--Estimated Minimum Standard for Domestically Manufactured Passenger Cars Under Final MY 2011 and
                             Proposed MY 2012-2016 CAFE Standards for Passenger Cars
----------------------------------------------------------------------------------------------------------------
       2011               2012               2013               2014               2015               2016
----------------------------------------------------------------------------------------------------------------
           28.0               30.9               31.6               32.4               33.5               34.9
----------------------------------------------------------------------------------------------------------------

4. Light Truck Standards
    For light trucks, NHTSA is proposing CAFE standards defined by the 
following coefficients during MYs 2012-2016:

        Table IV.E.4-1--Coefficients Defining Proposed MY 2012-2016 Fuel Economy Targets for Light Trucks
----------------------------------------------------------------------------------------------------------------
           Coefficient                 2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
a (mpg).........................      29.44           30.32           31.30           32.70           34.38
b (mpg).........................      22.06           22.55           23.09           23.84           24.72
c (gpm/sf)......................       0.0004546       0.0004546       0.0004546       0.0004546       0.0004546
d (gpm).........................       0.01533         0.01434         0.01331         0.01194         0.01045
----------------------------------------------------------------------------------------------------------------

    These coefficients result in footprint-dependent targets shown 
graphically below. The MY 2011 final standard, which is specified by a 
constrained logistic function rather than a constrained linear 
function, is shown for comparison.

[[Page 49694]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.034

    Given these targets, the CAFE levels required of individual 
manufacturers will depend on the mix of vehicles they produce for sale 
in the United States. Based on the market forecast NHTSA has used to 
examine today's proposed CAFE standards, the agency estimates that the 
targets shown above will result in the following average required fuel 
economy levels for individual manufacturers during MYs 2012-2016 (an 
updated estimate of the average required fuel economy level under the 
final MY 2011 standard is shown for comparison): \574\
---------------------------------------------------------------------------

    \574\ In the March 2009 final rule establishing MY 2011 
standards for passenger cars and light trucks, NHTSA estimated that 
the required fuel economy levels for light trucks would average 24.1 
mpg under the MY 2011 light truck standard. Based on the agency's 
current forecast of the MY 2011 light truck market, NHTSA now 
estimates that the required fuel economy levels will average 24.2 
mpg in MY 2011. The increase in the estimate reflects a slight 
decrease in the size of the average light truck.

          Table IV.E.4-2--Estimated Average Fuel Economy Required Under Final MY 2011 and Proposed MY 2012-2016 CAFE Standards for Light Trucks
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      Manufacturer                            MY 2011         MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
BMW.....................................................            25.7            26.3            27.0            27.7            28.8            30.1
Chrysler................................................            24.2            25.2            25.8            26.4            27.3            28.5
Daimler.................................................            24.7            25.4            26.1            26.9            27.9            29.1
Ford....................................................            23.3            24.3            24.9            25.3            26.2            27.3
General Motors..........................................            22.9            23.6            24.2            24.8            25.6            26.6
Honda...................................................            25.6            26.4            27.1            27.9            29.0            30.4
Hyundai.................................................            25.9            26.6            27.3            28.1            29.3            30.6
Kia.....................................................            25.1            25.8            26.4            27.2            28.3            29.6
Mazda...................................................            26.3            27.4            28.1            28.8            29.9            31.4
Mitsubishi..............................................            26.4            27.4            28.1            28.9            30.1            31.6
Nissan..................................................            24.1            25.0            25.6            26.1            27.0            28.2
Porsche.................................................            25.5            26.0            26.7            27.4            28.5            29.8
Subaru..................................................            26.5            27.5            28.3            29.2            30.4            31.8
Suzuki..................................................            26.3            27.2            27.9            28.7            29.9            31.3
Tata....................................................            26.1            26.9            27.6            28.4            29.6            31.0
Toyota..................................................            25.2            25.7            26.3            27.1            28.1            29.3
Volkswagen..............................................            25.0            25.6            26.2            26.9            27.9            29.2
                                                         -----------------------------------------------------------------------------------------------
    Average.............................................            24.2            25.0            25.6            26.2            27.1            28.3
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 49695]]

    As discussed above with respect to the proposed passenger cars 
standards, we note that a manufacturer's required fuel economy level 
for a model year under the proposed standards would be based on its 
actual production numbers in that model year.

F. How Do the Proposed Standards Fulfill NHTSA's Statutory Obligations?

    In developing the proposed MY 2012-16 standards, the agency 
developed and considered a wide variety of alternatives. NHTSA took a 
new approach to defining alternatives as compared to the most recent 
prior CAFE rulemaking. In response to comments received in the last 
round of rulemaking, in our March 2009 notice of intent to prepare an 
environmental impact statement, the agency selected a range of 
candidate stringencies that increased annually, on average, 3% to 
7%.\575\ That same approach has been carried over to this NPRM and to 
the accompanying DEIS and PRIA. The majority of the alternatives 
considered in this rulemaking are defined as average percentage 
increases in stringency--3 percent per year, 4 percent per year, 5 
percent per year, and so on. NHTSA believes that this approach more 
clearly communicates the level of stringency of each alternative and is 
more intuitive than alternatives defined in terms of different cost-
benefit ratios, and still allows us to identify alternatives that 
represent different ways to balance NHTSA's statutory requirements 
under EPCA/EISA.
---------------------------------------------------------------------------

    \575\ Notice of intent to prepare an EIS, 74 FR 14857, 14859-60, 
April 1, 2009.
---------------------------------------------------------------------------

    In the notice of intent, we noted that each of the listed 
alternatives represents, in part, a different way in which NHTSA could 
conceivably balance conflicting policies and considerations in setting 
the standards. We were mindful that the agency would need to weigh and 
balance many factors, such as the technological feasibility, economic 
practicability, including leadtime considerations for the introduction 
of technologies and impacts on the auto industry, the impacts of the 
standards on fuel savings and CO2 emissions, fuel savings by 
consumers; as well as other relevant factors such as safety. For 
example, the 7% Alternative, the most stringent alternative, weighs 
energy conservation and climate change considerations more heavily and 
technological feasibility and economic practicability less heavily. In 
contrast, the 3% Alternative, the least stringent alternative, places 
more weight on technological feasibility and economic practicability. 
We recognized that the ``feasibility'' of the alternatives also may 
reflect differences and uncertainties in the way in which key economic 
(e.g., the price of fuel and the social cost of carbon) and 
technological inputs could be assessed and estimated or valued.
    In subsequently developing the NPRM and the associated analytical 
documents, the agency expanded the list of alternatives to provide a 
degree of analytical continuity between the old and new approach to 
defining alternatives in an effort help the agency and the public 
understand the similarities and dissimilarities between the two 
approaches and to make the transition to the new approach. To that end, 
we included and analyzed two additional alternatives, one that sets 
standards at the point where net benefits are maximized, and another 
that sets standards at the point at which total costs are equal to 
total benefits.\576\ With respect to the first of those alternatives, 
we note that Executive Order 12866 focuses attention on an approach 
that maximizes net benefits. Further, since NHTSA has thus far set 
attribute-based CAFE standards at the point at which net benefits are 
maximized, we believed it would be useful and informative to consider 
the potential impacts of that approach as compared to the new approach 
for MYs 2012-2016.
---------------------------------------------------------------------------

    \576\ The stringency indicated by each of these alternatives 
depends on the value of inputs to NHTSA's analysis. Results 
presented here for these two alternatives are based on NHTSA's 
reference case inputs, which underlie the central analysis of the 
proposed standards. In the accompanying PRIA, the agency presents 
the results of that analysis to explore the sensitivity of results 
to changes in key economic inputs. Because of numerous changes in 
model inputs (e.g., discount rate, rebound effect, CO2 
value, technology cost estimates), our analysis often exhausts all 
available technologies before reaching the point at which total 
costs equal total benefits. In these cases, the stringency that 
exhausts all available technologies is considered.
---------------------------------------------------------------------------

    After working with EPA in thoroughly reviewing and in some cases 
reassessing the effectiveness and costs of technologies, most of which 
are already being incorporated in at least some vehicles, market 
forecasts and economic assumptions, we used the Volpe model extensively 
to assess the technologies that the manufacturers could apply in order 
to comply with each of the alternatives. This permitted us to assess 
the variety, amount and cost of the technologies that could be needed 
to enable the manufacturers to comply with each of the alternatives. 
NHTSA estimated how the application of these and other technologies 
could increase vehicle costs. The following five figures show industry-
wide average incremental (i.e., relative to the reference fleet) per-
vehicle costs, for each model year, each fleet, and the combined fleet. 
Estimates specific to each manufacturer are shown in the accompanying 
PRIA.

[[Page 49696]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.035

[GRAPHIC] [TIFF OMITTED] TP28SE09.036


[[Page 49697]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.037

[GRAPHIC] [TIFF OMITTED] TP28SE09.038


[[Page 49698]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.039

    Corresponding to these per-vehicle cost increases, NHTSA estimated 
total incremental outlays for additional technology in each model year. 
The following figure shows cumulative results for MY 2012-2016 for 
industry and Chrysler, Ford, General Motors, Honda, Nissan, and Toyota. 
This figure focuses on these manufacturers as they currently (in MY 
2008) represent three large U.S.-headquartered and three large foreign-
headquartered full-line manufacturers.
[GRAPHIC] [TIFF OMITTED] TP28SE09.040


[[Page 49699]]


    For each alternative, NHTSA has also estimated all corresponding 
effects for each model year, including fuel savings, CO2 
reductions, and other effects, as well as the estimated societal 
benefits of these effects.

          Table IV.F.1--Fuel Savings, CO2 Reductions, and Technology Costs for Regulatory Alternatives
----------------------------------------------------------------------------------------------------------------
                                                                   Fuel savings   CO2 reductions
                     Regulatory alternative                          (b. gal)          (mmt)        Cost  ($b)
----------------------------------------------------------------------------------------------------------------
3% per Year.....................................................              37             404              29
4% per Year.....................................................              54             582              46
5% per Year.....................................................              69             718              74
6% per Year.....................................................              83             846             103
Maximum Net Benefit.............................................              90             923             111
7% per Year.....................................................              91             934             116
                                                                 -----------------------------------------------
    Total Cost = Total Benefit..................................              95             977             122
----------------------------------------------------------------------------------------------------------------

The accompanying PRIA presents a detailed analysis of these results. 
Relevant to EPCA's requirement that NHTSA consider, among other 
factors, economic practicability and the need of the nation to conserve 
energy, the following figure compares the incremental technology 
outlays presented above to the corresponding cumulative fuel savings.

[GRAPHIC] [TIFF OMITTED] TP28SE09.041

The agency then assessed which alternative would represent a reasonable 
balancing of the statutory criteria, given the difficulties confronting 
the industry and the economy, and the priorities and policy goals of 
the President. Those priorities and goals include achieving nationally 
harmonized and coordinated program for regulating fuel economy and GHG 
emissions.
    Part of that assessment entailed an evaluation of the stringencies 
necessary to achieve both Federal and State GHG emission reduction 
goals, especially those of California and the States that have adopted 
its GHG emission standard for motor vehicles. Given that EPCA requires 
attribute-based standards, NHTSA and EPA determined the level at which 
an attribute-based GHG emissions standard would need to be set to 
achieve the goals of California. This was done by evaluating a 
nationwide CAA standard for MY 2016 that would require the levels of 
technology upgrade, across the country, which California standards 
would require for the subset of vehicles sold in California under the 
California standards for MY 2009-2016 (known as ``Pavley 1''). In 
essence, the stringency of the California Pavley 1 program was 
evaluated, but for a national standard. For a number of reasons 
discussed in section III.D, an assessment was developed of an 
equivalent national new vehicle fleet-wide CO2 performance 
standards for model year 2016 which would result in the new vehicle 
fleet in the State of California having CO2 performance 
equal to the performance from the California Pavley 1 standards. That 
level, 250 g/mi, is equivalent to 35.5 mpg if the GHG standard is met

[[Page 49700]]

exclusively by fuel economy improvements.
    To obtain the counterpart CAFE standard, we then adjusted that 
level downward to account for differences between the more prescriptive 
EPCA and the more flexible CAA. These differences give EPA greater 
ability under the CAA to provide compliance flexibilities that would 
enable manufacturers to achieve compliance with a given level of 
requirement under the CAA at less cost than with the same level of 
requirement under EPCA. Principal among those greater flexibilities are 
the credits that EPA can provide for improving the efficiency of air 
conditioners and reducing the leakage of refrigerants from them. The 
adjustments result in a figure of 34.1 mpg as the appropriate 
counterpart CAFE standard. This differential gives manufacturers the 
opportunity to reach 35.5 mpg under the CAA in ways that would 
significantly reduce their costs. Were NHTSA instead to establish its 
standard at the same level, manufacturers would need to make 
substantially greater expenditures on fuel-saving technologies to reach 
35.5 mpg under EPCA.
    Given the importance to this rulemaking of achieving a harmonized 
National Program, we created a new alternative whose annual percentage 
increases would achieve 34.1 mpg by MY 2016. That alternative is one 
which increases on average at 4.3% annually.
    This new alternative, like the seven alternative presented above, 
represents a unique balancing of the statutory factors and other 
relevant considerations. We have added that alternative to the table 
below.

------------------------------------------------------------------------
                                              Fuel
                                            savings      CO2       Cost
          Regulatory  alternative              (b.   reductions    ($b)
                                              gal)      (mmt)
------------------------------------------------------------------------
3% per Year...............................       37        404        29
4% per Year...............................       54        582        46
Proposed (4.3% per Year)..................       62        656        60
5% per Year...............................       69        718        74
6% per Year...............................       83        846       103
Maximum Net Benefit.......................       90        923       111
7% per Year...............................       91        934       116
                                           -----------------------------
    Total Cost = Total Benefit............       95        977       122
------------------------------------------------------------------------

    As noted earlier, NHTSA has used the Volpe model to analyze each of 
these alternatives based on analytical inputs determined jointly with 
EPA. For a given regulatory alternative, the Volpe model estimates how 
each manufacturer could apply technology in response to the MY 2012 
standard (separately for cars and trucks), carries technologies applied 
in MY 2012 forward to MY 2013, and then estimates how each manufacturer 
could apply technology in response to the MY 2013 standard. When 
analyzing MY 2013, the model considers the potential to add ``extra'' 
technology in MY 2012 in order to carry that technology into MY 2013, 
thereby avoiding the use of more expensive technologies in MY 2013. The 
model continues in this fashion through MY 2016, and then performs 
calculations to estimate the costs, effects, and benefits of the 
applied technologies, and to estimate any civil penalties owed based on 
projected noncompliance. For each regulatory alternative, the model 
calculates incremental costs, effects, and benefits relative to the 
regulatory baseline (i.e., the no-action alternative), under which the 
MY 2011 CAFE standards continue through MY 2016. The model calculates 
results for each model year, because EPCA requires that NHTSA set its 
standards for each model year at the ``maximum feasible average fuel 
economy level that the Secretary decides the manufacturers can achieve 
in that model year'' considering four statutory factors. Pursuant to 
EPCA's directive notice not to consider statutory credits in 
establishing CAFE standards, NHTSA did not FFV credits, credits carried 
forward and backward, and transferred credit.577 578 In 
addition, the analysis reflects the ability of manufacturers to pay 
fines in lieu of compliance.
---------------------------------------------------------------------------

    \577\ Separately, NHTSA has conducted analysis that accounts for 
EPCA's provisions regarding FFVs.
    \578\ Because NHTSA's modeling represents every model year 
explicitly, accounts for estimates of when vehicle model redesigns 
will occur, and sets aside these compliance flexibilities, the 
agency's modeling produces results that differ varyingly from EPA's 
for specific manufacturers, fleets, and model years.
---------------------------------------------------------------------------

    Because it entails year-by-year examination of eight regulatory 
alternatives for, separately, passenger cars and light trucks, NHTSA's 
analysis involves a large amount of information. Detailed results of 
this analysis are presented separately in the PRIA accompanying today's 
notice. The remainder of this section discusses a combination of 
aggregated and illustrative results of this analysis.
    The following figure compares average fuel economy levels required 
of manufacturers under the eight regulatory alternatives in MYs 2012, 
2014, and 2016. Required levels for MY 2013 and MY 2015 fall between 
those for MYs 2012 and 2014 and MYs 2014 and 2016, respectively. 
Although required levels for these interim years are not presented in 
the following figure to limit the complexity of the figure, they do 
appear in the accompanying PRIA.\579\
---------------------------------------------------------------------------

    \579\ Also, the ``Max NB'' and the ``TC = TB'' alternatives 
depend on the inputs to the agencies' analysis. The sensitivity 
analysis presented in the PRIA documents the response of these 
alternatives to changes in key economic inputs. For example, the 
combined average required fuel economy under the ``Max NB'' 
alternative is 36.8 mpg under the reference case economic inputs 
presented here, and ranges from 32.8 mpg to 37.2 mpg under the 
alternative economic inputs presented in the PRIA.

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

[[Page 49701]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.042

    As this figure illustrates, the proposed standards involve a 
``faster start'' toward increased stringency than do any of the 
alternatives that increase steadily (i.e., the 3%/y, 4%/y, 5%/y, 6%/y, 
and 7%/y alternatives). However, by MY 2016, the stringency of the 
proposed standards reflects an average annual increase of 4.3%/y. The 
proposed standards, therefore, represent an alternative that could be 
referred to as ``4.3% per year with a fast start'' or a ``front-loaded 
4.3% average annual increase.''
    In NHTSA's analysis, these achieved average fuel economy levels 
result from the application of technology rather than changes in the 
mix of vehicles produced for sale in the U.S. The accompanying PRIA 
presents detailed estimates of additional technology penetration into 
the NHTSA reference fleet associated with each regulatory alternative. 
The following four charts illustrate the results of this analysis, 
considering the application of four technologies by six manufacturers 
and the industry as a whole. Technologies include gasoline direct 
injection (GDI), engine turbocharging and downsizing, diesel engines, 
and strong HEV systems (including CISG systems). GDI and turbocharging 
are among the technologies that play an important role in achieving the 
fuel economy improvements shown in NHTSA's analysis, and diesels and 
strong HEVs represent technologies involving significant challenges for 
widespread use through MY 2016. These figures focus on Chrysler, Ford, 
General Motors, Honda, Nissan, and Toyota, as these manufacturers 
currently (in MY 2008) represent three large U.S.-headquartered and 
three large foreign-headquartered full-line manufacturers. For each 
alternative, the figures show additional application of technology by 
MY 2016. The PRIA presents results for all model years, technologies, 
and manufacturers, and NHTSA has considered these broader results when 
considering the eight regulatory alternatives.

[[Page 49702]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.043

[GRAPHIC] [TIFF OMITTED] TP28SE09.044


[[Page 49703]]


[GRAPHIC] [TIFF OMITTED] TP28SE09.045

[GRAPHIC] [TIFF OMITTED] TP28SE09.046

    The agency began the process of winnowing the alternatives by 
determining whether any of the lower stringency alternatives should be 
eliminated from consideration. To begin with, the agency needs to 
ensure that its standards are high enough to enable the combined fleet 
of passenger cars and light trucks to achieve at least 35 mpg not later 
than MY 2020, as required by EISA. Achieving that level makes it 
necessary for the chosen alternative to increase at over 3 percent 
annually.
    NHTSA has concluded that it must reject the 3%/y and 4%/y 
alternatives. Given that CO2 and fuel savings are very 
closely correlated, the above chart reveals that the 3%/y and 4%/y 
alternative would not produce the reductions in fuel savings and 
CO2 emissions that the Nation needs at this time. Picking 
either of those alternatives would unnecessarily result in foregoing 
substantial benefits, in terms of fuel

[[Page 49704]]

savings and reduced CO2 emissions, which would be achievable 
at reasonable cost. Further, NHTSA has tentatively concluded that it 
must reject the 3%/y and 4%/y alternatives, as neither would lead to 
the regulatory harmonization that forms a vital core principle of the 
National Program that EPA and NHTSA are jointly striving to implement. 
In order to achieve a harmonized National Program, an average annual 
increase of 4.3% is necessary.
    In contrast, at the upper end of the range of alternatives, the 
agency was concerned that the increased benefits offered by those 
alternatives were available only at excessive cost and might not be 
practicable in all cases within the available leadtime.
    NHTSA first considered the environmentally-preferable alternative. 
Based on the information provided in the DEIS, the environmentally-
preferable alternative would be that involving stringencies at which 
total costs most nearly equal total benefits. NHTSA notes that NEPA 
does not require that agencies choose the environmentally-preferable 
alternative if doing so would be contrary to the choice that the agency 
would otherwise make under its governing statute. Given the levels of 
stringency required by the environmentally-preferable alternative and 
the lack of lead time to achieve such levels between now and MY 2016, 
NHTSA tentatively concludes that the environmentally-preferable 
alternative would not be economically practicable or technologically 
feasible, and thus tentatively concludes that it would result in 
standards that would be beyond the level achievable for MYs 2012-2016.
    NHTSA determined that it would be inappropriate to propose any of 
the other more stringent alternatives due to concerns over lead time 
and economic practicability. At a time when the entire industry remains 
in an economically critical state, the agencies believe that it would 
be unreasonable to propose more stringent standards. Even in a case 
where economic factors were not a consideration, there are real-world 
time constraints which must be considered due to the short lead time 
available for the early years of this program, in particular for MYs 
2012 and 2013.
    As revealed by the figures shown above, the proposed standards 
already require aggressive application of technologies, and more 
stringent standards which would require more widespread use (including 
more substantial implementation of advanced technologies such as 
stoichiometric gasoline direct injection engines and strong hybrids) 
raise serious issues of adequacy of lead time, not only to meet the 
standards but to coordinate such significant changes with 
manufacturers' redesign cycles.
    NHTSA does not believe that more stringent standards would meet 
EPCA's requirement that CAFE standards be economically practicable. The 
figures presented above reveal that increasing stringency beyond the 
proposed standards would entail significant additional application of 
technology--technology that, though perhaps feasible for individual 
vehicle models, would not be economically practicable for the industry 
at the scales involved. Among the more stringent alternatives, the one 
closest in stringency to the standards proposed today is the 
alternative under which combined CAFE stringency increases at 5% 
annually. As indicated above, this alternative would yield fuel savings 
and CO2 reductions about 12% and 9% higher, respectively, 
than the proposed standards. However, compared to the proposed 
standards, this alternative would increase outlays for new technologies 
during MY 2012-2016 by about 24%, or $14b. Average MY 2016 cost 
increases would, in turn, rise from $1,076 under the proposed standards 
to $1,409 when stringency increases at 5% annually. This represents a 
30% increase in per-vehicle cost for only a 3% increase in average 
performance (on a gallon-per-mile basis to which fuel savings are 
proportional). The following three tables summarize estimated 
manufacturer-level average incremental costs for the 5%/y alternative 
and the average of the passenger and light truck fleets:

Table IV.F.3--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards for Passenger Cars
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             474             541             667             883           1,190
Chrysler........................             726           1,464           1,832           1,928           1,913
Daimler.........................             132             209             814           1,094           1,467
Ford............................             979           1,556           1,572           1,918           2,181
General Motors..................              94             934           1,242           1,541           1,808
Honda...........................              55             263             408             451             671
Hyundai.........................             518             531             943           1,007           1,152
Kia.............................             180             344             440             612             796
Mazda...........................             603             919           1,294           1,569           1,863
Mitsubishi......................           1,106           1,141           2,594           2,962           2,913
Nissan..........................             298             587           1,344           1,402           1,517
Porsche.........................             209             240             350             465             581
Subaru..........................             353             454           1,828           2,258           2,201
Suzuki..........................             204           1,453           2,444           2,580           2,624
Tata............................             202             239             428             632           1,350
Toyota..........................             133             127             194             285             446
Volkswagen......................             231             550             688             828           1,202
                                 -------------------------------------------------------------------------------
    Average.....................             337             664             916           1,079           1,291
----------------------------------------------------------------------------------------------------------------


 Table IV.F.4--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards for Light Trucks
----------------------------------------------------------------------------------------------------------------
          Manufacturer               MY 2012          MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW............................             297              306             403             753             935
Chrysler.......................             113              475           1,058           1,271           1,538

[[Page 49705]]

 
Daimler........................             172              198             227             459             528
Ford...........................             732            1,201           1,685           2,345           2,380
General Motors.................  ...............             786           1,121           1,275           1,457
Honda..........................             646              614           1,139           1,265           1,624
Hyundai........................             990            1,009           2,106           2,206           2,148
Kia............................  ...............             309             713           1,181           1,692
Mazda..........................             434              608             612             722             953
Mitsubishi.....................              11               88           2,102           2,081           2,817
Nissan.........................             793              891           1,419           1,535           1,907
Porsche........................             (17)              55             117             962           1,009
Subaru.........................           1,398            1,370           1,501           1,441           1,486
Suzuki.........................               6            2,169           2,093           2,028           2,155
Tata...........................  ...............              77             160             242             695
Toyota.........................             113              427             906           1,065           1,291
Volkswagen.....................             (11)              55             127             209             286
                                --------------------------------------------------------------------------------
    Average....................             373              742           1,179           1,449           1,641
----------------------------------------------------------------------------------------------------------------


          Table IV.F.5--Average Incremental Costs ($/Vehicle) Under the 5%/y Alternative CAFE Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             415             469             590             848           1,123
Chrysler........................             351             888           1,392           1,632           1,747
Daimler.........................             148             205             591             884           1,167
For[caret]d.....................             872           1,401           1,623           2,110           2,269
General Motors..................              52             868           1,189           1,426           1,660
Honda...........................             272             386             638             701             955
Hyundai.........................             610             625           1,167           1,228           1,330
Kia.............................             143             337             489             707             942
Mazda...........................             571             862           1,181           1,443           1,732
Mitsubishi......................             959             975           2,525           2,854           2,902
Nissan..........................             462             683           1,367           1,441           1,627
Porsche.........................             120             172             272             623             717
Subaru..........................             743             787           1,709           1,964           1,942
Suzuki..........................             152           1,637           2,349           2,434           2,504
Tata............................              71             144             267             420           1,001
Toyota..........................             125             233             440             549             724
Volkswagen......................             182             460             586             716           1,043
                                 -------------------------------------------------------------------------------
    Average.....................             350             692           1,010           1,207           1,409
----------------------------------------------------------------------------------------------------------------

    These cost increases derive from accelerated application of 
advanced technologies as stringency increases past the levels in the 
proposed standards. For example, under the proposed standards, 
additional diesel application rates average 2% for the industry and 
range from 0% to 7% among Chrysler, Ford, GM, Honda, Nissan, and 
Toyota. Under standards increasing in combined stringency at 5% 
annually, these rates more than double, averaging 5% for the industry 
and ranging from 2% to 13% for the same six manufacturers. The agency 
tentatively concludes that the levels of technology penetration 
required by the proposed standards are reasonable. Increasing the 
standards beyond those levels would lead to rapidly increasing 
dependence on advanced technologies with higher costs, particularly in 
the early years of the rulemaking time frame, according to the agency's 
analysis, and potentially pose too great an economic burden given the 
state of the industry.
    In contrast, through analysis of the illustrative results shown 
above, as well as the more complete and detailed results presented in 
the accompanying PRIA, NHTSA has concluded that the proposed standards 
are technologically feasible and economically practicable. The proposed 
standards will require manufacturers to apply considerable additional 
technology. Although NHTSA cannot predict how manufacturers will 
respond to the proposed standards, the agency's analysis indicates that 
the standards could lead to significantly greater use of advanced 
engine and transmission technologies. As shown above, the agency's 
analysis shows considerable increases in the application of SGDI 
systems and engine turbocharging and downsizing. Though not presented 
above, the agency's analysis also shows similarly large increases in 
the use of dual-clutch automated manual transmissions (AMTs). However, 
the agency's analysis does not suggest that the additional application 
of these technologies in response to the proposed standards would 
extend beyond levels achievable by the industry. These technologies are 
likely to be applied to at least some extent even in the absence of new 
CAFE standards. In addition, the agency's analysis indicates that most 
manufacturers would rely only to a limited extent on the most expensive 
and advanced technologies, including diesel engines and strong HEVs.
    As shown above, NHTSA estimates that the proposed standards could 
lead to average incremental costs ranging

[[Page 49706]]

from $291 per vehicle (for light trucks in MY 2011) to $1,085 per 
vehicle (for passenger cars in MY 2016), increasing steadily from $421 
per vehicle in for all light vehicles in MY 2011 $1,076 for all light 
vehicle in MY 2016. NHTSA estimates that these costs would vary 
considerably among manufacturers, but would rarely exceed $2,000 per 
vehicle. The following three tables summarize estimated manufacturer-
level average incremental costs for the proposed standards and the 
average of the passenger and light truck fleets:

         Table IV.F.6--Average Incremental Costs ($/Vehicle) Under Proposed Passenger Car CAFE Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             524             552             634             828           1,124
Chrysler........................             775           1,304           1,473           1,583           1,582
Daimler.........................             182             215             781           1,039           1,401
Ford............................           1,746           1,719           1,735           1,880           2,078
General Motors..................             143             990           1,189           1,387           1,553
Honda...........................              31             122             205             287             494
Hyundai.........................             418             452             643             726             868
Kia.............................             319             359             387             473             647
Mazda...........................             658             735             965             991            1,26
Mitsubishi......................           1,156           1,076           1,715           2,076           2,035
Nissan..........................             653             712           1,155           1,153           1,275
Porsche.........................             270             256             306             399             498
Subaru..........................             408             465           1,493           1,877           1,838
Suzuki..........................             259           1,001           1,445           1,494           1,675
Tata............................             246             244             395             577           1,284
Toyota..........................             133             127             155             257             267
Volkswagen......................             286             561             650             767           1,125
                                 -------------------------------------------------------------------------------
    Average.....................             498             674             820             930           1,085
----------------------------------------------------------------------------------------------------------------


          Table IV.F.7--Average Incremental Costs ($/Vehicle) Under Proposed Light Truck CAFE Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             325             327             380             708             884
Chrysler........................             152             399             749             892           1,188
Daimler.........................             322             289             316             420             478
Ford............................             471             629             693           1,323           1,365
General Motors..................              33             533             752             792             962
Honda...........................             390             380             616             749           1,006
Hyundai.........................             774             744           1,301           1,322           1,292
Kia.............................             228             373             547             843           1,218
Mazda...........................             340             608             610             679             776
Mitsubishi......................              55              94           1,546           1,732           2,123
Nissan..........................             541             608             903           1,022           1,312
Porsche.........................              28              46              84             913             954
Subaru..........................           1,203           1,140           1,213           1,197           1,184
Suzuki..........................              50           1,451           1,404           1,358           1,373
Tata............................              44              83             127             193             635
Toyota..........................             172             309             665             764             877
Volkswagen......................              28              61              99             160             231
                                 -------------------------------------------------------------------------------
    Average.....................             291             485             701             911           1,058
----------------------------------------------------------------------------------------------------------------


                Table IV.F.8--Average Incremental Costs ($/Vehicle) Under Proposed CAFE Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             457             483             560             796           1,061
Chrysler........................             393             777           1,061           1,271           1,408
Daimler.........................             236             243             604             834           1,106
Ford............................           1,195           1,242           1,262           1,629           1,762
General Motors..................              94             785             997           1,131           1,304
Honda...........................             162             212             335             429             647
Hyundai.........................             488             509             769             835             944
Kia.............................             300             362             416             535             740
Mazda...........................             598             712             907             944           1,193
Mitsubishi......................           1,007             921           1,692           2,033           2,045
Nissan..........................             616             679           1,078           1,115           1,286
Porsche.........................             174             179             231             562             643
Subaru..........................             705             711           1,392           1,632           1,602
Suzuki..........................             204           1,117           1,434           1,458           1,598
Tata............................             115             150             234             368             938
Toyota..........................             147             191             331             429             468

[[Page 49707]]

 
Volkswagen......................             233             470             550             657             970
                                 -------------------------------------------------------------------------------
    Average.....................             421             605             777             924           1,076
----------------------------------------------------------------------------------------------------------------

    In summary, NHTSA has considered eight regulatory alternatives, 
including the proposed standards, examining technologies that could be 
applied in response to each alternative, as well as corresponding 
costs, effects, and benefits. The agency has concluded that 
alternatives less stringent than the proposed standards would not 
produce the fuel savings and CO2 reductions necessary at 
this time to achieve either the overarching purpose of EPCA, i.e., 
energy conservation, or an important part of the regulatory 
harmonization underpinning the National Program. Conversely, the agency 
has concluded that more stringent standards would involve levels of 
additional technology and cost that, considering the fragile state of 
the automotive industry, would not be economically practicable. 
Therefore, having considered these eight regulatory alternatives, and 
the statutorily-relevant factors of technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy, along with other relevant factors such as the safety 
impacts of the proposed standards,\580\ NHTSA tentatively concludes 
that the proposed standards represent a reasonable balancing of all of 
these concerns, and are the maximum feasible average fuel economy 
levels that the manufacturers can achieve in MYs 2012-2016.
---------------------------------------------------------------------------

    \580\ See Section IV.G.7 below.
---------------------------------------------------------------------------

G. Impacts of the Proposed CAFE Standards

1. How Would These Proposed Standards Improve Fuel Economy and Reduce 
GHG Emissions for MY 2012-2016 Vehicles?
    As discussed above, the CAFE level required under an attribute-
based standard depends on the mix of vehicles produced for sale in the 
U.S. Based on the market forecast that NHTSA and EPA have used to 
develop and analyze new CAFE and CO2 emissions standards, 
NHTSA estimates that the new CAFE standards will require CAFE levels to 
increase by an average of 4.3 percent annually through MY 2016, 
reaching a combined average fuel economy requirement of 34.1 mpg in 
that model year:

                  Table IV.G.1-1--Average Required Fuel Economy (mpg) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................            33.6            34.4            35.2            36.4            38.0
Light Trucks....................            25.0            25.6            26.2            27.1            28.3
                                 -------------------------------------------------------------------------------
    Combined....................            29.8            30.6            31.4            32.6            34.1
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that average achieved fuel economy levels will 
correspondingly increase through MY 2016, but that manufacturers will, 
on average, undercomply \581\ in some model years and overcomply \582\ 
in others, reaching a combined average fuel economy of 33.7 mpg in MY 
2016: \583\
---------------------------------------------------------------------------

    \581\ In NHTSA's analysis, ``undercompliance'' is mitigated 
either through use of FFV credits, use of existing or ``banked'' 
credits, or through fine payment. Because NHTSA cannot consider 
availability of credits in setting standards, the estimated achieved 
CAFE levels presented here do not account for their use. In 
contrast, because NHTSA is not prohibited from considering fine 
payment, the estimated achieved CAFE levels presented here include 
the assumption that BMW, Daimler (i.e., Mercedes), Porsche, and Tata 
(i.e., Jaguar and Rover) will only apply technology up to the point 
that it would be less expensive to pay civil penalties.
    \582\ In NHTSA's analysis, ``overcompliance'' occurs through 
multi-year planning: Manufacturers apply some ``extra'' technology 
in early model years (e.g., MY 2014) in order to carry that 
technology forward and thereby facilitate compliance in later model 
years (e.g., MY 2016)
    \583\ Consistent with EPCA, NHTSA has not accounted for 
manufacturers' ability to earn CAFE credits for selling FFVs, carry 
credits forward and back between model years, and transfer credits 
between the passenger car and light truck fleets.

                  Table IV.G.1-2--Average Achieved Fuel Economy (mpg) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................            32.9            34.2            35.2            36.5            37.6
Light Trucks....................            24.9            25.7            26.5            27.4            28.1
                                 -------------------------------------------------------------------------------
    Combined....................            29.3            30.5            31.5            32.7            33.7
----------------------------------------------------------------------------------------------------------------

    NHTSA estimates that these fuel economy increases will lead to fuel 
savings totaling 61.6 billion gallons during the useful lives of 
vehicles sold in MYs 2012-2016:

[[Page 49708]]



                                                      Table IV.G.1-3--Fuel Saved (Billion Gallons)
                                                               [Under proposed standards]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.5             5.3             7.5             9.4            11.4            36.0
Light Trucks............................................             1.8             3.7             5.4             6.8             7.8            25.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             4.3             9.1            12.9            16.1            19.2            61.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The agency also estimates that these new CAFE standards will lead 
to corresponding reductions of CO2 emissions totaling 656 
million metric tons (mmt) during the useful lives of vehicles sold in 
MYs 2012-2016:

                 Table IV.G.1-4--Avoided Carbon Dioxide Emissions (mmt) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                                              2012     2013     2014     2015     2016    Total
----------------------------------------------------------------------------------------------------------------
Passenger Cars............................................       25       56       79       99      121      381
Light Trucks..............................................       19       40       58       73       85      275
                                                           -----------------------------------------------------
    Combined..............................................       44       96      137      173      206      656
----------------------------------------------------------------------------------------------------------------

2. How Would These Proposed Standards Improve Fleet-Wide Fuel Economy 
and Reduce GHG Emissions Beyond MY 2016?
    Under the assumption that CAFE standards at least as stringent as 
those proposed for MY 2016 would be established for subsequent model 
years, the effects of the proposed standards on fuel consumption and 
GHG emissions will continue to increase for many years. This will occur 
because over time, a growing fraction of the U.S. light-duty vehicle 
fleet will be comprised of cars and light trucks that meet the MY 2016 
standard. The impact of the proposed standards on fuel use and GHG 
emissions will continue to grow through approximately 2050, when 
virtually all cars and light trucks in service will have met the MY 
2016 standard.
    As Table IV.G.2-1 shows, NHTSA estimates that the fuel economy 
increases resulting from the proposed standards will lead to reductions 
in total fuel consumption by cars and light trucks of 9 billion gallons 
during 2020, increasing to 30 billion gallons by 2050. Over the period 
from 2012--when the proposed standards would begin to take effect--
through 2050, cumulative fuel savings would total 693 billion gallons, 
as Table IV.G.2-1 also indicates.

           Table IV.G.2-1--Reduction in Fleet-Wide Fuel Use (Billion Gallons) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                                                                                         Total,
                      Calendar year                           2020       2030       2040       2050    2012-2050
----------------------------------------------------------------------------------------------------------------
Passenger Cars...........................................          5         12         16         19        431
Light Trucks.............................................          4          7          9         11        262
                                                          ------------------------------------------------------
    Combined.............................................          9         19         25         30        693
----------------------------------------------------------------------------------------------------------------

    As a consequence of these reductions in fleet-wide fuel 
consumption, the agency also estimates that the proposed CAFE standards 
for MYs 2012-2016 will lead to corresponding reductions in 
CO2 emissions from the U.S. light-duty vehicle fleet. 
Specifically, NHTSA estimates that total CO2 emissions 
associated with passenger car and light truck use in the U.S. use will 
decline by 111 million metric tons (mmt) during 2020 as a consequence 
of the proposed standards, as Table IV.G.2-2 reports. The table also 
shows that the this reduction is estimated to grow to 355 million 
metric tons by the year 2050, and will total 8,247 million metric tons 
over the period from 2012, when the proposed standards would take 
effect, through 2050.

  Table IV.G.2-2--Reduction in Fleet-Wide Carbon Dioxide Emissions (mmt) From Passenger Car and Light Truck Use
                                            Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
                                                                                                         Total,
                      Calendar year                           2020       2030       2040       2050    2012-2050
----------------------------------------------------------------------------------------------------------------
Passenger Cars...........................................         64        144        186        222      5,117
Light Trucks.............................................         47         87        110        132      3,130
                                                          ------------------------------------------------------
    Combined.............................................        111        231        295        355      8,247
----------------------------------------------------------------------------------------------------------------


[[Page 49709]]

    These reductions in fleet-wide CO2 emissions, together 
with corresponding reductions in other GHG emissions from fuel 
production and use, would lead to small but significant reductions in 
projected changes in the future global climate. These changes are 
summarized in Table IV.G.2-3 below.

   Table IV.G.2-3--Effects of Reductions in Fleet-Wide Carbon Dioxide Emissions (mmt) On Projected Changes in
                                                 Global Climate
----------------------------------------------------------------------------------------------------------------
                                                                          Projected change in measure
                                                              --------------------------------------------------
             Measure                     Units          Date                     With proposed
                                                                  No action        standards        Difference
----------------------------------------------------------------------------------------------------------------
Atmospheric CO2 Concentration...  ppm...............     2100           783.0            780.3             -2.7
Increase in Global Mean Surface   [deg]C............     2100           3.136            3.126           -0.010
 Temperature.
Sea Level Rise..................  cm................     2100           38.00            37.91            -0.09
Global Mean Precipitation.......  % change from 1980-    2090           4.59%            4.57%           -0.02%
                                   1999 avg..
----------------------------------------------------------------------------------------------------------------

3. How Would These Proposed Standards Impact Non-GHG Emissions and 
Their Associated Effects?
    Under the assumption that CAFE standards at least as stringent as 
those proposed for MY 2016 would be established for subsequent model 
years, the effects of the proposed standards on air quality and its 
associated health effects will continue to be felt over the foreseeable 
future. This will occur because over time a growing fraction of the 
U.S. light-duty vehicle fleet will be comprised of cars and light 
trucks that meet the MY 2016 standard, and this growth will continue 
until approximately 2050.
    Increases in the fuel economy of light-duty vehicles required by 
the proposed CAFE standards will cause a slight increase in the number 
of miles they are driven, through the fuel economy ``rebound effect.'' 
In turn, this increase in vehicle use will lead to increases in 
emissions of criteria air pollutants and some airborne toxics, since 
these are products of the number of miles vehicles are driven.
    At the same time, however, the projected reductions in fuel 
production and use reported in Table IV.G.2-1 above will lead to 
corresponding reductions in emissions of these pollutants that occur 
during fuel production and distribution (``upstream'' emissions). For 
most of these pollutants, the reduction in upstream emissions resulting 
from lower fuel production and distribution will outweigh the increase 
in emissions from vehicle use, resulting in a net decline in their 
total emissions.
    Tables IV.G.3-1a and 3-1b report estimated reductions in emissions 
of selected criteria air pollutants (or their chemical precursors) and 
airborne toxics expected to result from the proposed standards during 
calendar year 2030. By that date, the majority of light-duty vehicles 
in use will have met the proposed MY 2016 CAFE standards, so these 
reductions provide a useful index of the long-term impact of the 
proposed standards on air pollution and its consequences for human 
health.

     Table IV.G.3-1a--Projected Changes in Emissions of Criteria Air Pollutants From Car and Light Truck Use
                                           [Calendar year 2030; tons]
----------------------------------------------------------------------------------------------------------------
                                                                      Criteria air pollutant
                                                 ---------------------------------------------------------------
                                    Source of                                                        Volatile
         Vehicle class              emissions        Nitrogen       Particulate    Sulfur oxides      organic
                                                   oxides (NOX)   matter (PM2.5)       (SOX)         compounds
                                                                                                       (VOC)
----------------------------------------------------------------------------------------------------------------
Passenger Cars................  Vehicle use.....           1,791             630          -2,375           2,157
                                Fuel production          -19,022          -2,539         -11,363         -75,031
                                 and
                                 distribution.
                               ---------------------------------------------------------------------------------
                                All sources.....         -17,231          -1,909         -13,738         -72,874
----------------------------------------------------------------------------------------------------------------
Light Trucks..................  Vehicle use.....           1,137             257          -1,401           1,094
                                Fuel production          -11,677          -1,569          -7,031         -43,667
                                 and
                                 distribution.
                               ---------------------------------------------------------------------------------
                                All sources.....         -10,540          -1,312          -8,432         -42,573
                               ---------------------------------------------------------------------------------
    Total.....................  Vehicle use.....           2,928             887          -3,776           3,251
                                Fuel production          -30,699          -4,108         -18,394        -118,698
                                 and
                                 distribution.
                               ---------------------------------------------------------------------------------
                                All sources.....         -27,771          -3,221         -22,170        -115,447
----------------------------------------------------------------------------------------------------------------


         Table IV.F.3-1b--Projected Changes in Emissions of Airborne Toxics From Car and Light Truck Use
                                           [Calendar year 2030; tons]
----------------------------------------------------------------------------------------------------------------
                                                                                Toxic air pollutant
             Vehicle class                 Source of emissions   -----------------------------------------------
                                                                      Benzene      1,3-Butadiene   Formaldehyde
----------------------------------------------------------------------------------------------------------------
Passenger Cars........................  Vehicle use.............              67              19              72

[[Page 49710]]

 
                                        Fuel production and                 -158              -1             -54
                                         distribution.
                                       -------------------------------------------------------------------------
                                        All sources.............             -91              18              18
----------------------------------------------------------------------------------------------------------------
Light Trucks..........................  Vehicle use.............              45               9              32
                                        Fuel production and                  -93              -1             -33
                                         distribution.
                                       -------------------------------------------------------------------------
                                        All sources.............             -48               8              -1
                                       -------------------------------------------------------------------------
    Total.............................  Vehicle use.............             112              28             104
                                        Fuel production and                 -251              -2             -87
                                         distribution.
                                       -------------------------------------------------------------------------
                                        All sources.............            -139              26              17
----------------------------------------------------------------------------------------------------------------
Note: Positive values indicate increases in emissions; negative values indicate reductions.

    In turn, the reductions in emissions reported in Tables IV.G.3-1a 
and 3-1b are projected to result in significant declines in the health 
effects that result from population exposure to these pollutants. Table 
IV.G.3-2 reports the estimated reductions in selected PM2.5-
related human health impacts that are expected to result from reduced 
population exposure to unhealthful atmospheric concentrations of 
PM2.5. The estimates reported in Table IV.G.3-2 are derived 
from PM2.5-related dollar-per-ton estimates that include 
only quantifiable reductions in health impacts likely to result from 
reduced population exposure to particular matter (PM). They do not 
include all health impacts related to reduced exposure to PM, nor do 
they include any reductions in health impacts resulting from lower 
population exposure to other criteria air pollutants (particularly 
ozone) and air toxics. NHTSA and EPA are using PM-related benefits-per-
ton values as an interim approach to estimating the PM-related benefits 
of the proposal. To model the ozone and PM air quality benefit sof the 
final rule, the analysis will utilize ambient concentration data 
derived from full-scale photochemical air quality modeling.

  Table IV.G.3-2--Projected Reductions in Health Impacts of Exposure to
             Criteria Air Pollutants From Proposed Standards
                          [Calendar year 2030]
------------------------------------------------------------------------
                                                            Projected
         Health impact                  Measure         reduction (2030)
------------------------------------------------------------------------
Mortality (ages 30 and older).  premature deaths per          217 to 554
                                 year.
Chronic Bronchitis............  cases per year........               142
Emergency Room Visits for       number per year.......               198
 Asthma.
Work Loss.....................  workdays per year.....            25,522
------------------------------------------------------------------------

4. What Are the Estimated Costs and Benefits of These Proposed 
Standards?
    NHTSA estimates that the proposed standards could entail 
significant additional technology beyond the levels reflected in the 
baseline market forecast used by NHTSA. This additional technology will 
lead to increases in costs to manufacturers and vehicle buyers, as well 
as fuel savings to vehicle buyers. The following three tables summarize 
the extent to which the agency estimates technologies could be added to 
the passenger car, light truck, and overall fleets in each model year 
in response to the proposed standards. Percentages reflect the 
technology's additional application in the market, and are negative in 
cases where one technology is superseded (i.e., displaced) by another. 
For example, the agency estimates that many automatic transmissions 
used in light trucks could be displaced by dual clutch transmissions.
BILLING CODE 6560-50-P

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BILLING CODE 6560-50-C
    In order to pay for this additional technology (and, for some 
manufacturers, civil penalties), NHTSA estimates that average passenger 
car and light truck prices will, relative to levels resulting from 
compliance with baseline (MY 2011) standards, increase by $591-$1,127 
and $283-$1,020, respectively, during MYs 2011-2016. The following 
tables summarize the agency's estimates of average price increases for 
each manufacturer's passenger car, light truck, and overall fleets 
(with corresponding averages for the industry):

         Table IV.G.4-4--Average Passenger Car Incremental Price Increases ($) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             524             552             634             828           1,124
Chrysler........................             775           1,304           1,473           1,583           1,582
Daimler.........................             182             215             781           1,039           1,401

[[Page 49714]]

 
Ford............................           1,746           1,719           1,735           1,880           2,078
General Motors..................             143             990           1,189           1,387           1,553
Honda...........................              31             122             205             287             494
Hyundai.........................             418             452             643             726             868
Kia.............................             319             359             387             473             647
Mazda...........................             658             735             965             991           1,263
Mitsubishi......................           1,156           1,076           1,715           2,076           2,035
Nissan..........................             653             712           1,155           1,153           1,275
Porsche.........................             270             256             306             399             498
Subaru..........................             408             465           1,493           1,877           1,838
Suzuki..........................             259           1,001           1,445           1,494           1,675
Tata............................             246             244             395             577           1,284
Toyota..........................             133             127             155             257             267
Volkswagen......................             286             561             650             767           1,125
                                 -------------------------------------------------------------------------------
    Total/Average...............             498             674             820             930           1,085
----------------------------------------------------------------------------------------------------------------


          Table IV.G.4-5--Average Light Truck Incremental Price Increases ($) Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             325             327             380             708             884
Chrysler........................             152             399             749             892           1,188
Daimler.........................             322             289             316             420             478
Ford............................             471             629             693           1,323           1,365
General Motors..................              33             533             752             792             962
Honda...........................             390             380             616             749           1,006
Hyundai.........................             774             744           1,301           1,322           1,292
Kia.............................             228             373             547             843           1,218
Mazda...........................             340             608             610             679             776
Mitsubishi......................              55              94           1,546           1,732           2,123
Nissan..........................             541             608             903           1,022           1,312
Porsche.........................              28              46              84             913             954
Subaru..........................           1,203           1,140           1,213           1,197           1,184
Suzuki..........................              50           1,451           1,404           1,358           1,373
Tata............................              44              83             127             193             635
Toyota..........................             172             309             665             764             877
Volkswagen......................              28              61              99             160             231
                                 -------------------------------------------------------------------------------
    Total/Average...............             291             485             701             911           1,058
----------------------------------------------------------------------------------------------------------------


        Table IV.G.4-6--Average Incremental Price Increases ($) by Manufacturer Under Proposed Standards
----------------------------------------------------------------------------------------------------------------
          Manufacturer                MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
BMW.............................             457             483             560             796           1,061
Chrysler........................             393             777           1,061           1,271           1,408
Daimler.........................             236             243             604             834           1,106
Ford............................           1,195           1,242           1,262           1,629           1,762
General Motors..................              94             785             997           1,131           1,304
Honda...........................             162             212             335             429             647
Hyundai.........................             488             509             769             835             944
Kia.............................             300             362             416             535             740
Mazda...........................             598             712             907             944           1,193
Mitsubishi......................           1,007             921           1,692           2,033           2,045
Nissan..........................             616             679           1,078           1,115           1,286
Porsche.........................             174             179             231             562             643
Subaru..........................             705             711           1,392           1,632           1,602
Suzuki..........................             204           1,117           1,434           1,458           1,598
Tata............................             115             150             234             368             938
Toyota..........................             147             191             331             429             468
Volkswagen......................             233             470             550             657             970
                                 -------------------------------------------------------------------------------
    Total/Average...............             421             605             777             924           1,076
----------------------------------------------------------------------------------------------------------------


[[Page 49715]]

    Based on the agencies' estimates of manufacturers' future sales 
volumes, these price increases will lead to a total of $60.2 billion in 
incremental outlays during MYs 2012-2016 for additional technology 
attributable to the proposed standards:

                                      Table IV.G.4-7--Incremental Technology Outlays ($b) Under Proposed Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             4.1             6.5             8.4             9.9            11.8            40.8
Light Trucks............................................             1.5             2.8             4.0             5.2             5.9            19.4
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             5.7             9.3            12.5            15.1            17.6            60.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA notes that these estimates of the economic costs for meeting 
higher CAFE standards omit certain potentially important categories of 
costs, and may also reflect underestimation (or possibly 
overestimation) of some costs that are included. For example, although 
the agency's analysis attempts to hold vehicle performance, capacity, 
and utility constant in estimating the costs of applying fuel-saving 
technologies to vehicles, the analysis imputes no cost to any actual 
reductions in vehicle performance, capacity, and utility that may 
result from manufacturers' efforts to comply with the proposed CAFE 
standards. Although these costs are difficult to estimate accurately, 
they nonetheless represent a potentially significant category of 
omitted costs. Similarly, the agency's estimates of costs for meeting 
higher CAFE standards does not estimate the economic value of potential 
increases in motor vehicle fatalities and injuries that could result 
from reductions in the size or weight of vehicles. While NHTSA reports 
worst-case estimates of these increases in fatalities and injuries, no 
estimate of their economic value is included in the agency's estimates 
of the net benefits resulting from the proposed standards due to 
ongoing discussion regarding these potential impacts.
    Finally, it is possible that the agency may have underestimated or 
overestimated manufacturers' direct costs for applying some fuel 
economy technologies, or the increases in manufacturer's indirect costs 
associated with higher vehicle manufacturing costs. In either case, the 
technology outlays reported here will not correctly represent the costs 
of meeting higher CAFE standards. Similarly, NHTSA's estimates of 
increased costs of congestion, accidents, and noise associated with 
added vehicle use are drawn from a 1997 study, and the correct 
magnitude of these values may have changed since they were 
developed.\584\ If this is the case, the costs of increased vehicle use 
associated with the fuel economy rebound effect will differ from the 
agency's estimates in this analysis. Thus, like the agency's estimates 
of economic benefits, estimates of total compliance costs reported here 
may underestimate or overestimate the true economic costs of the 
proposed standards.
---------------------------------------------------------------------------

    \584\ The agency seeks comment above on appropriate values for 
these costs.
---------------------------------------------------------------------------

    However, offsetting these costs, the achieved increases in fuel 
economy will also produce significant benefits to society. NHTSA 
estimates that, in present value terms (at a discount rate of 3 
percent), these benefits will total $201.7 billion over the useful 
lives of light vehicles sold during MYs 2012-2016:

                                      Table IV.G.4-8--Present Value of Benefits ($Billion) Under Proposed Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             7.6            17.0            24.4            31.2            38.7           119.1
Light Trucks............................................             5.5            11.6            17.3            22.2            26.0            82.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            13.1            28.7            41.8            53.4            64.7           201.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA attributes most of these benefits to reductions in fuel 
consumption, valuing fuel at future pretax prices in EIA's reference 
case forecast from AEO 2009. The total benefits shown in the above 
table also include other benefits and disbenefits, examples of which 
include the social values of reductions in CO2 and criteria 
pollutant emissions, the value of additional travel (induced by the 
rebound effect), and the social cost of additional congestion, 
accidents, and noise attributable to that additional travel. The PRIA 
accompanying today's proposed rule presents a detailed analysis of 
specific benefits of the proposed rule.
    For both the passenger car and light truck fleets, NHTSA estimates 
that the benefits of today's proposed standards will exceed the 
corresponding costs in every model year. Over the useful lives of the 
affected (MY 2012-2016) vehicles, the agency estimates that the 
benefits of the proposed standards will exceed the costs of the 
proposed standards by $141.5 billion:

                                    Table IV.G.4-9--Present Value of Net Benefits ($Billion) Under Proposed Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             3.5            10.5            16.0            21.3            26.9            78.3
Light Trucks............................................             3.9             8.9            13.3            17.0            20.1            63.2
                                                         -----------------------------------------------------------------------------------------------

[[Page 49716]]

 
    Combined............................................             7.4            19.4            29.3            38.3            47.1           141.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NHTSA's estimates of economic benefits from establishing higher 
CAFE are also subject to considerable uncertainty. Most important, the 
agency's estimates of the fuel savings likely to result from adopting 
higher CAFE standards depend critically on the accuracy of the 
estimated fuel economy levels that will be achieved under both the 
baseline scenario, which assumes that manufacturers will continue to 
comply with the MY 2011 CAFE standards, and under alternative increases 
in the standards that apply to MY 2012-16 passenger cars and light 
trucks. Specifically, if the agency has underestimated the fuel economy 
levels that manufacturers will achieve under the baseline scenario, its 
estimates of fuel savings and the resulting economic benefits will be 
too large. As another example, the agency's estimate of benefits from 
reducing the threat of economic damages from disruptions in the supply 
of imported petroleum to the U.S. applies to calendar year 2015. If the 
magnitude of this estimate would be expected to grow after 2015 in 
response to increases in U.S. petroleum imports, growth in the level of 
U.S. economic activity, or increases in the likelihood of disruptions 
in the supply of imported petroleum, the agency may have underestimated 
the benefits from the reduction in petroleum imports expected to result 
from adopting higher CAFE standards.
    However, it is also possible that NHTSA's estimates of economic 
benefits from establishing higher CAFE standards underestimate the true 
economic benefits of the fuel savings those standards would produce. 
This is partly because the agency has been unable to develop monetized 
estimates of the economic value of certain potentially significant 
categories of benefits from reducing fuel consumption. Specifically, 
the agency's estimate of the economic value of reduced damages to human 
health resulting from lower exposure to criteria air pollutants 
includes only the effects of reducing population exposure to 
PM2.5 emissions. Although this is likely to be the most 
significant component of health benefits from reduced emissions of 
criteria air pollutants, it excludes the value of reduced damages to 
human health and other impacts resulting from lower emissions and 
reduced population exposure to other criteria air pollutants, including 
ozone and nitrous oxide (N2O), as well as airborne toxics. 
The agency's analysis excludes these benefits because no reliable 
estimates of the health impacts of criteria pollutants other than 
PM2.5 or of the health impacts of airborne toxics were 
available to use in developing estimates of these benefits.
    In addition, the agency's estimate of the value of reduced climate-
related economic damages from lower emissions of GHGs excludes many 
sources of potential benefits from reducing the pace and extent of 
global climate change. These include reductions in the risk of 
catastrophic changes in the global climate, lower costs for necessary 
adaptations to changes in climate, reduced water supply within specific 
global sub-regions, reductions in damages caused by severe storms, 
lower population exposure to harmful air pollution levels, reductions 
in ecosystem impacts and risks to natural resources of global 
significance, and reduced threats from widespread social or political 
unrest. Including monetized estimates of benefits from reducing the 
extent of climate change and these associated impacts would increase 
the agency's estimates of benefits from adopting higher CAFE standards.
    The benefits, costs, and net benefits shown above are all based on 
a discount rate of 3 percent. As documented in the accompanying PRIA, 
the agency examined the sensitivity of results to changes in many 
economic inputs. With an alternative discount rate of 7 percent, 
incremental technology outlays were virtually identical to those 
estimated at a 3 percent discount rate: \585\
---------------------------------------------------------------------------

    \585\ Because some economic inputs change the effective cost of 
some technologies, and NHTSA assumes some manufacturers will be 
willing to pay civil penalties based on economic considerations, 
this outcome is not assured.

                      Table IV.G.4-10--Incremental Technology Outlays ($b) Under Proposed Standards (Using 7 Percent Discount Rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             4.1             6.5             8.4             9.9            11.8            40.8
Light Trucks............................................             1.5             2.8             4.0             5.2             5.9            19.4
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             5.7             9.3            12.5            15.1            17.6            60.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    However, the present value of the benefits accrued over the 
lifetime of the vehicles covered by the proposal is about 20 percent 
smaller when discounted at a 7 percent annual rate than when discounted 
at a 3 percent annual rate:

                     Table IV.G.4-11--Present Value of Benefits ($Billion) Under Proposed Standards (Using 7 Percent Discount Rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             6.0            13.6            19.5            25.0            31.1            95.3
Light Trucks............................................             4.3             9.1            13.5            17.4            20.4            64.6
                                                         -----------------------------------------------------------------------------------------------

[[Page 49717]]

 
    Combined............................................            10.3            22.6            33.1            42.4            51.5           159.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As a result, net benefits are 38 percent lower when total benefits 
are discounted at a 7 percent annual rate:

                   Table IV.G.4-12--Present Value of Net Benefits ($Billion) Under Proposed Standards (Using 7 Percent Discount Rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             1.9             7.0            11.1            15.1            19.3            54.5
Light Trucks............................................             2.7             6.3             9.5            12.2            14.5            45.2
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             4.6            13.3            20.6            27.3            33.8            99.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The following tables also present itemized costs and benefits for 
the combined fleet for each year of the proposed standards and for all 
the years combined, at 3 and 7 percent discount rates, respectively. 
Numbers in parentheses represent negative values.

                          Table IV.G.4-13--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 3% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              MY 2012         MY 2013         MY 2014         MY 2015         MY 2016          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:                                                    ..............  ..............  ..............  ..............  ..............  ..............
    Technology Costs....................................          $5,695          $9,295         $12,454         $15,080         $17,633         $60,157
Benefits                                                  ..............  ..............  ..............  ..............  ..............  ..............
    Lifetime Fuel Expenditures..........................          10,197          22,396          32,715          41,880          50,823         158,012
    Consumer Surplus from Additional Driving............             751           1,643           2,389           3,029           3,639          11,451
    Refueling Time Value................................             776           1,551           2,198           2,749           3,277          10,550
    Petroleum Market Externalities......................             559           1,194           1,700           2,129           2,538           8,121
    Congestion Costs....................................           (460)           (934)         (1,332)         (1,657)         (1,991)         (6,376)
    Noise Costs.........................................             (7)            (14)            (21)            (26)            (31)            (99)
    Crash Costs.........................................           (217)           (437)           (625)           (776)           (930)         (2,985)
    CO2.................................................           1,028           2,287           3,382           4,376           5,372          16,446
    CO..................................................               0               0               0               0               0               0
    VOC.................................................              41              80             108             131             156             518
    NOX.................................................              82             132             155             174             200             744
    PM..................................................             220             438             621             771             904           2,956
    SOX.................................................             161             345             490             613             731           2,341
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................          13,132          28,680          41,781          53,394          64,687         201,676
========================================================================================================================================================
Net Benefits............................................           7,044          18,759          27,090          34,710          41,386         128,992
--------------------------------------------------------------------------------------------------------------------------------------------------------


                          Table IV.G.4-14--Itemized Cost and Benefit Estimates for the Combined Vehicle Fleet, 7% Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              MY 2012         MY 2013         MY 2014         MY 2015         MY 2016          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
    Technology Costs....................................          $5,695          $9,295         $12,454         $15,080         $17,633         $60,157
Benefits:
    Lifetime Fuel Expenditures..........................           7,991          17,671          25,900          33,264          40,478         125,305
    Consumer Surplus from Additional Driving............             590           1,301           1,896           2,412           2,904           9,102
    Refueling Time Value................................             624           1,249           1,770           2,215           2,642           8,500
    Petroleum Market Externalities......................             448             960           1,367           1,712           2,043           6,531
    Congestion Costs....................................           (371)           (753)         (1,074)         (1,335)         (1,606)         (5,138)
    Noise Costs.........................................             (6)            (12)            (16)            (21)            (24)            (80)
    Crash Costs.........................................           (173)           (352)           (503)           (626)           (749)         (2,403)
    CO2.................................................             797           1,781           2,634           3,410           4,189          12,813
    CO..................................................               0               0               0               0               0               0
    VOC.................................................              33              65              87             106             125             416
    NOX.................................................              60              99             120             135             156             570
    PM..................................................             170             344             492             613             721           2,339

[[Page 49718]]

 
    SOX.................................................             129             278             394             493             588           1,882
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................          10,292          22,631          33,066          42,380          51,468         159,837
========================================================================================================================================================
Net Benefits............................................           4,281          12,832          18,818          24,414          29,293          89,638
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The above benefit and cost estimates did not reflect the 
availability and use of flexibility mechanisms, such as compliance 
credits and credit trading, because EPCA prohibits NHTSA from 
considering the effects of those mechanisms in setting CAFE standards. 
However, the agency noted that, in reality, manufacturers were likely 
to rely to some extent on flexibility mechanisms provided by EPCA and 
would thereby reduce the cost of complying with the proposed standards 
to a meaningful extent.
    As discussed in the PRIA, NHTSA has performed an analysis to 
estimate the costs and benefits if EPCA's provisions regarding FFVs are 
accounted for. The agency considered also attempting to account for 
other EPCA flexibility mechanisms, in particular credit transfers 
between the passenger and nonpassenger fleets, but has concluded that, 
at least within a context in which each model year is represented 
explicitly, technologies carry forward between model years, and 
multiyear planning effects are represented, there is no basis to 
reliably estimate how manufacturers might use these mechanisms. 
Accounting for the FFV provisions indicates that achieved fuel 
economies would be 0.6-1.1 mpg lower than when these provisions are not 
considered (for comparison see Table IV.G.1-2 above):

        Table IV.G.4-15--Average Achieved Fuel Economy (mpg) Under Proposed Standards (With FFV Credits)
----------------------------------------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Passenger Cars..................            32.5            33.4            34.3            35.3            36.5
Light Trucks....................            24.1            24.6            25.3            26.3            27.0
    Combined....................            28.7            29.6            30.4            31.6            32.7
----------------------------------------------------------------------------------------------------------------

    As a result, NHTSA estimates that, when FFV credits are taken into 
account, fuel savings will total 58.8 billion gallons--about 4.5 
percent less than the 61.6 billion gallons estimated when these credits 
are not considered:

                                Table IV.G.4-16--Fuel Saved (Billion Gallons) Under Proposed Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.5             5.0             6.9             8.6            10.9            33.9
Light Trucks............................................             2.0             3.3             5.0             6.8             7.9            24.9
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             4.5             8.2            11.8            15.4            18.8            58.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The agency similarly estimates CO2 emissions reductions 
would total 639 million metric tons (mmt), about 2.6 percent less than 
the 656 mmt estimated when these credits are not considered:\586\
---------------------------------------------------------------------------

    \586\ Differences in the application of diesel engines lead to 
differences in the incremental percentage changes in fuel 
consumption and carbon dioxide emissions.

                           Table IV.G.4-17--Avoided Carbon Dioxide Emissions (mmt) Under Proposed Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................              27              54              75              93             118             368
Light Trucks............................................              22              36              54              74              86             272
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................              49              90             129             167             204             639
--------------------------------------------------------------------------------------------------------------------------------------------------------

    This analysis further indicates significant reductions in outlays 
for additional technology when FFV provisions are taken into account--
about $45b, or about 25 percent less than the $60b estimated when 
excluding these provisions:

[[Page 49719]]



                            Table IV.G.4-18--Incremental Technology Outlays ($b) Under Proposed Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             2.5             4.4             6.1             7.4             9.3            29.6
Light Trucks............................................             1.3             2.0             3.1             4.3             5.0            15.6
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             3.7             6.3             9.2            11.7            14.2            45.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Because NHTSA's analysis indicated that FFV provisions would not 
significantly reduce fuel savings, the agency's estimate of discounted 
benefits when including these provisions, $192.5b, is only about 4.5 
percent lower than the $201.7b shown above for the analysis that 
excluded these provisions:

                            Table IV.G.4-19--Present Value of Benefits ($Billion) Under Proposed Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             7.8            15.9            22.5            28.6            37.1           111.9
Light Trucks............................................             6.1            10.2            15.9            22.1            26.3            80.5
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            13.9            26.1            38.4            50.7            63.3           192.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    However, although the agency estimates lower discounted benefits 
when FFV provisions are taken into account, the agency estimates that 
these provisions slightly increase net benefits (by about 4 percent, 
from $141.5b to $147.2b) because costs decrease by more than discounted 
benefits:

                          Table IV.G.4-20--Present Value of Net Benefits ($Billion) Under Proposed Standards (With FFV Credits)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................             5.3            11.5            16.4            21.2            27.8            82.3
Light Trucks............................................             4.8             8.2            12.8            17.8            21.3            64.9
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................            10.2            19.7            29.2            39.0            49.1           147.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The agency has performed several sensitivity analyses to examine 
important assumptions. We examine sensitivity with respect to the 
following five economic parameters:
    (1) The price of gasoline: The Reference Case uses the AEO 2009 
reference case estimate for the price of gasoline. In this sensitivity 
analysis we examine the effect of using the AEO high or low forecast 
estimates instead.
    (2) The discount rate: The Reference Case uses a discount rate of 3 
percent to discount future benefits. In the sensitivity analysis, we 
equally examine the effect of using a 7 percent discount rate instead.
    (3) The rebound effect: The Reference Case uses a rebound effect of 
10 percent to project increased miles traveled as the cost per mile 
driven decreases. In the sensitivity analysis, we examine the effect of 
using a 5 percent or 15 percent rebound effect instead.
    (4) The values of CO2 benefits and monopsony: The Reference Case 
uses $20 per ton to quantify the benefits of reducing CO2 
emissions and $0.178 per gallon to quantify the benefits of reducing 
fuel consumption. In the sensitivity analysis, we examine the effect of 
using values of $5, $10, $34, or $56 per ton instead to value 
CO2 benefits. These values can be translated into cents per 
gallon by multiplying by 0.0089,\587\ giving the following values:
---------------------------------------------------------------------------

    \587\ The molecular weight of Carbon (C) is 12, the molecular 
weight of Oxygen (O) is 16, thus the molecular weight of 
CO2 is 44. One ton of C = 44/12 tons CO2 = 
3.67 tons CO2. 1 gallon of gas weighs 2,819 grams, of 
that 2,433 grams are carbon. $1.00 CO2 = $3.67 C and 
$3.67/ton * ton/1000kg * kg/1000g * 2433g/gallon = (3.67 * 2433)/
1000 * 1000 = $0.0089/gallon.

($5 per ton CO2) x 0.0089 = $0.0445 per gallon
($10 per ton CO2) x 0.0089 = $0.089 per gallon
($20 per ton CO2) x 0.0089 = $0.178 per gallon
($34 per ton CO2) x 0.0089 = $0.3026 per gallon
($56 per ton CO2) x 0.0089 = $0.4984 per gallon

    The $5 per ton value reflects the domestic impacts of 
CO2 emissions and so we use a nonzero monopsony cost, namely 
$0.30 cents per gallon, when valuing CO2 emissions at $5 per 
ton. The higher per-ton values of CO2 emissions reflect the 
global impacts of CO2 emissions and we so use $0 per gallon 
for monopsony in these cases.
    (5) Military security: The Reference Case uses $0 per gallon to 
quantify the military security benefits of reducing fuel consumption. 
In the sensitivity analysis, we examine the impact of using a value of 
5 cents per gallon instead.
    Varying each of the above 5 parameters in isolation results in 10 
economic scenarios, not including the Reference case. These are listed 
in Table IV.G.4-21 below, together with two additional scenarios that 
use values for these parameters that produce the lowest and highest 
valued benefits.

[[Page 49720]]



                                             Table IV.G.4-21--Sensitivity Analyses Evaluated in NHTSA's PRIA
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Rebound                        Monopsony       Military
                   Name                              Fuel price            Discount rate      effect            SCC           effect         security
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reference.................................  Reference...................              3%             10%             $20     0[cent]/gal     0[cent]/gal
High Fuel Price...........................  High........................              3%             10%             $20     0[cent]/gal     0[cent]/gal
Low Fuel Price............................  Low.........................              3%             10%             $20     0[cent]/gal     0[cent]/gal
7% Discount Rate..........................  Reference...................              7%             10%             $20     0[cent]/gal     0[cent]/gal
5% Rebound Effect.........................  Reference...................              3%              5%             $20     0[cent]/gal     0[cent]/gal
15% Rebound Effect........................  Reference...................              3%             15%             $20     0[cent]/gal     0[cent]/gal
$56/ton CO2 Value.........................  Reference...................              3%             10%             $56     0[cent]/gal     0[cent]/gal
$34/ton CO2...............................  Reference...................              3%             10%             $34     0[cent]/gal     0[cent]/gal
$10/ton CO2...............................  Reference...................              3%             10%             $10     0[cent]/gal     0[cent]/gal
$5/ton CO2................................  Reference...................              3%             10%              $5    30[cent]/gal     0[cent]/gal
5[cent]/gal Military Security Value.......  Reference...................              3%             10%             $20     0[cent]/gal     5[cent]/gal
Lowest Discounted Benefits................  Low.........................              7%             15%              $5     0[cent]/gal     0[cent]/gal
Highest Discounted Benefits...............  High........................              3%              5%             $56     0[cent]/gal     5[cent]/gal
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The basic results of the sensitivity analyses were as follows:
    (1) The various economic assumptions have similar effects on the 
passenger car and light truck standards.
    (2) Varying the economic assumptions has virtually no impact on 
achieved fuel economy.
    (3) The economic parameter with the greatest impact is fuel price. 
Changing the fuel price forecast to AEO's High or Low forecasts impacts 
benefits by about 37 percent. However, the impact of fuel 
price on other quantities, such as cost, is much smaller, resulting in 
increases or decreases of 3-8 percent.
    (4) Economic parameters other than fuel price and the rebound 
effect had no effect on per-vehicle cost, total cost, fuel savings, or 
CO2 reductions. Their impacts on benefits were 6 percent or 
less, with the exception of the 7 percent discount rate, which 
decreased benefits by 20 percent, and the $56/ton CO2 value, 
which raised benefits by 14 percent.
    (5) Changing all economic parameters simultaneously (among the 
considered values) changes benefits by at most about 60 percent. 
However impacts to other quantities, such as cost, are much smaller, 
resulting in increases or decreases of 6 percent or less.
    (6) Impacts other than those discussed in 1) through 5) were small 
(5 percent or less).
    For more detailed information regarding NHTSA's sensitivity 
analyses for this NPRM, please see Chapter X of NHTSA's PRIA.
5. How Would These Proposed Standards Impact Vehicle Sales?
    Higher fuel economy standards are expected to increase the price of 
passenger cars and light trucks, because manufacturers will have to add 
technology to vehicles to increase their fuel economy, the cost for 
which they will likely pass on in some fashion to consumers. NHTSA 
examined the potential impact of higher vehicle prices on sales on an 
industry-wide basis for passenger cars and light trucks separately. We 
note that the analysis conducted for this rule does not have the 
precision to examine effects on individual manufacturers or different 
vehicle classes.
    There is a broad consensus in the economic literature that the 
price elasticity for demand for automobiles is approximately -1.0.\588\ 
Thus, every one percent increase in the price of the vehicle would 
reduce sales by one percent. Elasticity estimates assume no perceived 
change in the quality of the product. However, in this case, vehicle 
price increases result from adding technologies that improve fuel 
economy. If consumers did not value improved fuel economy at all, and 
considered nothing but the increase in price in their purchase 
decisions, then the estimated impact on sales from price elasticity 
could be applied directly. However, NHTSA believes that consumers do 
value improved fuel economy, because it reduces the operating cost of 
the vehicles. NHTSA also believes that consumers consider other factors 
that affect their costs and have included these in the analysis.
---------------------------------------------------------------------------

    \588\ Kleit, A.N. (1990). ``The Effect of Annual Changes in 
Automobile Fuel Economy Standards,'' Journal of Regulatory 
Economics, vol. 2, pp. 151-172; Bordley, R. (1994). ``An Overlapping 
Choice Set Model of Automotive Price Elasticities,'' Transportation 
Research B, vol. 28B, no. 6, pp. 401-408; McCarthy, P.S. (1996). 
``Market Price and Income Elasticities of New Vehicle Demands,'' The 
Review of Economics and Statistics, vol. LXXVII, no. 3, pp. 543-547.
---------------------------------------------------------------------------

    The main question, however, is how much of the retail price needed 
to cover the technology investments to meet higher fuel economy 
standards will manufacturers be able to pass on to consumers. The 
ability of manufacturers to pass the compliance costs on to consumers 
depends upon how consumers value the fuel economy improvements.\589\ 
Consumer valuation of fuel economy improvements often depends upon the 
price of gasoline, which has recently been very volatile. The estimates 
reported below as part of NHTSA's analysis on sales impacts assume that 
manufacturers will be able to pass all of their costs to improve fuel 
economy on to consumers. To the extent that NHTSA has accurately 
predicted the price of gasoline and consumers' reactions, and 
manufacturers can pass on all of the costs to consumers, then the sales 
and employment impact analyses are reasonable. On the other hand, if 
manufacturers only increase retail prices to the extent that consumers 
value these fuel economy improvements (i.e., to the extent that they 
value fuel savings), then there would be no impact on sales, although 
manufacturers' profit levels would fall. Sales losses are predicted to 
occur only if consumers fail to value fuel economy improvements at 
least as much as they pay in higher vehicle prices. Likewise, if fuel 
prices rise beyond levels used in this analysis, consumer valuation of 
improved fuel economy could increase to match or exceed their initial 
investment, resulting in no impact or even an increase in sales levels.
---------------------------------------------------------------------------

    \589\ Gron, Ann and Swenson, Deborah, 2000, ``Cost Pass-Through 
in the U.S. Automobile Market,'' The Review of Economics and 
Statistics, 82: 316-324.
---------------------------------------------------------------------------

    To estimate the average value consumers place on fuel savings at 
the time of purchase, NHTSA assumes that the average purchaser 
considers the fuel savings they would receive over a 5-year time frame. 
NHTSA chose 5 years because this is the average length of time of a 
financing agreement.\590\ The

[[Page 49721]]

present values of these savings were calculated using a 3 percent 
discount rate. NHTSA used a fuel price forecast that included taxes, 
because this is what consumers must pay. Fuel savings were calculated 
over the first 5 years and discounted back to a present value.
---------------------------------------------------------------------------

    \590\ National average financing terms for automobile loans are 
available from the Board of Governors of the Federal Reserve System 
G.19 ``Consumer Finance'' release. See http://www.federalreserve.gov/releases/g19/ (last accessed August 9, 2009).
---------------------------------------------------------------------------

    NHTSA believes that consumers may consider several other factors 
over the 5-year horizon when contemplating the purchase of a new 
vehicle. NHTSA added these factors into the calculation to represent 
how an increase in technology costs might affect consumers' buying 
considerations.
    First, consumers might consider the sales taxes they have to pay at 
the time of purchasing the vehicle. NHTSA took sales taxes in 2007 by 
State and weighted them by population by State to determine a national 
weighted-average sales tax of 5.5 percent.
    Second, NHTSA considered insurance costs over the 5-year period. 
More expensive vehicles will require more expensive collision and 
comprehensive (e.g., theft) car insurance. The increase in insurance 
costs is estimated from the average value of collision plus 
comprehensive insurance as a proportion of average new vehicle price. 
Collision plus comprehensive insurance is the portion of insurance 
costs that depends on vehicle value. The Insurance Information 
Institute provides the average value of collision plus comprehensive 
insurance in 2006 as $448.\591\ This is compared to an average price 
for light vehicles of $24,033 for 2006.\592\ Average prices and 
estimated sales volumes are needed because price elasticity is an 
estimate of how a percent increase in price affects the percent 
decrease in sales.
---------------------------------------------------------------------------

    \591\ Insurance Information Institute, 2008, ``Average 
Expenditures for Auto Insurance By State, 2005-2006.'' Available at 
http://www.iii.org/media/facts/statsbyissue/auto/ (last accessed 
August 9, 2009).
    \592\ $29,678/$26,201 = 1.1327 * $22,651 = $25,657 average price 
for light trucks. In 2006, passenger cars were 54 percent of the on-
road fleet, and light trucks were 46 percent of the on-road fleet, 
resulting in an average light vehicle price for 2006 of $24,033.
---------------------------------------------------------------------------

    Dividing the insurance cost by the average price of a new vehicle 
gives the proportion of comprehensive plus collision insurance as 1.86 
percent of the price of a vehicle. If we assume that this premium is 
proportional to the new vehicle price, it represents about 1.86 percent 
of the new vehicle price, and insurance is paid each year for the five-
year period we are considering for payback. Discounting that stream of 
insurance costs back to present value indicates that the present value 
of the component of insurance costs that vary with vehicle price is 
equal to 8.5 percent of the vehicle's price at a 3 percent discount 
rate.
    Third, NHTSA considered that 70 percent of new vehicle purchasers 
take out loans to finance their purchase. The average new vehicle loan 
is for 5 years at a 6 percent rate.\593\ At these terms, the average 
person taking a loan will pay 16 percent more for their vehicle over 
the 5 years than a consumer paying cash for the vehicle at the time of 
purchase.\594\ Discounting the additional 3.2 percent (16 percent/5 
years) per year over the 5 years using a 3 percent mid-year discount 
rate \595\ results in a discounted present value of 14.87 percent 
higher for those taking a loan. Multiplying that by the 70 percent of 
consumers who take out a loan means that the average consumer would pay 
10.2 percent more than the retail price for loans the consumer 
discounted at a 3 percent discount rate.
---------------------------------------------------------------------------

    \593\ New car loan rates in 2007 averaged about 7.8 percent at 
commercial banks and 4.5 percent at auto finance companies, so their 
average is close to 7 percent.
    \594\ Based on www.bankrate.com auto loan calculator for a 5-
year loan at 6 percent.
    \595\ For a 3 percent discount rate, the summation of 3.2 
percent x 0.9853 in year one, 3.2 x 0.9566 in year two, 3.2 x 0.9288 
in year three, 3.2 x 0.9017 in year 4, and 3.2 x 0.8755 in year 
five.
---------------------------------------------------------------------------

    Fourth, NHTSA considered the residual value (or resale value) of 
the vehicle after 5 years and expressed this as a percentage of the new 
vehicle price. In other words, if the price of the vehicle increases 
due to fuel economy technologies, the resale value of the vehicle will 
go up proportionately. The average resale price of a vehicle after 5 
years is about 35 percent of the original purchase price.\596\ 
Discounting the residual value back 5 years using a 3 percent discount 
rate (35 percent * .8755) gives an effective residual value at new of 
30.6 percent.
---------------------------------------------------------------------------

    \596\ Consumer Reports, August 2008, ``What That Car Really 
Costs to Own.'' Available at http://www.consumerreports.org/cro/cars/pricing/what-that-car-really-costs-to-own-4-08/overview/what-that-car-really-costs-to-own-ov.htm (last accessed August 9, 2009).
---------------------------------------------------------------------------

    NHTSA then adds these four factors together. At a 3 percent 
discount rate, the consumer considers she could get 30.6 percent back 
upon resale in 5 years, but will pay 5.5 percent more for taxes, 8.5 
percent more in insurance, and 10.2 percent more for loans, resulting 
in a 6.48 percent return on the increase in price for fuel economy 
technology. Thus, the increase in price per vehicle is multiplied by 
0.9352 (1-0.0648) before subtracting the fuel savings to determine the 
overall net consumer valuation of the increase of costs on her purchase 
decision.
    The following table shows the estimated impact on sales for 
passenger cars and light trucks combined for the proposed alternative. 
For all model years except MY 2012, NHTSA anticipates an increase in 
sales, based on consumers valuing the improvement in fuel economy more 
than the increase in price.

               Table IV.G.5-1--Potential Impact on Sales, Passenger Cars and Light Trucks Combined
----------------------------------------------------------------------------------------------------------------
                         MY 2012                             MY 2013       MY 2014       MY 2015       MY 2016
----------------------------------------------------------------------------------------------------------------
-58,058.................................................       52,719       178,470       342,628       454,520
----------------------------------------------------------------------------------------------------------------

6. What Are the Consumer Welfare Impacts of These Proposed Standards?
    There are two viewpoints for evaluating the costs and benefits of 
the proposed increase in CAFE standards: The private perspective of 
vehicle buyers themselves on the higher fuel economy levels the 
proposed rule would require, and the economy-wide or ``social'' 
perspective on the costs and benefits of requiring higher fuel economy. 
From the perspective of vehicle buyers, raising CAFE standards would 
impose significant costs in the form of higher prices for new vehicles, 
as manufacturers attempt to recover their added costs for producing 
vehicles with higher fuel efficiency. If vehicle manufacturers are 
unable to fully recover their higher costs for producing more fuel-
efficient cars and light trucks through higher sales prices, they will 
bear part of these costs in the form of reduced ``producer surplus'' or 
short-term profits.
    Other private costs from requiring higher fuel economy also result 
from changes in the welfare of potential vehicle buyers, as they 
respond to

[[Page 49722]]

higher vehicle prices by purchasing different models or postponing 
their purchases of new vehicles. The effects of requiring higher fuel 
economy on consumer welfare also depend on whether manufacturers elect 
to make other changes in vehicle attributes as they comply with 
stricter CAFE standards, such as performance, passenger- and cargo-
carrying capacity, comfort, or occupant safety. Although NHTSA believes 
it has employed estimates of costs for improving fuel economy that 
include adequate allowances for any accompanying modifications 
necessary to maintain new vehicles' current levels of other attributes, 
any changes in these attributes that manufacturers elect to make will 
represent additional private costs to vehicle buyers from requiring 
increased fuel economy.
    At the same time, raising CAFE standards also provides important 
private benefits to vehicle buyers, mainly in the form of the values 
buyers assign to the future savings in fuel costs they believe are 
likely to result from purchasing more fuel-efficient vehicles. Although 
these values are likely to vary significantly among buyers depending on 
their expectations about future fuel prices, how long they anticipate 
owning their vehicles, and how much they expect to drive, fuel savings 
are the primary source of private benefits from increased fuel economy. 
In addition, requiring new cars and light trucks to attain higher fuel 
economy will also provide benefits to their buyers through the increase 
in vehicle use associated with the fuel economy rebound effect, as well 
as from increases in vehicles' driving range, which allow drivers to 
refuel less frequently.
    From the social perspective, the economic benefits and costs of 
establishing higher CAFE standards include not only these private 
benefits and costs, but also changes in the value of environmental and 
economic externalities that result from fuel consumption and vehicle 
use.\597\ These include the reduction in potential climate-related 
economic damages resulting from lower CO2 emissions, reduced 
damages to human health from lower emissions of criteria air 
pollutants, reductions in economic externalities associated with U.S. 
petroleum imports, and increases in traffic congestion, vehicle noise, 
and accidents caused by the increased driving that results through the 
fuel economy rebound effect.
---------------------------------------------------------------------------

    \597\ Vehicle buyers are likely to value fuel savings using 
retail fuel prices, which include taxes levied by Federal, State, 
and some local governments. Because the reduction in these tax 
payments resulting from lower fuel purchases is exactly offset by 
lower tax revenues to government agencies (and reduced spending on 
the transportation infrastructure and other investments financed by 
fuel taxes), it does not represent a net benefit from the 
perspective of the U.S. economy as a whole. Thus the social costs of 
requiring higher fuel efficiency also include an adjustment to 
reflect the reduction in fuel tax revenues that results from reduced 
fuel purchases by new-car buyers.
---------------------------------------------------------------------------

    NHTSA has estimated most elements of the private and social 
benefits and costs that will result from its proposal to establish 
higher CAFE standards for model years 2012 through 2016, and the agency 
reports detailed empirical estimates of these impacts in this document 
and its Preliminary Regulatory Impact Analysis for the proposed rule. 
However, the agency is unable to provide a definitive accounting of the 
private costs and benefits from establishing higher CAFE standards, 
because we are unable to estimate the losses in consumer welfare that 
are likely to result from the effects of higher prices for on the 
number of new vehicles sold or on the mix of specific vehicle models 
that buyers decide to purchase. Assuming that the agency has correctly 
estimated each of the other costs and benefits that will result from 
the proposed rule, its estimates of the net private and total (private 
plus social) benefits represent their maximum possible values, and 
considering the rule's impacts on consumer welfare would invariably 
reduce the agency's reported estimates of the proposed rule's net 
private and total benefits.
    If the agency's estimates of technology costs are indeed adequate 
to maintain vehicles' current levels of these other attributes 
constant, the only changes in vehicles' characteristics resulting from 
higher CAFE standards will be improvements in the fuel economy and 
increases in sales prices for some (or perhaps even all) models. In 
this case, the welfare effects of requiring higher fuel economy depend 
on exactly how potential vehicle buyers value the future savings in 
fuel costs that they anticipate will result from purchasing vehicles 
with higher fuel economy.
    If the market for new vehicles is perfectly competitive and 
consumers have reliable information to estimate the likely magnitude 
and value of future fuel savings from buying more efficient models, 
economic theory suggests that they will make correct trade[hyphen]offs 
between higher initial costs for purchasing more fuel-efficient 
vehicles and subsequent reductions in their operating costs. These 
include lower fuel expenditures, savings in the time they spend 
refueling, and the benefits from any additional driving they do in 
response to its lower per-mile cost. The assumption that consumers have 
adequate information, foresight, and capability to make such trade-offs 
has been challenged on both theoretical and empirical grounds. If this 
assumption is accurate, however, no net private benefits can result 
from requiring higher fuel economy, since doing so will alter both the 
purchase prices of new cars and their lifetime streams of operating 
costs in ways that will inevitably reduce consumers' well-being.
    The essence of this view is that in the absence of the regulation, 
consumers fully understand their current and future costs for owning 
and using vehicles, and make tradeoffs between these that maximize 
their individual welfare. From this viewpoint, CAFE standards--or any 
other regulation that alters this trade[hyphen]off--will reduce their 
private well being. The intuition behind this conclusion is probably 
best captured by recognizing that automobile manufacturers currently 
sell a wide range of vehicle models, including many that already comply 
with the CAFE standards proposed in this rule. Yet sufficiently few 
buyers elect to purchase these vehicles that the average fuel economy 
of new vehicles sold today remains well below the levels this rule 
would require.
    On the other hand, a great deal of recent evidence suggests that 
many consumers do not accurately trade off current and future costs of 
owning and operating cars. For example, it appears that some buyers do 
not know how to estimate future savings in fuel costs from purchasing a 
higher-mpg vehicle, or that they incorrectly estimate the increased 
expense of purchasing a more fuel-efficient new car. In this situation, 
higher CAFE standards--which will increase purchase prices for new 
cars, but reduce their lifetime operating costs--can indeed improve 
consumers' financial well-being. If these circumstances are widespread, 
then it is likely that requiring manufacturers to achieve higher fuel 
economy can increase private well-being, and thus that potentially 
significant savings in private costs can result from the proposed rule.
    Whether these circumstances are indeed typical is largely a 
question of the values that consumers place on additional fuel economy. 
NHTSA is not currently in a position to reach a conclusive judgment on 
this issue, and is thus unable to determine how requiring higher fuel 
economy levels is likely to affect consumer welfare, even if the only 
impacts of the proposed rule are to change the sales prices and fuel

[[Page 49723]]

economy levels of new cars and light trucks, as the agency assumes.
    Even if these are the only changes that result from the proposed 
rule, however, changes in the sales prices and fuel economy levels of 
some new vehicle models are likely to affect some potential buyers' 
decisions about whether to purchase a car and what type or model to 
purchase. Research has demonstrated that previous CAFE rules and 
market[hyphen]based changes in operating costs (for example, resulting 
from changes in gasoline prices) lead consumers to alter the number and 
types of cars they purchase, and that these changes can lead to losses 
in consumer well[hyphen]being. However, NHTSA is not currently able to 
provide empirical estimates of the magnitude of potential losses in 
vehicle buyers' welfare resulting from postponement of their decisions 
to purchase new vehicles or changes in the specific models they elect 
to buy.
    For both of these reasons, the likely impacts of adopting higher 
CAFE standards on consumer welfare remain unknown. Because changes in 
consumer welfare are an important component of the total private costs 
and benefits resulting from higher standards, the magnitude and even 
the direction of the net private economic impact of adopting stricter 
CAFE standards also remains unknown.
How Do Consumers Value Fuel Economy?
    For this proposed rule, NHTSA estimates several sources of private 
benefits to vehicle buyers, including savings in future fuel costs, the 
value of time saved due to less frequent refueling, and utility gained 
from additional travel that results from the rebound effect. In 
combination, the agency's estimates suggest that these private savings 
greatly outweigh its estimates of the costs to consumers for providing 
higher fuel economy, even without accounting for the additional social 
benefits from higher fuel economy. This is due primarily to the very 
large estimated value of future fuel savings from higher fuel economy, 
which in turn partly reflects the agency's use of modest discount rates 
(3 percent and 7 percent).
    Even without considering the unmeasured welfare losses likely to 
result from changes in the number of new cars sold and the specific 
models purchased, however, this finding presents a conundrum. On the 
one hand, requiring higher fuel economy levels appears likely to 
produce large net benefits, primarily because the increased cost of 
producing more fuel-efficient cars and light trucks appears to be far 
outweighed by the value of the future fuel savings projected to result 
from higher fuel economy (assuming modest discount rates). At the same 
time, however, vehicle manufacturers currently produce many models that 
would allow them to meet the proposed higher CAFE standards, yet at 
least on average, buyers reveal a preference for lower fuel economy 
than the proposed rule would require.
    In this situation, often referred to as the Energy Efficiency 
Paradox, consumers appear not to purchase products that are in their 
economic self[hyphen]interest. There are theoretical reasons that could 
explain such behavior: consumers may be myopic, and thus undervalue the 
long term; they might lack information or be unable to use it properly 
even when it is presented to them; they may be particularly averse to 
potential short[hyphen]term losses associated with purchasing energy-
efficient products (the behavioral phenomenon of ``loss aversion''); or 
even if consumers have relevant knowledge, the benefits of energy 
efficient vehicles might not seem sufficiently important to them at the 
time they decide to purchase a new car. A great deal of work in 
behavioral economics has suggested the possibility that factors of this 
sort help account for the Energy Efficiency Paradox.
    Another possible explanation for the paradox between the apparently 
large private benefits to vehicle buyers from requiring higher fuel 
economy and the reluctance of many buyers to purchase new vehicles with 
higher fuel economy is that consumers may apply much higher discount 
rates than the agency has used when they evaluate future cost savings 
from purchasing more fuel-efficient vehicles or other capital goods 
offering gains in energy efficiency. For example, the Energy 
Information Agency (1996) has used discount rates as high as 111 
percent for water heaters and 120 percent for electric clothes 
dryers.\598\
---------------------------------------------------------------------------

    \598\ Energy Information Administration, U.S. Department of 
Energy (1996). Issues in Midterm Analysis and Forecasting 1996, DOE/
EIA-0607(96), Washington, D.C. Available at http://www.osti.gov/bridge/purl.cover.jsp?purl=/366567-BvCFp0/webviewable/ (last 
accessed Jul. 7, 2009).
---------------------------------------------------------------------------

    Some evidence also suggests directly that vehicle buyers employ 
high discount rates: consumers surveyed by Kubik (2006) reported that 
fuel savings would have to be adequate to pay back the additional 
purchase price of a more fuel-efficient vehicle in less than 3 years to 
persuade a typical buyer to purchase it. \599\ In short, there appears 
to be no consensus in the literature on what the private discount rate 
should be in the context of vehicle purchase decisions.
---------------------------------------------------------------------------

    \599\ Kubik, M. (2006). Consumer Views on Transportation and 
Energy. Second Edition. Technical Report: National Renewable Energy 
Laboratory.
---------------------------------------------------------------------------

    Another possible reconciliation of the Energy Efficiency Paradox, 
which poses a significant complication for evaluating the private 
benefits resulting from higher CAFE standards, is that the values 
consumers place on the future savings from higher fuel economy may vary 
sufficiently widely that it is unclear whether on average this value 
exceeds the costs of providing higher fuel economy. A 1988 review of 
consumers' willingness to pay for improved fuel economy found estimates 
that varied by more than an order of magnitude: For a $1 per year 
reduction in vehicle operating costs, consumers would be willing to 
spend between $0.74 and $25.97 in increased vehicle price.\600\ (For 
comparison, the present value of saving $1 per year on fuel for 15 
years at a 3 percent discount rate is $11.94, while a 7 percent 
discount rate produces a present value of $8.78.) Thus, this study 
finds that some consumers appear to be willing to pay far too much to 
obtain future fuel savings, while others may be willing to pay far too 
little.
---------------------------------------------------------------------------

    \600\ Greene, David L., and Jin-Tan Liu (1988). ``Automotive 
Fuel Economy Improvements and Consumers' Surplus.'' Transportation 
Research Part A 22A(3): 203-218. The study actually calculated the 
willingness to pay for reduced vehicle operating costs, of which 
vehicle fuel economy is a major component.
---------------------------------------------------------------------------

    Although NHTSA has not found an updated survey of these values, a 
few examples suggest that vehicle choice models also imply wide 
variation in estimates of how much people are willing to pay for fuel 
savings. For instance, Espey and Nair (2005) and McManus (2006) find 
that consumers are willing to pay nearly $600 extra to purchase a 
vehicle that achieves one additional mile per gallon.\601\ In contrast, 
Gramlich (2008) finds that consumers' willingness to pay for an 
increase from 25 mpg to 30 mpg varies between $4,100 (for luxury cars 
when gasoline costs $2/gallon) to $20,560 (for SUVs when gasoline costs 
$3.50/gallon).\602\ Thus, some buyers appear

[[Page 49724]]

not to make accurate trade[hyphen]offs between higher initial purchase 
prices and subsequent fuel savings. At the same time, however, these 
results may simply reflect the fact that the expected savings from 
purchasing higher fuel economy vary widely among individuals, because 
they travel different amounts or have different driving styles.
---------------------------------------------------------------------------

    \601\ Espey, Molly, and Santosh Nair (2005). ``Automobile Fuel 
Economy: What is it Worth?'' Contemporary Economic Policy 23(3): 
317-323; McManus, Walter M. (2006). ``Can Proactive Fuel Economy 
Strategies Help Automakers Mitigate Fuel-Price Risks?'' University 
of Michigan Transportation Research Institute.
    \602\ Gramlich, Jacob (2008). ``Gas Prices and Endogenous 
Product Selection in the U.S. Automobile Industry.'' Available at 
http://www.econ.yale.edu/seminars/apmicro/am08/gramlich-081216.pdf 
(last accessed May 1, 2009).
---------------------------------------------------------------------------

    Finally, it is possible that the apparent Energy Efficiency Paradox 
is in fact not a paradox at all when one considers the uncertainty 
surrounding future fuel prices and a vehicle's expected lifetime and 
usage. As Metcalf and Rosenthal (1995) indicate, purchasing higher fuel 
economy requires buyers to weigh known, up[hyphen]front costs that are 
essentially irreversible (that is, they have a relatively low salvage 
value if the return never materializes) against an unknown future 
stream of fuel savings.\603\ They find some evidence that this accounts 
for a large portion of the seeming inconsistency between low cost 
opportunities to invest in energy efficiency and the current lack of 
investment in them. This would not imply failure on the part of 
consumers in making decisions, but rather that the rate of return 
buyers require on their vehicle purchases (or other energy efficiency 
investments) is much higher than that implied by a 3 percent discount 
rate that does not include a provision for uncertainty.
---------------------------------------------------------------------------

    \603\ Metcalf, G., and D. Rosenthal (1995). ``The `New' View of 
Investment Decisions and Public Policy Analysis: An Application to 
Green Lights and Cold Refrigerators,'' Journal of Policy Analysis 
and Management 14: 517-531.
---------------------------------------------------------------------------

    Greene et al. (2009) find additional support for this conclusion in 
the context of fuel economy decisions: They find that the expected net 
present value of increasing the fuel economy of a passenger car from 28 
to 35 miles per gallon falls from $405 when calculated using standard 
net present value calculations to nearly zero when uncertainty 
regarding future cost savings is taken into account.\604\ In contrast 
to Metcalf and Rosenthal, Greene et al. find that uncertainty regarding 
the future price of gasoline is less important than uncertainty 
surrounding the expected lifetimes of new vehicles. Supporting this 
hypothesis is a finding by Dasgupta et al. (2007) that consumers are 
more likely to lease than buy a vehicle with higher maintenance costs, 
because leasing provides them with the option to return it before those 
costs become too high.\605\
---------------------------------------------------------------------------

    \604\ Greene, D., J. German, and M. Delucchi (2009). ``Fuel 
Economy: The Case for Market Failure'' in Reducing Climate Impacts 
in the Transportation Sector, Sperling, D., and J. Cannon, eds. 
Springer Science.
    \605\ Dasgupta, S., S. Siddarth, and J. Silva-Risso (2007). ``To 
Lease or to Buy? A Structural Model of a Consumer's Vehicle and 
Contract Choice Decisions.'' Journal of Marketing Research 44: 490-
502.
---------------------------------------------------------------------------

    In contrast, other research suggests that the Energy Efficiency 
Paradox is real and significant, and owes to consumers' inability to 
value future fuel savings appropriately. For example, Sanstad and 
Howarth (1994) argue that consumers optimize behavior without full 
information by resorting to imprecise but convenient rules of thumb. 
Larrick and Soll (2008) find evidence that consumers do not understand 
how to translate changes in miles per gallon into fuel savings.\606\ If 
the behavior identified in these studies is indeed widespread, then 
significant gains to consumers can result from requiring higher fuel 
economy.
---------------------------------------------------------------------------

    \606\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818; Larrick, R.P., and J.B. Soll (2008). ``The MPG illusion.'' 
Science 320: 1593-1594.
---------------------------------------------------------------------------

How NHTSA Proposes To Treat the Issue of Welfare Losses
    In the course of future rulemakings, the agency intends to explore 
methods that would allow it to present a more comprehensive accounting 
of private costs and benefits from requiring higher fuel economy, 
including more detailed estimates of changes in the welfare of new 
vehicle buyers that are likely to result from higher CAFE standards. 
One promising approach to estimating the full welfare loss associated 
with CAFE's impact on vehicle purchasing decisions is using consumer 
vehicle choice models to evaluate the simultaneous effects of increases 
in sales prices, improvements in fuel economy, and changes in other 
attributes of specific vehicle models, rather than in the average 
values of these variables. NHTSA invites comments on the state of the 
art of consumer vehicle choice modeling, as well as on the prospects 
for these models to yield reliable estimates of changes in consumer 
welfare from requiring higher fuel economy.
7. What Are the Estimated Safety Impacts of These Proposed Standards?
    As discussed above, in evaluating the appropriate levels at which 
to establish new CAFE standards, NHTSA must assess any potential safety 
trade-offs. Safety trade-offs associated with fuel economy increases 
have occurred in the past and the possibility of future ones remains a 
concern. In the congressionally-mandated report entitled 
``Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) 
Standards,'' a committee of the National Academy of Sciences (NAS) 
(``2002 NAS Report'') \607\ concluded that the then-existing form of 
passenger car and light truck CAFE standards, together with market 
forces, created an incentive for vehicle manufacturers to comply in 
part by downweighting and even downsizing their vehicles and that these 
actions led to additional fatalities. Given the cost advantages of 
downsizing instead of substituting lighter, higher strength materials, 
NAS urged that the CAFE program be restructured to reduce the 
regulatory incentive to downsize. As NAS observed, the ability to 
reduce weight without reducing size does not mean they will exclusively 
rely on those means of weight reduction. Responding to NAS' concern, 
Congress mandated in EISA that CAFE standards be based on an attribute 
related to fuel economy, like footprint or weight.
---------------------------------------------------------------------------

    \607\ National Research Council, ``Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) Standards,'' National Academy 
Press, Washington, DC (2002). Available at http://www.nap.edu/openbook.php?isbn=0309076013 (last accessed September 11, 2009).
---------------------------------------------------------------------------

    Given the relative cost-effectiveness of at least some approaches 
to weight reduction, it is reasonable to assume that the vehicle 
manufacturers will choose weight reduction as one means of achieving 
compliance with the proposed standards. In fact, informal statements by 
the vehicle manufacturers themselves indicate that they intend to 
engage in some weight reduction, as appropriate for certain vehicle 
models, during the rulemaking time frame. While the manufacturers 
generally indicate that they plan to reduce weight without reducing 
size, their adherence to those plans would not remove all bases for any 
safety concerns.
    The question of the effect of changes in vehicle weight on safety 
in the context of fuel economy is a complex question that poses serious 
analytic challenges and has been a contentious issue for many years. 
This contentiousness arises, at least in part, from the difficulty of 
isolating vehicle weight from other confounding factors (e.g., driver 
behavior, or vehicle factors such as engine size and wheelbase). In 
addition, at least in the past, several vehicle factors have been 
closely related, such as vehicle mass, wheelbase, track width, and 
structural integrity. The issue has been addressed in the literature 
for more than two decades. For the reader's reference, much more 
information about safety in

[[Page 49725]]

the CAFE context is available in the MY 2011 final rule \608\ and in 
Section IX of the PRIA.
---------------------------------------------------------------------------

    \608\ 74 FR 14396-14407 (Mar. 30, 2009).
---------------------------------------------------------------------------

    Conducting the safety assessment for this rulemaking is thus 
difficult since, in general, it is unclear to what extent the higher 
fatality risk of smaller and lighter vehicles is associated with their 
reduced mass as compared to their reduced physical dimensions. That is 
because, historically, the safest vehicles have been heavy and large, 
while the vehicles with the highest fatal-crash rates have been light 
and small, both because the crash rate is higher for small/light 
vehicles and because the fatality rate is higher for small/light 
vehicle crashes.\609\ Intuitively, a reduction in mass while 
maintaining physical dimensions is likely to be less harmful than a 
reduction in both mass and physical dimensions.
---------------------------------------------------------------------------

    \609\ Kahane, Charles J., Ph.D., ``Vehicle Weight, Fatality Risk 
and Crash Compatibility of Model Year 1991-99 Passenger Cars and 
Light Trucks,'' DOT HS 809 662, October 2003, Executive Summary. 
Available at http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/809662.html (last accessed August 12, 2009).
---------------------------------------------------------------------------

    As noted above, the manufacturers have generally informally stated 
that they plan to use weight reduction methods that do not involve size 
reduction. That is plausible since the selection of footprint as the 
attribute in setting CAFE standards helps to minimize the incentive to 
reduce a vehicle's physical dimensions. This is because as footprint 
decreases, the corresponding fuel economy target decreases.\610\
---------------------------------------------------------------------------

    \610\ Vehicle footprint is not synonymous with vehicle size. 
Since the footprint is only that portion of the vehicle between the 
front and rear axles, footprint based standards do not discourage 
downsizing the portions of a vehicle in front of the front axle and 
to the rear of the rear axle. The crush space provided by those 
portions of a vehicle can make important contributions to managing 
crash energy.
---------------------------------------------------------------------------

    However, NHTSA cautions that vehicle footprint is not synonymous 
with vehicle size. Since the footprint is only that portion of the 
vehicle bounded by the front and rear axles and by the wheels, 
footprint based standards do not discourage downsizing the portions of 
a vehicle in front of the front axle and to the rear of the rear axle 
(front and rear overhand). Similarly, they do not discourage downsizing 
the portions of a vehicle outside its wheels (side overhang). The crush 
space provided by those portions of a vehicle can make important 
contributions to managing crash energy. We note that at least one 
manufacturer has confidentially indicated plans to reduce overhang as a 
way of reducing weight on some vehicles during the rulemaking time 
frame.
    Neither the CAFE standards nor our analysis of the feasibility of 
fuel economy improvements mandates mass reduction or any other specific 
technology application. In addition, considering NHTSA's analysis of 
the observed relationship between vehicle mass and the prevalence of 
fatalities, NHTSA has, except for vehicles with baseline curb weight 
over 5,000 pounds, excluded weight reduction from its analysis of 
potential CAFE standards in past rulemakings. The agency followed this 
analytical approach in order to ensure that its consideration of new 
standards was not dependent on weight reduction that could potentially 
compromise highway safety, recognizing, though, that the structure of 
CAFE standards does not prohibit manufacturers from making such 
responses to new CAFE standards. The agency implemented this approach 
by setting the Volpe model to apply this exclusion when estimating how 
manufacturers could apply technology in response to new CAFE standards.
    In its rulemakings on MY 2008-2011 light truck CAFE standards and 
MY 2011 car and light truck CAFE standards, NHTSA received comments 
suggesting that NHTSA expand the applicability of weight reduction 
technologies in its modeling to vehicles under 5,000 pounds, because, 
according to the commenters, weight reduction can be accompanied by 
proper vehicle design to assure that vehicle safety is not compromised. 
In the final rules in those rulemakings, the agency said that there may 
be great possibilities in the use of material substitution and other 
processes to minimize the safety effects of reducing weight. The agency 
further noted that this should be explored as data become available.
    After reviewing its assumptions and methodologies per the 
President's January 26 memorandum and working with EPA in this 
rulemaking, NHTSA revised its approach to include weight reduction of 
up to 5-10 percent of baseline curb weight, depending on vehicle type. 
Recently-submitted manufacturer product plans as well as public 
statements from a number of the manufacturers suggest some of them 
expect that by MY 2016, they will be able to reduce the weight of some 
specific vehicle models by similar levels. However, NHTSA does not 
believe that, except where already planned, such significant weight 
reductions can be achieved in MY 2012 or MY 2013, because there is not 
enough lead time for the necessary design, engineering, and tooling. 
NHTSA estimates that weight reductions of 1.5 percent can be achieved 
during redesigns occurring prior to MY 2014, and that weight reductions 
of 5-10 percent can be achieved in redesigns occurring in MY 2014 or 
later. For purposes of analyzing CAFE standards, NHTSA has further 
assumed that weight reductions would be limited to 5 percent for small 
vehicles (e.g., subcompact passenger cars), and that reductions of 10 
percent would only be applied to the larger vehicle types (e.g., large 
light trucks).
    NHTSA's modeling approach is similar to EPA's in terms of maximum 
available weight reduction for any vehicle model, sensitive to vehicle 
safety in terms of when and to which vehicle types significant weight 
reduction can be achieved safely, and supported by information in some 
manufacturers' product plans. Some manufacturers have indicated that, 
in later model years, they plan to reduce significantly the weight of 
some specific vehicle models, and that they plan to do so without 
reducing vehicle size. NHTSA's analysis results in similar degrees of 
weight reduction, applied more widely to some manufacturers. NHTSA 
notes, though, that some manufacturers are also planning considerable 
changes in product mix, and some of these changes could mean reduced 
average size along with reduced average weight. In NHTSA's (and EPA's) 
analysis, such changes in product mix are not counted, because they are 
either in the baseline market forecast, or are not estimated.
    As stated above, neither the CAFE standards nor our analysis 
mandates mass reduction, or mandates that if mass reduction occurs, it 
be done in any specific manner. However, mass reduction is one of the 
technology applications available to the manufacturers and has been 
used by them in the past. A degree of mass reduction is used by the 
Volpe model in determining the capabilities of manufacturers and in 
predicting both cost and fuel consumption impacts of improved CAFE 
standards.
    In this section, we briefly summarize our analysis of the potential 
impacts of these mass reductions on vehicle safety. NHTSA's quantified 
analysis is based on the 2003 Kahane study,\611\ which estimates the 
effect of 100-pound reductions in MYs 1991-1999 heavy light trucks and 
vans (LTVs), light LTVs, heavy passenger cars, and light passenger 
cars. The study compares the fatality rates of LTVs and cars to 
quantify differences between vehicle

[[Page 49726]]

types, given drivers of the same age/gender, etc. In this analysis, the 
effect of ``weight reduction'' is not limited to the effect of mass per 
se, but includes all the factors, such as length, width, structural 
strength, and size of the occupant compartment, that were naturally or 
historically confounded with mass in MYs 1991-1999 vehicles. The 
rationale is that adding length, width, or strength to a vehicle will 
also make it heavier.
---------------------------------------------------------------------------

    \611\ Id.
---------------------------------------------------------------------------

    The agency utilized the relationships between weight and safety 
from Kahane (2003), expressed as percentage increases in fatalities per 
100-pound weight reduction, and examined the weight impacts assumed in 
this CAFE analysis. However, there are several identifiable safety 
trends that are already in place or expected to occur in the 
foreseeable future and that are not accounted for in the study. For 
example, two important new safety standards that have already been 
issued and will be phasing in during the rulemaking time frame. Federal 
Motor Vehicle Safety Standard No. 126 (49 CFR 571.126) will require 
electronic stability control in all new vehicles by MY 2012, and the 
upgrade to Federal Motor Vehicle Safety Standard No. 214 (Side Impact 
Protection, 49 CFR 571.214) will likely result in all new vehicles 
being equipped with head-curtain air bags by MY 2014.\612\ 
Additionally, we anticipate continued improvements in driver (and 
passenger) behavior, such as higher safety belt use rates. All of these 
will tend to reduce the absolute number of fatalities resulting from 
weight reductions. Thus, while the percentage increases in Kahane 
(2003) was applied, the reduced base has resulted in smaller absolute 
increases than those that were predicted in the 2003 report.
---------------------------------------------------------------------------

    \612\ We note that the Volpe model currently does not account 
for the weight of safety standards that will be added compared to 
the MY 2008 baseline, nor does it account for the societal cost of 
reductions in weight. However, both of these items will be added to 
the model for the final rule; doing so will raise the weight of 
every vehicle by roughly 17 pounds in MY 2016 (slightly less in 
earlier years), which will likely require manufacturers to add 
slightly more technology to reach the final standards than they were 
estimated to need to reach the proposed standards. However, NHTSA 
does not expect the impact of these roughly 17 pounds per vehicle to 
have a significant impact on the safety analysis.
---------------------------------------------------------------------------

    The agency examined the impacts of the identifiable safety trends 
over the lifetime of the vehicles produced in each model year. An 
estimate of these impacts was contained in a previous agency 
report.\613\ The impacts were estimated on a year-by-year basis, but 
could be examined in a combined fashion. The agency assumed that the 
safety trends will result in a reduction in the target population of 
fatalities from which the weight impacts are derived. Using this 
method, we found a 12.6 percent reduction in fatality levels between 
2007 and 2020. The estimates derived from applying Kahane's percentages 
to a baseline of 2007 fatalities were thus multiplied by 0.874 to 
account for changes that the agency believes will take place in 
passenger car and light truck safety between the 2007 baseline on-road 
fleet used for this particular analysis and year 2020.
---------------------------------------------------------------------------

    \613\ Blincoe, L. and Shankar, U, ``The Impact of Safety 
Standards and Behavioral Trends on Motor Vehicle Fatality Rates,'' 
DOT HS 810 777, January 2007. See Table 4 comparing 2020 to 2007 
(37,906/43,363 = 12.6% reduction (1-.126 = .874).
---------------------------------------------------------------------------

    We note that because these new analyses are based on the method 
shown in Kahane (2003), which predicts the safety effect of 100-pound 
mass reductions in MY 1991-1999 light trucks and vans (LTVs) and 
passenger cars, the new analyses need to be understood in the context 
of that study. Specifically, the numbers in the new analyses represent 
an upper bound (or worst case) fatality estimate--that is, the estimate 
would only apply if all weight reductions come from reducing both 
weight and footprint. Kahane's conclusions are based upon a cross-
sectional analysis of the actual on-road safety experience of 1991-1999 
vehicles. For those vehicles, heavier usually also meant larger-
footprint. Hence, the numbers in the new analyses predict the safety-
related fatalities that would occur in the unlikely event that weight 
reduction for MYs 2012-2016 is accomplished entirely by reducing mass 
and reducing footprint.
    Exclusive reliance on downsizing for the model years covered by 
this rulemaking is unlikely for the following reasons. As noted above, 
the manufacturers have generally indicated that they plan reduce weight 
without reducing size. Further, the flat CAFE standards in effect when 
those MY 1991-1999 vehicles were produced had no penalty for such a 
strategy for improving fuel economy. In contrast, as discussed above, 
the current attribute-based CAFE standards do not encourage vehicle 
downsizing by reducing footprint. This structural change to the CAFE 
program means that the CAFE standards now favor the use of weight 
reduction strategies that do not involve simply making that portion of 
the vehicle smaller. These other strategies include downsizing the 
engine and adding turbocharging, as well as materials substitution.
    Given this structural change to the CAFE program, it is likely that 
a significant portion of the weight reduction in the MY 2012-2016 
vehicles will be accomplished by strategies that have a lesser safety 
impact than the prevalent 1990s strategy of simply making the vehicles 
smaller, although NHTSA is unable to predict how large a portion. For 
example, a manufacturer could conceivably add length, width, or 
strength to a vehicle by replacing existing materials with light, high-
strength components.
    To the extent that future weight reductions could be achieved by 
substituting light, high-strength materials for existing materials--
without any accompanying reduction in the size or structural strength 
of the vehicle--then NHTSA believes that the fatality increases 
associated with the weight reductions anticipated by the model as a 
result of the proposed standards could be significantly smaller than 
those in the worst-case scenario. However, NHTSA does not currently 
have information (on-road data) to calibrate and predict how much 
smaller those increases would be for any given mixture of material 
substitution and downsizing, since the data on the safety effects of 
mass reduction alone is not available due to the low numbers of 
vehicles in the current on-road fleet that have utilized this 
technology extensively. Further, to the extent that weight reductions 
were accomplished through use of light, high-strength materials, there 
would be significant additional costs that would need to be determined 
and accounted for. Those higher costs are not reflected in NHTSA's 
cost-benefit analysis for this proposal.
    Nevertheless, even though NHTSA cannot quantify these safety 
effects, we can project that they could be significantly less than 
those that would result from simple downsizing. However, we are also 
convinced that the safety effects are larger than zero for the 
following reasons:
     The effects of mass per se (laws of physics) will persist 
regardless whether mass is reduced by material substitution, 
downsizing, or any other method. There are a variety of crash types 
that could be impacted in various ways by changes in vehicle weight and 
at times by the way in which the vehicle's weight is changed. The 
following discussion examines weight reduction by either engine size 
reductions or material substitution and its impact on each of the 
different crash types.\614\
---------------------------------------------------------------------------

    \614\ For a similar discussion of effect of weight reduction on 
different crash modes, see Effectiveness and Impact of Corporate 
Average Fuel Economy Standards, NAS 1972, pp 74-75.
---------------------------------------------------------------------------

    Let us assume that Car A weighs X pounds and that Car B weighs X-
100

[[Page 49727]]

pounds and that Cars A and B have the same footprint, overhang and 
structural strength.
    [cir] Single-vehicle crashes
    Hitting an immovable object (like a big tree or bridge abutment).
    In most cases, there would be little impact on vehicle safety if 
Car A and Car B each hit a different immovable object at the same speed 
because the change in velocity (delta-V) would be the same for both 
vehicles.
    Hitting a partially movable object (like a small tree, parked car, 
storefront, or dwelling).
    Heavier vehicles will impart more force to movable objects than 
lighter vehicles. This will increase the chance that the movable 
objects will break, crush, or otherwise give way and increase the 
distance over which the striking vehicle can decelerate, which will 
reduce the delta-V for the vehicle's occupants.
    Single-vehicle rollovers.
    Smaller vehicles end up in more rollover crashes than larger 
vehicles. Part of the reason for this is the static stability factor, 
since smaller vehicles have less track width. Part of the reason for 
this is the way smaller vehicles are driven. Given the same track width 
for Car A and Car B, the impact on rollovers is hard to determine since 
the weight helps build up momentum and the influence of momentum versus 
weight for tripped rollovers is hard to discern.
    [cir] Multi-vehicle crashes
    Frontal impact--two light vehicles.
    While a collision of Car B with Car B is likely to have the same 
risk as a similar collision of Car A with Car A, the final answer on 
safety will depend upon what vehicle sizes receive overall weight 
reductions. As NHTSA's study shows, if weight is taken out of the 
larger light trucks, overall safety is improved. If weight is taken out 
of passenger cars or smaller light trucks, overall safety decreases. 
Overall, we can't determine whether there will be an overall difference 
in safety.
    Side impact--struck vehicle.
    As a struck vehicle, Car B is at a disadvantage because its delta V 
would be increased. Car B would be less safe.
    Side impact--striking vehicle.
    NHTSA analyses have shown that for a striking vehicle in a side 
impact, weight is not as important as striking height. Weight does have 
an impact, because of imparting a lower delta V on the struck vehicle. 
When struck by Car B, the struck vehicle would be somewhat safer.
    Side impact--overall.
    Overall, there will be a minimal difference in safety.
    Collision with an older light vehicle.
    Car B would experience a higher delta V and a higher fatality risk 
than Car A, if either were struck by the same pre-2012 vehicle. But the 
occupants of the older vehicle would experience a lower delta V and a 
lower risk if struck by Car B.
    Collision with a medium-sized truck (somewhat over 10,000 GVWR).
    Medium-size trucks are not affected by CAFE and do not need to 
decrease their weight. Car B would experience a higher delta V and a 
higher risk than Car A. (The risk to the occupants of the medium-size 
truck would be minimally higher with Car A.) Overall, Car B would be 
less safe.
    Collision with a fully-loaded tractor trailer (significantly over 
10,000 GVWR).
    Car B would experience a higher delta V than Car A, but in this 
case, the difference in delta V would be minimal. Risk would be similar 
in both cars.
    [cir] Pedestrian/bicyclist impacts
    In general, Car A would impose a slightly higher delta V on the 
pedestrian than Car B, but the difference would be so small that risk 
for the pedestrian would essentially be the same either way.
     Our attribute-based standards have the excellent feature 
that they can avoid encouraging reductions in footprint. However, 
weight can be removed by downsizing, rather than material substitution, 
even while maintaining footprint:
    [cir] By reducing the overhang in front of the front wheels and 
behind the rear wheels. These are protective structures whose removal 
would increase risk to occupants by reducing vehicle crush space.
    [cir] By thinning or removing structures within the vehicle.
     NHTSA has found that lighter vehicles are driven in a 
manner that results in a higher involvement rate in fatal crashes, even 
after controlling for the driver's age, gender, urbanization, and 
region of the country. However, in our response in the MY 2011 final 
rule to the DRI analyses, we were unable to attribute this effect to 
any obvious ``size'' parameter such as track width or wheelbase. In 
non-rollover crashes, weight continued to be the most important 
parameter, even when track width and wheelbase were included as 
independent variables. Until we understand the phenomenon better, we 
assume that weight reduction is likely to be associated with higher 
fatal-crash rates, no matter how the weight reduction is achieved.
    Table IV.G.7-1 below shows the results of NHTSA's worst case 
analysis of safety-related fatalities separately for each model year. 
Additionally, the societal impacts of increasing fatalities can be 
monetized using DOT's estimated comprehensive cost per life of $6.1 
million. This consists of a value of a statistical life of $5.8 million 
plus external economic costs associated with fatalities such as medical 
care, insurance administration costs and legal costs.\615\
---------------------------------------------------------------------------

    \615\ Blincoe et al., The Economic Impact of Motor Vehicle 
Crashes 2000, May 2002, DOT HS 809 446. Data from this report were 
updated for inflation and combined with the current DOT guidance on 
value of a statistical life to estimate the comprehensive value of a 
statistical life.
---------------------------------------------------------------------------

    NHTSA has also calculated an assumed impact on injuries and added 
that to the societal costs of fatalities. This assumed impact is based 
on past studies indicating that fatalities account for roughly 44 
percent of total comprehensive costs due to injury.\616\ If weight 
impacts non-fatal injuries roughly proportional to its impact on 
fatalities, then total costs would be roughly 2.3 times those noted in 
Table IV.G.7-2. The potential societal costs for just fatalities are 
shown in Table IV.G.7-2. The combined potential social costs are shown 
in Table IV.G.7-4.
---------------------------------------------------------------------------

    \616\ Based on data in Blincoe et al., updated for inflation and 
reflecting the Department's current VSL of $5.8 million.
---------------------------------------------------------------------------

    Looking at the results on a calendar year basis, we also note that 
the safety impacts of the Kahane analysis based weight reduction have a 
slow onset. Passenger cars typically have a 10-25 year lifetime, and 
light trucks somewhat longer. Thus, some of the fatalities for MY 2016 
light trucks will not occur until after 2050. Moreover, the weight 
reductions are small in the early model years 2012 and 2013. The 
vehicles with reduced weight will only be a small proportion of the 
entire on-road fleet in the initial calendar years of these proposed 
CAFE standards. The influence of these factors is illustrated in Table 
IV.G.7-3 below.
    Additionally, there will be significant fuel-saving benefits from 
these proposed standards, up to 61.6 billion gallons during the 
lifetime of MYs 2012-2016 vehicles. There will also be significant 
reductions in CO2 emissions, up to 656 million metric tons 
during that same time period.
    Improved fuel economy will also result in a decrease in harmful 
criteria pollutants, which will decrease premature deaths due to a 
number of diseases related to environmental pollution. The literature 
strongly supports the causal relationship between health and exposure 
to criteria pollutants. However, as with vehicle safety impacts, there 
is much

[[Page 49728]]

uncertainty regarding the exact level of health impacts that might be 
achieved with this rule. Thus, there are potentially both positive and 
negative impacts that could result from this rulemaking. We have not 
attempted to quantify other beneficial health impacts that are expected 
to result from the proposed standards, including the results of a 
decrease in the rate of global warming, and increased energy security 
resulting from a lesser dependence on oil imported volatile regions of 
the world, but they, too, could be significant.
    In summary, the agency recognizes the balancing inherent in 
achieving higher levels of fuel economy through reduction of vehicle 
weight. We emphasize that these safety-related fatality estimates 
represent a worst case scenario for the potential effects of this 
rulemaking, and that actual fatalities will be less than these 
estimates, possibly significantly less, based on the qualitative 
discussion above of the various factors that could reduce the 
estimates. At the same time, however, the agency cannot specify a 
reasonable lower-bound estimate. It is possible that the impact could 
be fairly small, but the agency is unable to specify a lower-bound at 
this time due to a lack of studies that address the safety risk 
associated with weight reduction that is not also accompanied by size 
reduction. Additionally, the estimates presented here do not include 
estimates for injuries. Nevertheless, we believe that the balancing is 
reasonable.
    In the absence of data that permit examining the fatality impact of 
reductions in weight and footprint independently, we considered whether 
it would be appropriate to use the industry-sponsored DRI study to 
estimate a lower-bound value. However, as noted below, the agency's 
inability to reproduce DRI's results raises questions whether the DRI 
reports sufficiently satisfy reproducibility criteria and thus have the 
quality, objectivity, utility, and integrity needed for information 
relied upon and disseminated by the Federal Government to the public. 
Reliance upon non-reproducible studies undermines the credibility of 
the Government's scientific information. Further, the DRI reports raise 
a significant additional data quality concern. They have not been 
subjected to a rigorous form of peer review.
    DRI produced several studies between 2000 and 2005, funded by a 
manufacturer of small vehicles and purporting to analyze mass, track 
width, and wheelbase as independent variables. DRI's 2002 paper 
indicated that reducing mass would be beneficial, while reducing track 
width and wheelbase would be harmful. If true, this meant that weight 
reduction would benefit safety if track width and wheelbase were 
maintained. However, NHTSA has concluded that the 2002 DRI study 
inadvertently introduced significant biases in the analysis, as a 
result of including 2-door cars in the analysis. Dr. Kahane's analyses 
have excluded 2-door passenger cars on the grounds that in the data 
reviewed in those analyses (and by DRI in its analysis), 2-door cars 
consisted in considerable part of sports and muscle cars. Including 
sports and muscle cars in a regression analysis of vehicle weight and 
safety biases the results for two primary reasons: first, because 
sports and muscle cars tend to have short wheelbases but be relatively 
heavy for their size, they function as outliers in the regression 
analysis and thus distort the derived relationships and second, because 
sports and muscle cars as a group tend to be disproportionately 
involved in crashes. NHTSA provided this response to DRI publicly in 
2004.\617\ In response, DRI submitted a new study in 2005 with a 
sensitivity analysis limited to 4-door cars, excluding police cars. DRI 
further stated that it could mimic NHTSA's logistic regression approach 
for an analysis of model year 1991-98 4-door cars in calendar year 
1995-1999 crashes. DRI stated that its updated 2005 analysis still 
showed results directionally similar to its earlier work--increased 
risk for lower track width and wheelbase, reduced risk for lower mass--
although DRI acknowledged that the wheelbase and mass effects were no 
longer statistically significant after removing the 2-door cars from 
the analysis.
---------------------------------------------------------------------------

    \617\ Docket No. NHTSA-2003-16318-0016.
---------------------------------------------------------------------------

    Since receiving it, NHTSA has disagreed with the results of DRI's 
2005 analysis, most recently on record in the MY 2011 CAFE final rule, 
for two primary reasons. First, even using the same (NHTSA) data and 
methodology as DRI used, NHTSA has been unable to reproduce DRI's 2005 
results. And second, to our knowledge, unlike Dr. Kahane's 2003 study, 
DRI's 2005 study has not been rigorously peer-reviewed.
    The following provides an example of how NHTSA has tried to 
reproduce DRI's results, unsuccessfully. In MY 1991-1998, the average 
car weighing x + 100 pounds had a track width that was 0.34 inches 
larger and a wheelbase that was 1.01 inches longer. Thus, one could say 
that a ``historical'' 100-pound weight reduction would have been 
accompanied by a 0.34 inch track width reduction and a 1.01 inch 
wheelbase reduction. However, using a reasonable check, if one 
dissociates weight, track width, and wheelbase and treats them as 
independent parameters, DRI's logistic regression of model year 1991-
1998 4-door cars excluding police cars attributes the following 
effects:

[[Page 49729]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.050

    However, applying NHTSA's logistic regression analyses \618\ to 
NHTSA's database, exactly as described in the agency's response to 
comments on its 2003 report, except for limiting the data to model 
years 1991-98, instead of 1991-99, produces results that are not at all 
like DRI's. Mass still has the largest effect, exceeding track width, 
and it moves in the expected direction.
---------------------------------------------------------------------------

    \618\ Regression analysis involves modeling and analyzing 
several variables, when the focus is on the relationship between a 
dependent variable and one or more independent variables. Logistic 
regression analysis involves three variables.
[GRAPHIC] [TIFF OMITTED] TP28SE09.051

    NHTSA obtained its estimates by adding the results from 12 
individual logistic regressions: Six types of crashes multiplied by two 
car-weight groups (less than 2,950 pounds; 2,950 pounds or more).\619\ 
DRI does not appear to have followed the same procedures, based on the 
widely differing results.
---------------------------------------------------------------------------

    \619\ See, e.g., Kahane (2003), Table 2 on p. xi.
---------------------------------------------------------------------------

    Based on our review, NHTSA is not persuaded by the DRI analysis. 
NHTSA's analyses do not corroborate the 2005 DRI study that suggested 
mass could be reduced without safety harm and perhaps with safety 
benefit. Moreover, even though NHTSA's analyses continue to attribute a 
much larger effect for mass than for track width or wheelbase in small 
cars, NHTSA has never said that mass alone is the single factor that 
increases or decreases fatality risk. There may not be a single factor, 
but rather it may be that mass and some of the other factors that are 
historically correlated with mass, such as wheelbase and track width, 
together are the factors.
    We note that comparatively it would seem the least harmful way to 
reduce mass would be from material substitution, where one replaces a 
heavy material with a lighter one that delivers the same performance, 
or other designs that reduce mass while maintaining wheelbase and track 
width. While this may seem intuitively to be the case, there is an 
absence of supporting data for the thrust of the 2005 DRI analysis, 
because those changes have not happened to any substantial number of 
vehicles in the real world. NHTSA thus has no way, yet, of proving the 
intuitive conclusion. We do know that mass has historically been 
correlated with wheelbase and track width, and that reductions in mass 
have also reduced those other factors. Until there is an analysis that 
clearly demonstrates that mass does not matter for safety, NHTSA 
concludes it should be guided by the decades' worth of studies 
suggesting

[[Page 49730]]

that mass is the most important of the related factors.
    The tables below contain NHTSA's estimates of the safety-related 
fatality impacts of the proposed standards, the costs associated with 
those impacts, and the overall change in impacts given other 
anticipated mitigating effects during the next several years. Again, we 
emphasize that the safety-related fatality impacts presented below 
represent a worst case scenario, and that NHTSA believes that the 
fatality increases associated with the anticipated weight reductions 
could be significantly smaller than those shown, because manufacturers 
are unlikely to respond to this rulemaking by decreasing the footprint 
or reducing the structural integrity of their vehicles.
    In addition, we note that the implementation of new Federal Motor 
Vehicle Safety Standards, combined with behavioral changes (e.g., 
further increases in safety belt use), will produce important 
reductions in the number of deaths and injuries that would otherwise 
occur in the vehicles subject to this rulemaking over their lifetime.
    NHTSA seeks comments on its analysis of the safety impacts of the 
proposed standards. To aid the agency in refining its analysis for the 
final rule, including its attempts to assess reasonable upper and lower 
ends of the potential range of estimated fatalities, NHTSA requests 
that each vehicle manufacturer provide, for inclusion in the record of 
this rulemaking, detailed information concerning the extent to which 
and manner in which it plans to reduce the weight of each of its models 
for the period covered by this rulemaking, and the cost of each method 
used. Manufacturers should include in those plans whether there will be 
any footprint or other size reduction, whether through reducing the 
size of an existing model, mix shifting or other means. Please also 
submit the analysis, including engineering or computer simulation 
analysis, performed to assess the possible safety impacts of such 
planned weight reduction. In addition, please submit the results of any 
vehicle crash or component tests that would aid in assessing those 
impacts.

  Table IV.G.7-1--Comparison of the Calculated Worst Case Weight Safety-Related Fatality Impacts of the Pending
                Proposed Standards Over the Lifetime of the Vehicles Produced in Each Model Year
                   [Increase in fatalities compared to the Calendar Year 2007 fatality level]
----------------------------------------------------------------------------------------------------------------
                                      MY 2012         MY 2013         MY 2014         MY 2015         MY 2016
----------------------------------------------------------------------------------------------------------------
                          Baseline MY 2011 standards continued for lifetime of vehicles
----------------------------------------------------------------------------------------------------------------
Passenger cars..................              13              15              18              18              19
Light trucks....................              13              15              17              17              18
                                 -------------------------------------------------------------------------------
    Combined....................              26              30              35              35              37
----------------------------------------------------------------------------------------------------------------
                                               Proposed standards
----------------------------------------------------------------------------------------------------------------
Passenger cars..................              42              64             165             242             379
Light trucks....................              18              20              64             106             150
                                 -------------------------------------------------------------------------------
    Combined....................              60              84             229             348             530
----------------------------------------------------------------------------------------------------------------
                          Difference between proposed standards and baseline continued
----------------------------------------------------------------------------------------------------------------
Passenger cars..................              29              49             147             224             360
Light trucks....................               5               5              47              89             132
                                 -------------------------------------------------------------------------------
    Combined....................              34              54             194             313             493
----------------------------------------------------------------------------------------------------------------
Note--all estimates in this table are worst-case. Actual values could be significantly less.


   Table IV.G.7-2--Calculated Worst Case Weight Safety-Related Fatality Impacts on Societal Costs for the Proposed Standards Over the Lifetime of the
                                                          Vehicles Produced in Each Model Year
                                                                      [$ millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              MY 2012         MY 2013         MY 2014         MY 2015         MY 2016          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger cars..........................................             177             299             897           1,366           2,916           4,935
Light trucks............................................              31              31             287             543             805           1,696
                                                         -----------------------------------------------------------------------------------------------
    Combined............................................             207             329           1,183           1,909           3,001           6,637
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note--all estimates in this table are worst-case. Actual values could be significantly less.


                             Table IV.G.7-3--Estimated Worst Case Impact of Weight on Calculated Fatalities by Calendar Year
                                                 [Additional fatalities by model year and calendar year]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    MY 2012     MY 2013     MY 2014     MY 2015     MY 2016     MY 2017     MY 2018     MY 2019     MY 2020     Totals
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012............................           3  ..........  ..........  ..........  ..........  ..........  ..........  ..........  ..........           3
2013............................           3           5  ..........  ..........  ..........  ..........  ..........  ..........  ..........           8
2014............................           3           5          19  ..........  ..........  ..........  ..........  ..........  ..........          27
2015............................           3           5          19          30  ..........  ..........  ..........  ..........  ..........          57
2016............................           3           5          18          29          47  ..........  ..........  ..........  ..........         102

[[Page 49731]]

 
2017............................           3           5          17          28          46          47  ..........  ..........  ..........         146
2018............................           3           5          16          27          44          46          47  ..........  ..........         187
2019............................           3           4          16          26          42          44          46          47  ..........         226
2020............................           2           4          15          24          40          42          44          46          47         264
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note--all estimates in this table are worst-case. Actual values could be significantly less.

    The following table is based on the worst-case scenario estimate 
for fatalities.

 Table IV.G.7-4--Calculated Worst Case Weight Safety Impacts on Societal Costs for the Proposed Standards over the Lifetime of the Vehicles Produced in
                                               Each Model Year, Estimated Fatalities and Assumed Injuries
                                                                      [$ millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              MY 2012         MY 2013         MY 2014         MY 2015         MY 2016          Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Undiscounted:
        Passenger Cars..................................            $406            $686          $2,058          $3,136          $5,040         $11,326
        Light Trucks....................................              70              70             658           1,246           1,848           3,892
        Combined........................................             476             756           2,716           4,382           6,888          15,218
Discounted 3%:
    Passenger Cars......................................             337             570           1,709           2,604           4,185           9,405
    Light Trucks........................................              56              56             528           1,000           1,482           3,122
    Combined............................................             393             626           2,237           3,604           5,668          12,527
Discounted 7%:
    Passenger Cars......................................             272             460           1,379           2,101           3,377           7,588
    Light Trucks........................................              44              44             415             785           1,165           2,453
    Combined............................................             316             504           1,794           2,886           4,542          10,042
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note--all estimates in this table are worst-case. Actual values could be significantly less.
Discount factors: passenger cars, 3% = 0.8304, 7% = 0.67; light trucks, 3% = 0.8022, 7% = 0.6303.

8. What Other Impacts (Quantitative and Unquantifiable) Will These 
Proposed Standards Have?
    In addition to the quantified benefits and costs of fuel economy 
standards, the standards we are proposing will have other impacts that 
we have not quantified in monetary terms. The decision on whether or 
not to quantify a particular impact depends on several considerations:
     Does the impact exist, and can the magnitude of the impact 
reasonably be attributed to the outcome of this rulemaking?
     Would quantification help NHTSA and the public evaluate 
standards that may be set in rulemaking?
     Is the impact readily quantifiable in monetary terms? Do 
we know how to quantify a particular impact?
     If quantified, would the monetary impact likely be 
material?
     Can a quantification be derived with a sufficiently narrow 
range of uncertainty so that the estimate is useful?
    NHTSA expects that this rulemaking will have a number of genuine, 
material impacts that have not been quantified due to one or more of 
the considerations listed above. In some cases, further research may 
yield estimates for future rulemakings.
Technology Forcing
    The proposed rule will improve the fuel economy of the U.S. new 
vehicle fleet, but it will also increase the cost (and presumably, the 
price) of new passenger cars and light trucks built during MYs 2012-
2016. We anticipate that the cost, scope, and duration of this rule, as 
well as the steadily rising standards it requires, will cause 
automakers and suppliers to devote increased attention to methods of 
improving vehicle fuel economy.
    This increased attention will stimulate additional research and 
engineering, and we anticipate that, over time, innovative approaches 
to reducing the fuel consumption of light duty vehicles will emerge. 
These innovative approaches may reduce the cost of the proposed rule in 
its later years, and also increase the set of feasible technologies in 
future years.
    We have attempted to estimate the effect of learning on known 
technologies within the period of the proposed rulemaking. We have not 
attempted to estimate the extent to which not-yet-invented technologies 
will appear, either within the time period of the current rulemaking or 
that might be available after MY 2016.
Effects on Vehicle Maintenance, Operation, and Insurance Costs
    Any action that increases the cost of new vehicles will 
subsequently make such vehicles more costly to maintain, repair, and 
insure. In general, this effect can be expected to be a positive linear 
function of vehicle costs. The proposed rulemaking, however, raises 
vehicle costs by only a few percent at most, and hence the change in 
maintenance and operation costs, distributed over the expected life of 
regulated vehicles and discounted back to the present, is probably de 
minimus in terms of the full analysis.
    One of the common consequences of using more complex or innovative 
technologies is a decline in vehicle reliability and an increase in

[[Page 49732]]

maintenance costs, borne, in part, by the manufacturer (through 
warranty costs, which are included in the indirect costs of production) 
and, in part by the vehicle owner. NHTSA believes that this effect is 
difficult to quantify, but likely to be de minimus as well.
Effects on Vehicle Miles Traveled (VMT)
    While NHTSA has estimated the impact of the rebound effect on VMT, 
we have not estimated how a change in vehicle sales could impact VMT. 
Since the value of the fuel savings to consumers outweighs the 
technology costs, new vehicle sales are predicted to increase. A change 
in vehicle sales will have complicated and a hard-to-quantify effect on 
vehicle miles traveled given the rebound effect, the trade-in of older 
vehicles, etc. In general, overall VMT should not be significantly 
affected.
Effect on Composition of Passenger Car and Light Truck Sales
    In addition, manufacturers, to the extent that they pass on costs 
to customers, may distribute these costs across their motor vehicle 
fleets in ways that affect the composition of sales by model. To the 
extent that changes in the composition of sales occur, this could 
affect fuel savings to some degree. However, NHTSA's view is that the 
scope for compositional effects is relatively small, since the total 
effect of the regulation itself will be to increase costs by only a few 
percent. Compositional effects might be important with respect to 
compliance costs for individual manufacturers, but are unlikely to be 
material for the rule as a whole.
    NHTSA is continuing to study methods of estimating compositional 
effects and may be able to develop methods for use in future 
rulemakings.
Effects on the Used Vehicle Market
    The effect of this rule on the use and scrappage of older vehicles 
will be related to its effects on new vehicle prices, the fuel 
efficiency of new vehicle models, and the total sales of new vehicles. 
If the value of fuel savings resulting from improved fuel efficiency to 
the typical potential buyer of a new vehicle outweighs the average 
increase in new models' prices, sales of new vehicles will rise, while 
scrappage rates of used vehicles will increase slightly. This will 
cause the ``turnover'' of the vehicle fleet--that is, the retirement of 
used vehicles and their replacement by new models--to accelerate 
slightly, thus accentuating the anticipated effect of the rule on 
fleet-wide fuel consumption and CO2 emissions. However, if 
potential buyers value future fuel savings resulting from the increased 
fuel efficiency of new models at less than the increase in their 
average selling price, sales of new vehicles will decline, as will the 
rate at which used vehicles are retired from service. This effect will 
slow the replacement of used vehicles by new models, and thus partly 
offset the anticipated effects of the proposed rules on fuel use and 
emissions.
    Because the agencies are uncertain about how the value of projected 
fuel savings from the proposed rules to potential buyers will compare 
to their estimates of increases in new vehicle prices, we have not 
attempted to estimate explicitly the effects of the rule on scrappage 
of older vehicles and the turnover of the vehicle fleet. We seek 
comment on the methods that might be used to estimate the effect of the 
proposed rule on the scrappage and use of older vehicles as part of the 
analysis to be conducted for the final rule.
Impacts of Changing Fuel Composition on Costs, Benefits, and Emissions
    EPAct, as amended by EISA, creates a Renewable Fuels Standard that 
sets targets for greatly increased usage of renewable fuels over the 
next decade. The law requires fixed volumes of renewable fuels to be 
used--volumes that are not linked to actual usage of transportation 
fuels.
    Ethanol and biodiesel (in the required volumes) may increase the 
cost of gasoline and diesel depending on crude oil prices and tax 
subsidies. The extra cost of renewable fuels will be borne through a 
cross-subsidy: The price of every gallon of gasoline will rise 
sufficiently to pay for the extra cost of renewable fuels. The proposed 
CAFE rule, by reducing total fuel consumption, would tend to increase 
any necessary cross-subsidy per gallon of fuel, and hence raise the 
market price of transportation fuels, while there would be no change in 
the volume or cost of renewable fuels used.
    Some of these effects are indirectly incorporated in NHTSA's 
analysis of the proposed CAFE rule because they are directly 
incorporated in EIA's projections of future gasoline and diesel prices 
in the Annual Energy Outlook, which incorporates in its baseline both a 
Renewable Fuel Standard and an increasing CAFE standard.
    The net effect of incorporating an RFS then might be to slightly 
reduce the benefits of the rule because affected vehicles might be 
driven slightly less, and because they emit slightly fewer greenhouse 
gas emissions per gallon. In addition there might be deadweight losses 
from the induced reduction in VMT. All of these effects are difficult 
to estimate, because of uncertainty in future crude oil prices, 
uncertainty in future tax policy, and uncertainty about how petroleum 
marketers will actually comply with the RFS, but they are likely to be 
small, because the cumulative deviation from baseline fuel consumption 
induced by the proposed rule will itself be small.
Macroeconomic Impacts of This Rule
    The proposed rule will have a number of consequences that may have 
short-run and longer-run macroeconomic effects. It is important to 
recognize, however, that these effects do not represent benefits in 
addition to those resulting directly from reduced fuel consumption and 
emissions. Instead, they represent the economic effects that occur as 
these direct impacts filter through the interconnected markets 
comprising the U.S. economy.
     Increasing the cost and quality (in the form of better 
fuel economy) of new light duty vehicles will have ripple effects 
through the rest of the economy. Depending on the assumptions made, the 
rule could generate very small increases or declines in output.
     Reducing consumption of imported petroleum should induce 
an increase in long-run output.
     Decreasing the world price of oil should induce an 
increase in long-run output.
    NHTSA has not studied the macroeconomic effects of the proposal, 
however a discussion of the economy-wide impacts of this rule conducted 
by EPA is included in Section III.H.5. Although economy-wide models do 
not capture all of the potential impacts of this rule (e.g., 
improvements in product quality), these models can provide valuable 
insights on how this proposal would impact the U.S. economy in ways 
that extend beyond the transportation sector.
Military Expenditures
    This analysis contains quantified estimates for the social cost of 
petroleum imports based on monopsony effects and the risk of oil market 
disruption. We have not included estimates of the cost of military 
expenditures associated with petroleum imports.

H. Vehicle Classification

    Vehicle classification, for purposes of the CAFE program, refers to 
whether NHTSA considers a vehicle to be a passenger automobile or a 
light truck, and thus subject to either the passenger automobile or the 
light truck standards. As NHTSA explained in the MY 2011

[[Page 49733]]

rulemaking, EPCA categorizes some light 4-wheeled vehicles as passenger 
automobiles (cars) and the balance as non-passenger automobiles (light 
trucks). EPCA defines passenger automobiles as any automobile (other 
than an automobile capable of off-highway operation) which NHTSA 
decides by rule is manufactured primarily for use in the transportation 
of not more than 10 individuals. EPCA 501(2), 89 Stat. 901. NHTSA 
created regulatory definitions for passenger automobiles and light 
trucks, found at 49 CFR part 523, to guide the agency and manufacturers 
in classifying vehicles.
    Under EPCA, there are two general groups of automobiles that 
qualify as non-passenger automobiles or light trucks: (1) Those defined 
by NHTSA in its regulations as other than passenger automobiles due to 
their having design features that indicate they were not manufactured 
``primarily'' for transporting up to ten individuals; and (2) those 
expressly excluded from the passenger category by statute due to their 
capability for off-highway operation, regardless of whether they might 
have been manufactured primarily for passenger transportation. NHTSA's 
classification rule directly tracks those two broad groups of non-
passenger automobiles in subsections (a) and (b), respectively, of 49 
CFR 523.5.
    For the purpose of this NPRM for the MYs 2012-2016 standards, EPA 
agreed to use NHTSA's regulatory definitions for determining which 
vehicles would be subject to which CO2 standards.
    In the MY 2011 rulemaking, NHTSA took a fresh look at the 
regulatory definitions in light of several factors and developments: 
its desire to ensure clarity in how vehicles are classified, the 
passage of EISA, and the Ninth Circuit's decision in CBD v. NHTSA.\620\ 
NHTSA explained the origin of the current definitions of passenger 
automobiles and light trucks by tracing them back through the history 
of the CAFE program, and did not propose to change the definitions 
themselves at that time, because the agency concluded that the 
definitions were largely consistent with Congress' intent in separating 
passenger automobiles and light trucks, but also in part because the 
agency tentatively concluded that doing so would not lead to increased 
fuel savings. However, the agency tightened the definitions in Sec.  
523.5 to ensure that only vehicles that actually have 4WD will be 
classified as off-highway vehicles by reason of having 4WD (to prevent 
2WD SUVs that also come in a 4WD ``version'' from qualifying 
automatically as ``off-road capable'' simply by reason of the existence 
of the 4WD version). It also took this action to ensure that 
manufacturers may only use the ``greater cargo-carrying capacity'' 
criterion of 523.5(a)(4) for cargo van-type vehicles, rather than for 
SUVs with removable second-row seats unless they truly have greater 
cargo-carrying than passenger-carrying capacity ``as sold'' to the 
first retail purchaser. NHTSA concluded that these changes increased 
clarity, were consistent with EPCA and EISA, and responded to the Ninth 
Circuit's decision with regard to vehicle classification.
---------------------------------------------------------------------------

    \620\ 538 F.3d 1172 (9th Cir. 2008).
---------------------------------------------------------------------------

    However, manufacturers currently have an incentive to classify 
vehicles as light trucks because, generally speaking, the fuel economy 
target for light trucks with a given footprint is less stringent than 
the target for passenger cars with the same footprint. This is due to 
the fact that the curves are based on actual fuel economy capabilities 
of the vehicles to which they apply. Because of characteristics like 
4WD, towing and hauling capacity, and heavy weight, the vehicles in the 
current light truck fleet are generally less capable of achieving 
higher fuel economy levels as compared to the vehicles in the passenger 
car fleet. 2WD SUVs are the vehicles that could be most readily 
redesigned so that they can be ``moved'' from the passenger car to the 
light truck fleet. A manufacturer could do this by adding a third row 
of seats, for example, or boosting GVWR over 6,000 lbs for a 2WD SUV 
that already meets the ground clearance requirements for ``off-road 
capability.'' A change like this may only be possible during a vehicle 
redesign, but since vehicles are redesigned, on average, every 5 years, 
at least some manufacturers may make such changes before or during the 
model years covered by this rulemaking.
    In looking forward to model years beyond 2011 and considering how 
CAFE should operate in the context of the National Program and 
previously-received comments as requested by President Obama, NHTSA 
seeks comment on the following potential changes to NHTSA's vehicle 
classification system. We request comment also on whether, if any of 
the changes were to be adopted, they should be applied to any of the 
model years covered by this rulemaking or whether, due to lead time 
concerns, they should apply only to MY 2017 and thereafter.
    Reclassifying Minivans and other ``3-row'' light trucks as 
passenger cars (i.e., removing 49 CFR 523.5(a)(5)):
    NHTSA has received repeated comments over the course of the last 
several rulemakings from environmental and consumer groups regarding 
the classification of minivans as light trucks instead of as passenger 
cars. Commenters have argued that because minivans generally have three 
rows of seats, are built on unibody chassis, and are used primarily for 
transporting passengers, they should be classified as passenger cars. 
NHTSA did not accept these arguments in the MY 2011 final rule, due to 
concerns that moving minivans to the passenger car fleet would lower 
the fuel economy targets for those passenger cars having essentially 
the same footprint as the minivans, and thus lower the overall fuel 
average fuel economy level that the manufacturers would need to meet. 
However, due to the new methodology for setting standards, the as-yet-
unknown fuel-economy capabilities of future minivans and 3-row 2WD 
SUVs, and the unknown state of the vehicle market (particularly for MYs 
2017 and beyond), NHTSA can no longer say with certainty that moving 
these vehicles could negatively affect potential stringency levels for 
either passenger cars or light trucks.
    Although such a change would not be made applicable during the MY 
2012-2016 time frame, we seek comment on why NHTSA should or should not 
consider, as part of this rulemaking, reclassifying minivans (and other 
current light trucks that qualify as such because they have three rows 
of designated seating positions as standard equipment) for MYs 2017 and 
after.
    Classifying ``like'' vehicles together:
    Many commenters objected in the rulemaking for the MY 2011 
standards to NHTSA's regulatory separation of ``like'' vehicles. 
Industry commenters argued that it was technologically inappropriate 
for NHTSA to place 4WD and 2WD versions of the same SUV in separate 
classes. They argued that the vehicles are the same, except for their 
drivetrain features, thus giving them similar fuel economy improvement 
potential. They further argued that all SUVs should be classified as 
light trucks. Environmental and consumer group commenters, on the other 
hand, argued that 4WD SUVs and 2WD SUVs that are ``off-highway 
capable'' by virtue of a GVWR above 6,000 pounds should be classified 
as passenger cars, since they are primarily used to transport 
passengers. In the MY 2011 rulemaking, NHTSA rejected both of these 
sets of arguments. NHTSA concluded that 2WD SUVs that were neither 
``off-highway capable'' nor possessed ``truck-like'' functional 
characteristics were appropriately classified as passenger cars. At the 
same time, NHTSA also

[[Page 49734]]

concluded that because Congress explicitly designated vehicles with 
GVWRs over 6,000 pounds as ``off-highway capable'' (if they meet the 
ground clearance requirements established by the agency), NHTSA did not 
have authority to move these vehicles to the passenger car fleet.
    With regard to the first argument, that ``like'' vehicles should be 
classified similarly (i.e., that 2WD SUVs should be classified as light 
trucks because, besides their drivetrain, they are ``like'' the 4WD 
version that qualifies as a light truck), NHTSA continues to believe 
that 2WD SUVs that do not meet any part of the existing regulatory 
definition for light trucks should be classified as passenger cars. 
However, NHTSA recognizes the additional point raised by industry 
commenters in the MY 2011 rulemaking that manufacturers may respond to 
this tighter classification by ceasing to build 2WD versions of SUVs, 
which could reduce fuel savings. In response to that point, NHTSA 
stated in the MY 2011 final rule that it expects that manufacturer 
decisions about whether to continue building 2WD SUVs will be driven in 
much greater measure by consumer demand than by NHTSA's regulatory 
definitions. If it appears, in the course of the next several model 
years, that manufacturers are indeed responding to the CAFE regulatory 
definitions in a way that reduces overall fuel savings from expected 
levels, it may be appropriate for NHTSA to review this question again. 
NHTSA seeks comment on how the agency might go about reviewing this 
question as more information about manufacturer behavior is 
accumulated.
    With regard to the second argument, that NHTSA should move vehicles 
that qualify as ``off-highway capable'' from the light truck to the 
passenger car fleet because they are primarily used to transport 
passengers, NHTSA reiterates that EPCA is clear that certain vehicles 
are non-passenger automobiles (i.e., light trucks) because of their 
off-highway capabilities, regardless of how they may be used day-to-
day.
    However, NHTSA could explore additional approaches, although not 
all could be pursued on current law. Possible alternative legal regimes 
might include: (a) classifying vehicles as passenger cars or light 
trucks based on use alone (rather than characteristics); (b) removing 
the regulatory distinction altogether and setting standards for the 
entire fleet of vehicles instead of for separate passenger car and 
light truck fleets; or (c) dividing the fleet into multiple categories 
more consistent with current vehicle fleets (i.e., sedans, minivans, 
SUVs, pickup trucks, etc.). NHTSA seeks comment on whether and why it 
should pursue any of these courses of action.

I. Compliance and Enforcement

1. Overview
    NHTSA's CAFE enforcement program and the compliance flexibilities 
available to manufacturers are largely established by statute--unlike 
the CAA, EPCA and EISA are very prescriptive and leave the agency 
limited authority to increase the flexibilities available to 
manufacturers. This was intentional, however. Congress balanced the 
energy saving purposes of the statute against the benefits of the 
various flexibilities and incentives it provided and placed precise 
limits on those flexibilities and incentives. For example, while the 
Department sought authority for unlimited transfer of credits between a 
manufacturer's car and light truck fleets, Congress limited the extent 
to which a manufacturer could raise its average fuel economy for one of 
its classes of vehicles through credit transfer in lieu of adding more 
fuel saving technologies. It did not want these provisions to slow 
progress toward achieving greater energy conservation or other policy 
goals. In keeping with EPCA's focus on energy conservation, NHTSA has 
done its best, for example, in crafting the credit transfer and trading 
regulations authorized by EISA, to ensure that total fuel savings are 
preserved when manufacturers exercise their compliance flexibilities.
    The following sections explain how NHTSA determines whether 
manufacturers are in compliance with the CAFE standards for each model 
year, and how manufacturers may address potential non-compliance 
situations through the use of compliance flexibilities or fine payment.
2. How Does NHTSA Determine Compliance?
a. Manufacturer Submission of Data and CAFE Testing by EPA
    NHTSA begins to determine CAFE compliance by considering pre- and 
mid-model year reports submitted by manufacturers pursuant to 49 CFR 
part 537, Automotive Fuel Economy Reports.\621\ The reports for the 
current model year are submitted to NHTSA every December and July. As 
of the time of this NPRM, NHTSA has received mid-model year reports 
from manufacturers for MY 2009, and anticipates receiving pre-model 
year reports for MY 2010 at the end of this year. Although the reports 
are used for NHTSA's reference only, they help the agency, and the 
manufacturers who prepare them, anticipate potential compliance issues 
as early as possible, and help manufacturers plan compliance 
strategies. Currently, NHTSA receives these reports in paper form. In 
order to facilitate submission by manufacturers and consistent with the 
President's electronic government initiatives, NHTSA proposes to amend 
Part 537 to allow for electronic submission of the pre- and mid-model 
year CAFE reports.
---------------------------------------------------------------------------

    \621\ 49 CFR Part 537 is authorized by 49 U.S.C. 32907.
---------------------------------------------------------------------------

    NHTSA makes its ultimate determination of manufacturers' CAFE 
compliance upon receiving EPA's official certified and reported CAFE 
data. The EPA certified data is based on vehicle testing and on final 
model year data submitted by manufacturers to EPA pursuant to 40 CFR 
600.512, Model Year Report, no later than 90 days after the end of the 
calendar year. Pursuant to 49 U.S.C. 32904(e), EPA is responsible for 
calculating automobile manufacturers' CAFE values so that NHTSA can 
determine compliance with the CAFE standards. In measuring the fuel 
economy of passenger cars, EPA is required by EPCA \622\ to use the EPA 
test procedures in place as of 1975 (or procedures that give comparable 
results), which are the city and highway tests of today, with 
adjustments for procedural changes that have occurred since 1975. EPA 
uses similar procedures for light trucks, although, as noted above, 
EPCA does not require it to do so. One notable shortcoming of the 1975 
test procedure is that it does not include a provision for air 
conditioner usage during the test cycle. As discussed in Section III 
above of the preamble, air conditioner usage increases the load on a 
vehicle's engine, reducing fuel efficiency and increasing 
CO2 emissions. Since the air conditioner is not turned on 
during testing, equipping a vehicle model with a relatively inefficient 
air conditioner will not adversely affect that model's measured fuel 
economy, while quipping a vehicle model with a relatively efficient air 
conditioner will not raise that model's measured fuel economy. The fuel 
economy test procedures for light trucks could be amended through 
rulemaking to provide for air conditioner operation during testing and 
to take other steps for improving the accuracy and representativeness 
of fuel economy measurements. Comment is sought in section I.D.2 
regarding implementing such amendments beginning in MY 2017 and also on 
the more immediate

[[Page 49735]]

interim step of providing credits under 49 U.S.C. 32904(c) for light 
trucks equipped with relatively efficient air conditioners for MYs 
2012-2016. Modernizing the passenger car test procedures as well would 
not be possible under EPCA as currently written.
---------------------------------------------------------------------------

    \622\ 49 U.S.C. 32904(c).
---------------------------------------------------------------------------

b. NHTSA Then Analyzes EPA-Certified CAFE Values for Compliance
    Determining CAFE compliance is fairly straightforward. After 
testing, EPA verifies the data submitted by manufacturers and issues 
final CAFE reports to manufacturers and to NHTSA between April and 
October of each year (for the previous model year). NHTSA then 
identifies the manufacturers' compliance categories (fleets) that do 
not meet the applicable CAFE fleet standards.
    To determine if manufacturers have earned credits that would offset 
those shortfalls, NHTSA calculates a cumulative credit status for each 
of a manufacturer's vehicle compliance categories according to 49 
U.S.C. 32903. If a manufacturer's compliance category exceeds the 
applicable fuel economy standard, NHTSA adds credits to the account for 
that compliance category. If a manufacturer's vehicles in a particular 
compliance category fall below the standard fuel economy value, NHTSA 
will provide written notification to the manufacturer that it has not 
met a particular fleet standard. The manufacturer will be required to 
confirm the shortfall and must either: Submit a plan indicating it will 
allocate existing credits, and/or for MY 2011 and later, how it will 
earn, transfer and/or acquire credits; or pay the appropriate civil 
penalty. The manufacturer must submit a plan or payment within 60 days 
of receiving agency notification. The amount of credits are determined 
by multiplying the number of tenths of a mpg by which a manufacturer 
exceeds, or falls short of, a standard for a particular category of 
automobiles by the total volume of automobiles of that category 
manufactured by the manufacturer for a given model year. Credits used 
to offset shortfalls are subject to the three and five year limitations 
as described in 49 U.S.C. 32903(a). Transferred credits are subject to 
the limitations specified by 49 U.S.C. 32903(g)(3). The value of each 
credit, when used for compliance, received via trade or transfer is 
adjusted, using the adjustment factor described in 49 CFR part 536.4, 
pursuant to 49 U.S.C. 32903(f)(1). Credit allocation plans received 
from the manufacturer will be reviewed and approved by NHTSA. NHTSA 
will approve a credit allocation plan unless it finds the proposed 
credits are unavailable or that it is unlikely that the plan will 
result in the manufacturer earning sufficient credits to offset the 
subject credit shortfall. If a plan is approved, NHTSA will revise the 
respective manufacturer's credit account accordingly. If a plan is 
rejected, NHTSA will notify the respective manufacturer and request a 
revised plan or payment of the appropriate fine.
    In the event that a manufacturer does not comply with a CAFE 
standard, even after the consideration of credits, EPCA provides for 
the assessing of civil penalties. The Act specifies a precise formula 
for determining the amount of civil penalties for such a noncompliance. 
The penalty, as adjusted for inflation by law, is $5.50 for each tenth 
of a mpg that a manufacturer's average fuel economy falls short of the 
standard for a given model year multiplied by the total volume of those 
vehicles in the affected fleet (i.e., import or domestic passenger car, 
or light truck), manufactured for that model year. The amount of the 
penalty may not be reduced except under the unusual or extreme 
circumstances specified in the statute. All penalties are paid to the 
U.S. Treasury and not to NHTSA itself.
    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions \623\ in the Safety Act and 
their absence in EPCA is believed to arise from the difference in the 
application of the safety standards and CAFE standards. A safety 
standard applies to individual vehicles; that is, each vehicle must 
possess the requisite equipment or feature which must provide the 
requisite type and level of performance. If a vehicle does not, it is 
noncompliant. Typically, a vehicle does not entirely lack an item or 
equipment or feature. Instead, the equipment or features fails to 
perform adequately. Recalling the vehicle to repair or replace the 
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

    \623\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
vehicles are not required to comply with those targets on a model-by-
model or vehicle-by-vehicle basis. However, as a practical matter, if a 
manufacturer chooses to design some vehicles so they fall below their 
target levels of fuel economy, it will need to design other vehicles so 
they exceed their targets if the manufacturer's overall fleet average 
is to meet the applicable standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.
    After enforcement letters are sent, NHTSA continues to monitor 
receipt of credit allocation plans or civil penalty payments that are 
due within 60 days from the date of receipt of the letter by the 
vehicle manufacturer, and takes further action if the manufacturer is 
delinquent in responding.
3. What Compliance Flexibilities Are Available Under the CAFE Program 
and How Do Manufacturers Use Them?
    There are three basic flexibilities permitted by EPCA/EISA that 
manufacturers can use to achieve compliance with CAFE standards beyond 
applying fuel economy-improving technologies: (1) Building dual- and 
alternative-fueled vehicles; (2) banking, trading, and transferring 
credits earned for exceeding fuel economy standards; and (3) paying 
fines. We note again that while these flexibility mechanisms will 
reduce compliance costs to some degree for most manufacturers, 49 
U.S.C. 32902(h) expressly prohibits NHTSA from considering the 
availability of credits (either for building dual- or alternative-
fueled vehicles or from accumulated transfers or trades) in determining 
the level of the standards. Thus, NHTSA may not raise CAFE standards 
because manufacturers have enough credits to meet higher standards. 
This is an important difference from EPA's authority under the CAA, 
which does not contain such a restriction, and which allows EPA to set 
higher standards as a result.
a. Dual- and Alternative-Fueled Vehicles
    As discussed at length in prior rulemakings, EPCA encourages 
manufacturers to build alternative-fueled and dual- (or flexible-) 
fueled vehicles by providing special fuel economy calculations for 
``dedicated'' (that is, 100 percent) alternative fueled vehicles and 
``dual-fueled'' (that is,

[[Page 49736]]

capable of running on either the alternative fuel or gasoline) 
vehicles. The fuel economy of a dedicated alternative fuel vehicle is 
determined by dividing its fuel economy in equivalent miles per gallon 
of gasoline or diesel fuel by 0.15.\624\ Thus, a 15 mpg dedicated 
alternative fuel vehicle would be rated as 100 mpg. For dual-fueled 
vehicles, the rating is the average of the fuel economy on gasoline or 
diesel and the fuel economy on the alternative fuel vehicle divided by 
0.15.\625\
---------------------------------------------------------------------------

    \624\ 49 U.S.C. 32905(a).
    \625\ 49 U.S.C. 32905(b)
---------------------------------------------------------------------------

    For example, this calculation procedure turns a dual-fueled vehicle 
that averages 25 mpg on gasoline or diesel into a 40 mpg vehicle for 
CAFE purposes. This assumes that (1) the vehicle operates on gasoline 
or diesel 50 percent of the time and on alternative fuel 50 percent of 
the time; (2) fuel economy while operating on alternative fuel is 15 
mpg (15/.15 = 100 mpg); and (3) fuel economy while operating on gas or 
diesel is 25 mpg. Thus:

CAFE FE = 1/{0.5/(mpg gas) + 0.5/(mpg alt fuel){time}  = 1/{0.5/25 + 
0.5/100) = 40 mpg

    In the case of natural gas, the calculation is performed in a 
similar manner. The fuel economy is the weighted average while 
operating on natural gas and operating on gas or diesel. The statute 
specifies that 100 cubic feet (ft\3\) of natural gas is equivalent to 
0.823 gallons of gasoline. The gallon equivalency of natural gas is 
equal to 0.15 (as for other alternative fuels).\626\ Thus, if a vehicle 
averages 25 miles per 100 ft\3\ of natural gas, then:
---------------------------------------------------------------------------

    \626\ 49 U.S.C. 32905(c).

---------------------------------------------------------------------------
CAFE FE = (25/100) * (100/.823)* (1/0.15) = 203 mpg

    Congress extended the incentive in EISA for dual-fueled automobiles 
through MY 2019, but provided for its phase out between MYs 2015 and 
2019.\627\ The maximum fuel economy increase which may be attributed to 
the incentive is thus as follows:
---------------------------------------------------------------------------

    \627\ 49 U.S.C. 32906(a). NHTSA notes that the incentive for 
dedicated alternative-fuel automobiles, automobiles that run 
exclusively on an alternative fuel, at 49 U.S.C. 32905(a), was not 
phased-out by EISA.

------------------------------------------------------------------------
                        Model year                          mpg increase
------------------------------------------------------------------------
MYs 1993-2014.............................................           1.2
MY 2015...................................................           1.0
MY 2016...................................................           0.8
MY 2017...................................................           0.6
MY 2018...................................................           0.4
MY 2019...................................................           0.2
After MY 2019.............................................           0
------------------------------------------------------------------------

    49 CFR part 538 implements the statutory alternative-fueled and 
dual-fueled automobile manufacturing incentive. NHTSA is proposing to 
update Part 538 as part of this NPRM to reflect the EISA changes, but 
to the extent that 49 U.S.C. 32906(a) differs from the current version 
of 49 CFR 538.9, the statute supersedes the regulation, and regulated 
parties may rely on the text of the statute.
    A major difference between EPA's statutory authority and NHTSA's 
statutory authority is that the CAA contains no specific prescriptions 
with regard to credits for dual- and alternative-fueled vehicles 
comparable to those found in EPCA/EISA. As an exercise of that 
authority, and as discussed in Section III above, EPA is offering 
similar credits for dual- and alternative-fueled vehicles through MY 
2015 for compliance with its CO2 standards, but for MY 2016 
and beyond EPA will establish CO2 emission levels for 
alternative fuel vehicles based on measurement of actual CO2 
emissions during testing, plus a manufacturer demonstration that the 
vehicles are actually being run on the alternative fuel. NHTSA has no 
such authority under EPCA/EISA to require that vehicles manufactured 
for the purpose of obtaining the credit actually be run on the 
alternative fuel, but requests comment on whether it should seek 
legislative changes to revise its authority to address this issue.
b. Credit Trading and Transfer
    In the MY 2011 final rule, NHTSA established Part 536 for credit 
trading and transfer. Part 536 implements the provisions in EISA 
authorizing NHTSA to establish by regulation a credit trading program 
and directing it to establish by regulation a credit transfer 
program.\628\ Since its enactment, EPCA has permitted manufacturers to 
earn credits for exceeding the standards and to carry those credits 
backward or forward. EISA extended the ``carry-forward'' period from 
three to five model years, and left the ``carry-back'' period at three 
model years. Under Part 536, credit holders (including, but not limited 
to, manufacturers) will have credit accounts with NHTSA, and will be 
able to hold credits, use them to achieve compliance with CAFE 
standards, transfer them between compliance categories, or trade them. 
A credit may also be cancelled before its expiry date, if the credit 
holder so chooses. Traded and transferred credits are subject to an 
``adjustment factor'' to ensure total oil savings are preserved, as 
required by EISA. EISA also prohibits credits earned before MY 2011 
from being transferred, so NHTSA has developed several regulatory 
restrictions on trading and transferring to facilitate Congress' intent 
in this regard. EISA also establishes a ``cap'' for the maximum 
increase in any compliance category attributable to transferred 
credits: for MYs 2011-2013, transferred credits can only be used to 
increase a manufacturer's CAFE level in a given compliance category by 
1.0 mpg; for MYs 2014-2017, by 1.5 mpg; and for MYs 2018 and beyond, by 
2.0 mpg.
---------------------------------------------------------------------------

    \628\ Congress required that DOT establish a credit 
``transferring'' regulation, to allow individual manufacturers to 
move credits from one of their fleets to another (e.g., using a 
credit earned for exceeding the light truck standard for compliance 
with the domestic passenger car standard). Congress allowed DOT to 
establish a credit ``trading'' regulation, so that credits may be 
bought and sold between manufacturers and other parties.
---------------------------------------------------------------------------

    NHTSA recognizes that some manufacturers may have to rely on credit 
transferring for compliance in MYs 2012-2017.\629\ As a way to improve 
the transferring flexibility mechanism for manufacturers, NHTSA 
interprets EISA not to prohibit the banking of transferred credits for 
use in later model years. Thus, NHTSA believes that the language of 
EISA may be read to allow manufacturers to transfer credits from one 
fleet that has an excess number of credits, within the limits 
specified, to another fleet that may also have excess credits instead 
of transferring only to a fleet that has a credit shortfall. This would 
mean that a manufacturer could transfer a certain number of credits 
each year and bank them, and then the credits could be carried forward 
or back ``without limit'' later if and when a shortfall ever occurred 
in that same fleet. NHTSA bases this interpretation on 49 U.S.C. 
32903(g)(2), which states that transferred credits ``are available to 
be used in the same model years that the manufacturer could have 
applied such credits under subsections (a), (b), (d), and (e), as well 
as for the model year in which the manufacturer earned such credits.'' 
The EISA limitation applies only to the application of such credits for 
compliance in particular model years, and not their transfer per se. If 
transferred credits have the same lifespan and may be used in carry-
back and carry-forward plans, it seems reasonable that they should be 
allowed to be stored in any fleet, rather than only in the fleet in 
which they were

[[Page 49737]]

earned. Of course, manufacturers could not transfer and bank credits 
for purposes of achieving the minimum standard for domestically-
manufactured passenger cars, as prohibited by 49 U.S.C. 32903(g)(4). 
Transferred and banked credits would additionally still be subject to 
the adjustment factor when actually used, which would help to ensure 
that total oil savings are preserved while still offering greater 
flexibility to manufacturers. This interpretation of EISA also helps 
NHTSA, to some extent, to harmonize better with EPA's CO2 
program, which allows unlimited banking and transfer of credits. NHTSA 
seeks comment on this interpretation of EISA.
---------------------------------------------------------------------------

    \629\ In contrast, manufacturers stated in comments in NHTSA's 
MY 2011 rulemaking that they did not anticipate a robust market for 
credit trading, due to competitive concerns. NHTSA does not yet know 
whether those concerns will continue to deter manufacturers from 
exercising the trading flexibility during MYs 2012-2016.
---------------------------------------------------------------------------

c. Payment of Fines
    If a manufacturer's average miles per gallon for a given compliance 
category (domestic passenger car, imported passenger car, light truck) 
falls below the applicable standard, and the manufacturer cannot make 
up the difference by using credits earned or acquired, the manufacturer 
is subject to penalties. The penalty, as mentioned, is $5.50 for each 
tenth of a mpg that a manufacturer's average fuel economy falls short 
of the standard for a given model year, multiplied by the total volume 
of those vehicles in the affected fleet, manufactured for that model 
year. NHTSA has collected $772,850,459.00 to date in CAFE penalties, 
the largest ever being paid by DaimlerChrysler for its MY 2006 import 
passenger car fleet, $30,257,920.00. For their MY 2007 fleets, five 
manufacturers paid CAFE fines for not meeting an applicable standard--
Ferrari, Maserati, Mercedes-Benz, Porsche, and Volkswagen--for a total 
of $37,385,941.00
    NHTSA recognizes that some manufacturers may use the option to pay 
fines as a CAFE compliance flexibility--presumably, when paying fines 
is deemed more cost-effective than applying additional fuel economy-
improving technology, or when adding fuel economy-improving technology 
would fundamentally change the characteristics of the vehicle in ways 
that the manufacturer believes its target consumers would not accept. 
NHTSA has no authority under EPCA/EISA to prevent manufacturers from 
turning to fine-payment if they choose to do so. This is another 
important difference from EPA's authority under the CAA, which allows 
EPA to revoke a manufacturer's certificate of compliance that permits 
it to sell vehicles if EPA determines that the manufacturer is in non-
compliance, and does not permit manufacturers to pay fines in lieu of 
compliance with applicable standards.
    NHTSA has grappled repeatedly with the issue of whether fines are 
motivational for manufacturers, and whether raising fines would 
increase manufacturers' compliance with the standards. EPCA authorizes 
increasing the civil penalty very slightly up to $10.00, exclusive of 
inflationary adjustments, if NHTSA decides that the increase in the 
penalty ``will result in, or substantially further, substantial energy 
conservation for automobiles in the model years in which the increased 
penalty may be imposed; and will not have a substantial deleterious 
impact on the economy of the United States, a State, or a region of a 
State.'' 49 U.S.C. 32912(c).
    To support a decision that increasing the penalty would result in 
``substantial energy conservation'' without having ``a substantial 
deleterious impact on the economy,'' NHTSA would likely need to provide 
some reasonably certain quantitative estimates of the fuel that would 
be saved, and the impact on the economy, if the penalty were raised. 
Comments received on this issue in the past have not explained in clear 
quantitative terms what the benefits and drawbacks to raising the 
penalty might be. Additionally, it may be that the range of possible 
increase that the statute provides, i.e., up to $10 per tenth of a mpg, 
is insufficient to result in substantial energy conservation, although 
changing this would require an amendment to the statute by Congress. 
While NHTSA continues to seek to gain information on this issue to 
inform a future rulemaking decision, we request that commenters wishing 
to address this issue please provide, as specifically as possible, 
estimates of how raising or not raising the penalty amount will or will 
not substantially raise energy conservation and impact the economy.
4. Other CAFE Enforcement Issues--Variations in Footprint
    NHTSA has a standardized test procedure for determining vehicle 
footprint,\630\ which is defined by regulation as follows:
---------------------------------------------------------------------------

    \630\ NHTSA TP-537-01, March 30, 2009. Available at http://www.nhtsa.gov/portal/site/nhtsa/menuitem.b166d5602714f9a73baf3210dba046a0/, scroll down to ``537'' 
(last accessed July 18, 2009).
---------------------------------------------------------------------------

    Footprint is defined as the product of track width (measured in 
inches, calculated as the average of front and rear track widths, and 
rounded to the nearest tenth of an inch) times wheelbase (measured in 
inches and rounded to the nearest tenth of an inch), divided by 144 and 
then rounded to the nearest tenth of a square foot.\631\
---------------------------------------------------------------------------

    \631\ 49 CFR 523.2.
---------------------------------------------------------------------------

    ``Track width,'' in turn, is defined as ``the lateral distance 
between the centerlines of the base tires at ground, including the 
camber angle.'' \632\ ``Wheelbase'' is defined as ``the longitudinal 
distance between front and rear wheel centerlines.'' \633\
---------------------------------------------------------------------------

    \632\ Id.
    \633\ Id.
---------------------------------------------------------------------------

    NHTSA began requiring manufacturers to submit this information as 
part of their pre-model year reports in MY 2008 for light trucks, and 
will require manufacturers to submit this information for passenger 
cars as well beginning in MY 2011. Manufacturers have submitted the 
required information for their light trucks, but NHTSA has identified 
several issues with regard to footprint measurement, that could affect 
how required fuel economy levels are calculated for a manufacturer. The 
paragraphs that follow explain NHTSA's views regarding these issues, 
and solicit public input on what NHTSA should do to address them in the 
future.
a. Variations in Track Width
    By definition, wheelbase measurement should be very consistent from 
one vehicle to another of the same model. Track width, in contrast, may 
vary in two respects: Wheel offset,\634\ and camber. Most current 
vehicles have wheels with positive offset, with technical 
specifications for offset typically expressed in millimeters. 
Additionally, for most vehicles, the camber angle of each of a 
vehicle's wheels is specified as a range, i.e., front axle, left and 
right within minus 0.9 to plus 0.3 degree and rear axle, left and right 
within minus 0.9 to plus 0.1 degree. Given the small variations in 
offset and camber angle dimensions, the potential effects of components 
(wheels) and vehicle specifications (camber) within existing designs on 
vehicle footprints are considered insignificant.
---------------------------------------------------------------------------

    \634\ Offset of a wheel is the distance from its hub mounting 
surface to the centerline of the wheel, i.e., measured laterally 
inboard or outboard.
    Zero offset--the hub mounting surface is even with the 
centerline of the wheel.
    Positive offset--the hub mounting surface is outboard of the 
centerline of the wheel (toward street side).
    Negative offset--the hub mounting surface is inboard of the 
centerline of the wheel (away from street side).
---------------------------------------------------------------------------

    However, NHTSA recognizes that manufacturers may change the 
specifications of and the equipment on vehicles, even those that are 
not redesigned or refreshed, during a model year and from year to year. 
There may be opportunity for manufacturers to change specifications for 
wheel offset and camber to increase a vehicle's track

[[Page 49738]]

width and footprint, and thus decrease their required fuel economy 
level. NHTSA believes that this is likely easiest on vehicles that 
already have sufficient space to accommodate changes without 
accompanying changes to the body profile and/or suspension component 
locations.
    There may be drawbacks to such a decision, however. Changing from 
positive offset wheels to wheels with zero or negative offset will move 
tires and wheels outward toward the fenders. Increasing the negative 
upper limit of camber will tilt the top of the tire and wheel inward 
and move the bottom outward, placing the upper portion of the rotating 
tires and wheels in closer proximity to suspension components. In 
addition, higher negative camber can adversely affect tire life and the 
on-road fuel economy of the vehicle. Furthermore, it is likely that 
most vehicle designs have already used the available space in wheel 
areas since, by doing so, the vehicle's handling performance is 
improved. Therefore, it seems unlikely that manufacturers will make 
significant changes to wheel offset and camber.
b. How Manufacturers Designate ``Base Tires'' and Wheels
    According to the definition of ``track width'' in 49 CFR 523.2, 
manufacturers must determine track width when the vehicle is equipped 
with ``base tires.'' Section 523.2 defines ``base tire,'' in turn, as 
``the tire specified as standard equipment by a manufacturer on each 
configuration of a model type.'' NHTSA did not define ``standard 
equipment.''
    In their pre-model year reports required by 49 CFR part 537, 
manufacturers have the option of either (A) reporting a base tire for 
each model type, or (B) reporting a base tire for each vehicle 
configuration within a model type, which represents an additional level 
of specificity. If different vehicle configurations have different 
footprint values, then reporting the number of vehicles for each 
footprint will improve the accuracy of the required fuel economy level 
for the fleet, since the pre-model year report data is part of what 
manufacturers use to determine their CAFE obligations.
    For example, assume a manufacturer's pre-model year report listed 
five vehicle configurations that comprise one model type. If the 
manufacturer provides only one vehicle configuration's front and rear 
track widths, wheelbase, footprint and base tire size to represent the 
model type, and the other vehicle configurations all have a different 
tire size specified as standard equipment, the footprint value 
represented by the manufacturer may not capture the full spectrum of 
footprint values for that model type. Similarly, the base tires of a 
model type may be mounted on two or more wheels with different offset 
dimensions for different vehicle configurations. Of course, if the 
footprint value for all vehicle configurations is essentially the same, 
there would be no need to report by vehicle configuration. However, if 
footprints are different--larger or smaller--reporting for each group 
with similar footprints or for each vehicle configuration would produce 
a more accurate result.
c. Vehicle ``Design'' Values Reported by Manufacturers
    NHTSA understands that the track widths and wheelbase values and 
the calculated footprint calculated values, as provided in pre-model 
year reports, are based on vehicle designs. This can lead to inaccurate 
calculations of required fuel economy level. For example, if the values 
reported by manufacturers are within an expected range of values, but 
are skewed to the higher end of the ranges, the required fuel economy 
level for the fleet will be artificially lower, an inaccurate attribute 
based value. Likewise, it would be inaccurate for manufacturers to 
submit values on the lower end of the ranges, but would decrease the 
likelihood that measured values would be less than the values reported 
and reduce the likelihood of an agency inquiry. Since not every vehicle 
is identical, it is also probable that variations between vehicles 
exist that can affect track width, wheelbase and footprint. As with 
other self-certifications, each manufacturer must decide how it will 
report, by model type, vehicle configuration, or a combination, and 
whether the reported values have sufficient margin to account for 
variations.
    To address this, the agency will be monitoring the track widths, 
wheelbases and footprints reported by manufacturers, and anticipates 
measuring vehicles to determine if the reported and measured values are 
consistent. We will look for year-to-year changes in the reported 
values. We can compare MY 2008 light truck information and MY 2010 
passenger car information to the information reported in subsequent 
model years. Moreover, under 49 CFR 537.8, manufacturers may make 
separate reports to explain why changes have occurred or they may be 
contacted by the agency to explain them.
d. How Manufacturers Report This Information in their Pre-Model Year 
Reports
    49 CFR 537.7(c) requires that manufacturers' pre-model year reports 
include ``model type and configuration fuel economy and technical 
information.'' The fuel economy of a ``model type'' is, for many 
manufacturers, comprised of a number of vehicle configurations. 49 CFR 
537.4 states that ``model type'' and ``vehicle configuration'' are 
defined in 40 CFR part 600. Under that Part, ``model type'' includes 
engine, transmission, and drive configuration (2WD, 4WD, or all-wheel 
drive), while ``vehicle configuration'' includes those parameters plus 
test weight. Model type is important for calculating fuel economy in 
the new attribute-based system--the required fuel economy level for 
each of a manufacturer's fleets is calculated using the number of 
vehicles within each model type and the applicable fuel economy target 
for each model type.
    In MY 2008 and 2009 pre-model year reports for light trucks, 
manufacturers have expressed information in different ways. Some 
manufacturers that have many vehicle configurations within a model type 
have included information for each vehicle configuration's track width, 
wheelbase and footprint. Other manufacturers reported vehicle 
configuration information per Sec.  537.7(c)(4), but provided only 
model type track width, wheelbase and footprint information for 
subsections 537.7(c)(4)(xvi)(B)(3), (4) and (5). NHTSA believes that 
these manufacturers may have reported the information this way because 
the track widths, wheelbase and footprint are essentially the same for 
each vehicle configuration within each model type. A third group of 
manufacturers submitted model type information only, presumably because 
each model type contains only one vehicle configuration.
    NHTSA does not believe that this variation in reporting methodology 
presents an inherent problem, as long as manufacturers follow the 
specifications in Part 537 for reporting format, and as long as pre-
model year reports provide information that is accurate and represents 
each vehicle configuration within a model type. The report may, but 
need not, be similar to what manufacturers submit to EPA as their end-
of-model year report. However, NHTSA seeks comment on any potential 
benefits or drawbacks to requiring a more standardized reporting 
methodology. If commenters recommend increasing standardization, NHTSA 
requests that they provide

[[Page 49739]]

specific examples of what information should be required and how NHTSA 
should require it to be provided.

J. Other Near-Term Rulemakings Mandated by EISA

1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and Work 
Trucks
    EISA added a new provision to 49 U.S.C. 32902 requiring DOT, in 
consultation with DOE and EPA, to examine the fuel efficiency of 
commercial medium- and heavy-duty on-highway vehicles \635\ and work 
trucks \636\ and determine the appropriate test procedures and 
methodologies for measuring their fuel efficiency, as well as the 
appropriate metric for measuring and expressing their fuel efficiency 
performance and the range of factors that affect their fuel efficiency. 
Work on developing these standards is on-going.
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    \635\ Defined as an on-highway vehicle with a gross vehicle 
weight rating of 10,000 pounds or more.
    \636\ Defined as a vehicle that is both rated at between 8,500 
and 10,000 pounds gross vehicle weight; and also is not a medium-
duty passenger vehicle (as defined in 40 CFR 86.1803-01, as in 
effect on the date of EISA's enactment.
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2. Consumer Information
    EISA also added a new provision to 49 U.S.C. 32908 requiring DOT, 
in consultation with DOE and EPA, to develop and implement by rule a 
program to require manufacturers to label new automobiles sold in the 
United States with:
    (1) Information reflecting an automobile's performance on the basis 
of criteria that EPA shall develop, not later than 18 months after the 
date of the enactment of EISA, to reflect fuel economy and greenhouse 
gas and other emissions over the useful life of the automobile; and
    (2) A rating system that would make it easy for consumers to 
compare the fuel economy and greenhouse gas and other emissions of 
automobiles at the point of purchase, including a designation of 
automobiles with the lowest greenhouse gas emissions over the useful 
life of the vehicles; and with the highest fuel economy.
    DOT must also develop and implement by rule a program to require 
manufacturers to include in the owner's manual for vehicles capable of 
operating on alternative fuels information that describes that 
capability and the benefits of using alternative fuels, including the 
renewable nature and environmental benefits of using alternative fuels.
    EISA further requires DOT, in consultation with DOE and EPA, to
     Develop and implement by rule a consumer education program 
to improve consumer understanding of automobile performance described 
[by the label to be developed] and to inform consumers of the benefits 
of using alternative fuel in automobiles and the location of stations 
with alternative fuel capacity;
     Establish a consumer education campaign on the fuel 
savings that would be recognized from the purchase of vehicles equipped 
with thermal management technologies, including energy efficient air 
conditioning systems and glass; and
     By rule require a label to be attached to the fuel 
compartment of vehicles capable of operating on alternative fuels, with 
the form of alternative fuel stated on the label.

49 U.S.C. 32908(g)(2) and (3). DOT has 42 months from the date of 
EISA's enactment (by the end of 2011) to issue final rules under this 
subsection. Work on developing these standards is also on-going.

    Additionally, in preparation for this future rulemaking, NHTSA will 
consider appropriate metrics for presenting fuel economy-related 
information on labels. Based on the non-linear relationship between mpg 
and fuel costs as well as emissions, inclusion of the ``gallons per 100 
miles'' metric on fuel economy labels may be appropriate going forward, 
although the mpg information is currently required by law. A cost/
distance metric may also be useful, as could a CO2e grams 
per mile metric to facilitate comparisons between conventional vehicles 
and alternative fuel vehicles and to incorporate information about air 
conditioning-related emissions. NHTSA seeks comment on these options.

K. Regulatory Notices and Analyses

1. Executive Order 12866 and DOT Regulatory Policies and Procedures
    Executive Order 12866, ``Regulatory Planning and Review'' (58 FR 
51735, Oct. 4, 1993), provides for making determinations whether a 
regulatory action is ``significant'' and therefore subject to OMB 
review and to the requirements of the Executive Order. The Order 
defines a ``significant regulatory action'' as one that is likely to 
result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or Tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    The rulemaking proposed in this NPRM will be economically 
significant if adopted. Accordingly, OMB reviewed it under Executive 
Order 12866. The rule, if adopted, would also be significant within the 
meaning of the Department of Transportation's Regulatory Policies and 
Procedures.
    The benefits and costs of this proposal are described above. 
Because the proposed rule would, if adopted, be economically 
significant under both the Department of Transportation's procedures 
and OMB guidelines, the agency has prepared a Preliminary Regulatory 
Impact Analysis (PRIA) and placed it in the docket and on the agency's 
Web site. Further, pursuant to OMB Circular A-4, we have prepared a 
formal probabilistic uncertainty analysis for this proposal. The 
circular requires such an analysis for complex rules where there are 
large, multiple uncertainties whose analysis raises technical 
challenges or where effects cascade and where the impacts of the rule 
exceed $1 billion. This proposal meets these criteria on all counts.
2. National Environmental Policy Act
    NHTSA has initiated the Environmental Impact Statement (EIS) 
process under the National Environmental Policy Act (NEPA), 42 U.S.C. 
4321-4347, and implementing regulations issued by the Council on 
Environmental Quality (CEQ), 40 CFR part 1500, and NHTSA, 49 CFR part 
520. On April 1, 2009, NHTSA published a notice of intent to prepare an 
EIS for this rulemaking and requested scoping comments. (74 FR 14857) 
The notice invites Federal, State, and local agencies, Indian tribes, 
and the public to participate in the scoping process and to help 
identify the environmental issues and reasonable alternatives to be 
examined in the EIS. The scoping notice also provides information about 
the proposed standards, the alternatives NHTSA expects to consider in 
its NEPA analysis, and the scoping process.
    Concurrently with this NPRM, NHTSA is releasing a Draft 
Environmental Impact Statement (DEIS). NHTSA prepared the DEIS to 
analyze and disclose the potential

[[Page 49740]]

environmental impacts of the proposed MY 2012-2016 CAFE standards for 
the total fleet of passenger cars and light trucks and reasonable 
alternative standards for the NHTSA CAFE Program pursuant to the 
Council on Environmental Quality (CEQ) regulations implementing NEPA, 
DOT Order 5610.1C, and NHTSA regulations.\637\ The DEIS compares the 
potential environmental impacts of alternative mile per gallon (mpg) 
levels that will be considered by NHTSA for the final rule. It also 
analyzes direct, indirect, and cumulative impacts and analyzes impacts 
in proportion to their significance.
---------------------------------------------------------------------------

    \637\ NEPA is codified at 42 U.S.C. 4321-4347. CEQ NEPA 
implementing regulations are codified at 40 Code of Federal 
Regulations (CFR) Parts 1500-1508. NHTSA NEPA implementing 
regulations are codified at 49 CFR Part 520.
---------------------------------------------------------------------------

    The DEIS also describes potential environmental impacts to a 
variety of resources. Resources that may be affected by the proposed 
action and alternatives include water resources, biological resources, 
land use and development, safety, hazardous materials and regulated 
wastes, noise, socioeconomics, and environmental justice. These 
resource areas were assessed qualitatively in the DEIS.
    Throughout the DEIS, NHTSA has relied extensively on findings of 
the United Nations Intergovernmental Panel on Climate Change (IPCC), 
the U.S. Climate Change Science Program (CCSP), and EPA. Our discussion 
relies heavily on the most recent, thoroughly peer-reviewed, and 
credible assessments of global and U.S. climate change: the IPCC Fourth 
Assessment Report (Climate Change 2007), EPA's proposed Endangerment 
and Cause or Contribute Findings for Greenhouse Gases under Section 
202(a) of the Clean Air Act and the accompanying Technical Support 
Document (TSD), and CCSP and National Science and Technology Council 
reports that include the Scientific Assessment of the Effects of Global 
Change on the United States and Synthesis and Assessment Products. The 
DEIS cites these sources and the studies they review frequently.
    Because of the link between the transportation sector and GHG 
emissions, NHTSA recognizes the need to consider the possible impacts 
on climate and global climate change in the analysis of the effects of 
these fuel economy standards. NHTSA also recognizes the difficulties 
and uncertainties involved in such an impact analysis. Accordingly, 
consistent with CEQ regulations on addressing incomplete or unavailable 
information in environmental impact analyses, NHTSA has reviewed 
existing credible scientific evidence that is relevant to this analysis 
and summarized it in the DEIS. NHTSA has also employed and summarized 
the results of research models generally accepted in the scientific 
community.
    Although the alternatives have the potential to decrease GHG 
emissions substantially, they do not prevent climate change, but only 
result in reductions in the anticipated increases in CO2 
concentrations, temperature, precipitation, and sea level. They would 
also, to a small degree, delay the point at which certain temperature 
increases and other physical effects stemming from increased GHG 
emissions would occur. As discussed below, NHTSA presumes that these 
reductions in climate effects will be reflected in reduced impacts on 
affected resources.
    NHTSA consulted with various Federal agencies in the development of 
the DEIS, including EPA, Bureau of Land Management, Centers for Disease 
Control and Prevention, Minerals Management Service, National Park 
Service, U.S. Army Corps of Engineers, U.S. Forest Service, and 
Advisory Council on Historic Preservation. NHTSA is also exploring its 
obligations under Section 7 of the Endangered Species Act with the U.S. 
Fish and Wildlife Service and the National Oceanic and Atmospheric 
Administration Fisheries Service.
    The main direct and indirect effects resulting from the different 
alternatives analyzed in the DEIS are as follows:
    Fuel consumption: For passenger cars, fuel consumption under the No 
Action Alternative is 171 billion gallons in 2060. Fuel consumption 
ranges from 156.1 billion gallons under Alternative 2 (3-Percent 
Alternative) to 133.7 billion gallons under Alternative 9 (TCTB). Fuel 
consumption is 149.3 billion gallons under the Preferred Alternative. 
For light trucks, fuel consumption under the No Action Alternative is 
105.4 billion gallons in 2060. Fuel consumption ranges from 97.1 
billion gallons under Alternative 2 (3-Percent Alternative) to 83.8 
billion gallons under Alternative 9 (TCTB). Fuel consumption is 92.2 
billion gallons under the Preferred Alternative (Alternative 4).
    Air quality: Emissions of criteria pollutants change very little 
between the No Action Alternative and Alternatives 2 through 4. In the 
case of particulate matter (PM2.5), sulfur oxides 
(SOX), nitrogen oxides (NOX), and volatile 
organic compounds (VOCs), the No Action Alternative results in the 
highest emissions, and emissions generally decline as fuel economy 
standards increase across alternatives. There are some increases from 
Alternative 6 through Alternative 9, but emissions remain below the 
levels under the No Action Alternative. In the case of carbon monoxide 
(CO), emissions under Alternatives 2 through 4 are slightly higher than 
under the No Action Alternative. Emissions of CO decline as fuel 
economy standards increase across Alternatives 5 through 9.
    The trend for toxic air pollutant emissions across the alternatives 
is mixed. Emissions of nearly all toxic air pollutants are highest 
under the No Action Alternative, except for those of acrolein, which 
increases with each successive alternative and are highest under 
Alternative 9. The acrolein emissions are an upper-bound estimate and 
actual emissions might be less. Emissions of acetaldehyde, benzene, and 
DPM in 2030 decrease with successive alternatives from Alternative 1 to 
Alternative 9. Emissions of 1,3-butadiene increase slightly from 
Alternative 3 (4-Percent Alternative) to Alternative 4 (Preferred), and 
emissions of formaldehyde increase slightly from Alternative 8 (7-
Percent Alternative) to Alternative 9 (TCTB) in 2030.
    The reductions in emissions are expected to lead to reductions in 
adverse health effects. There would be reductions in adverse health 
effects nationwide under Alternatives 2 (3-Percent Alternative) through 
9 (TCTB) compared to the No Action Alternative. These reductions 
primarily reflect the projected PM2.5 reductions, and 
secondarily the reductions in SO2. The economic value of 
health impacts would vary proportionally with changes in health 
outcomes.
    Climate: The DEIS uses a climate model to estimate the changes in 
CO2 concentrations, global mean surface temperature, and 
changes in sea level for each alternative CAFE standard. NHTSA used the 
publicly available modeling software, Model for Assessment of 
Greenhouse Gas-induced Climate Change (MAGICC) version 5.3.v2 to 
estimate changes in key direct and indirect effects. The application of 
MAGICC version 5.3.v2 uses the emissions estimates for CO2, 
CH4, N2O, CO, NOX, SO2, and 
VOCs from the Volpe model. A sensitivity analysis was completed to 
examine the relationship among selected CAFE alternatives and likely 
climate sensitivities, and the associated direct and indirect effects 
for each combination. These relationships can be used to infer the 
effect of emissions associated with the regulatory alternatives on 
direct and indirect climate effects.

[[Page 49741]]

    For the analysis using MAGICC, NHTSA has assumed that global 
emissions consistent with the No Action Alternative (Alternative 1) 
follow the trajectory provided by the Representative Concentration 
Pathway (RCP) 4.5 MiniCAM (Mini Climate Assessment Model) reference 
scenario.\638\ The SAP 2.1 global emissions scenarios were created as 
part of CCSP's effort to develop a set of long-term (2000 to 2100) 
global emissions scenarios that incorporate an update of economic and 
technology data and utilize improved scenario development tools 
compared to the IPCC Special Report on Emissions Scenarios (SRES) 
developed more than a decade ago.
---------------------------------------------------------------------------

    \638\ The reference scenario for global emissions assumes the 
absence of significant global GHG control policies. It is based on 
the Climate Change Science Program's (CCSP) Synthesis and Assessment 
Product (SAP) 2.1 MiniCAM reference scenario, and has been revised 
by the Joint Global Change Research Institute to update emission 
estimates of non-CO2 gases.
---------------------------------------------------------------------------

    The results rely primarily on the RCP 4.5 MiniCAM reference 
scenario to represent an emissions scenario, that is, future global 
emissions assuming no additional climate policy. Each alternative was 
simulated by calculating the difference in annual GHG emissions in 
relation to the No Action Alternative and subtracting this change from 
the RCP 4.5 MiniCAM reference scenario to generate modified global-
scale emissions scenarios, which each show the effect of the various 
regulatory alternatives on the global emissions path.
    To estimate changes in global precipitation, this EIS uses 
increases in global mean surface temperature combined with a scaling 
approach and coefficients from the IPCC Fourth Assessment Report.
    For all of the climate change analysis, the approaches focus on 
marginal changes in emissions that affect climate. Thus, the approaches 
result in a reasonable characterization of climate change for a given 
set of emissions reductions, regardless of the underlying details 
associated with those emissions reductions. The climate sensitivity 
analysis provides a basis for determining climate responses to varying 
climate sensitivities under the No Action Alternative (Alternative 1) 
and the Preferred Alternative (Alternative 4). Some responses of the 
climate system are believed to be non-linear; by using a range of 
emissions cases and climate sensitivities, the effects of the 
alternatives in relation to different scenarios and sensitivities can 
be estimated.
    GHG emissions: Although GHG emissions from new passenger cars and 
light trucks will continue to rise over 2012 through 2100 (absent other 
reduction efforts), the effect of the alternatives is to slow this 
increase by varying amounts. Emissions for the period range from 
196,341 million metric tons of CO2 (MMTCO2) for 
the TCTB Alternative (Alternative 9) to 244,821 MMTCO2 for 
the No Action Alternative (Alternative 1). Compared to the No Action 
Alternative, projections of emissions reductions over the period 2012 
to 2100 due to the MY 2012-2016 CAFE standards range from 19,169 to 
48,480 MMTCO2. Compared to cumulative global emissions of 
5,293,896 MMTCO2 over this period (projected by the RCP 4.5 
MiniCAM reference scenario), this rulemaking is expected to reduce 
global CO2 emissions by about 0.4 to 0.9 percent.
    To get a sense of the relative impact of these reductions, it can 
be helpful to consider the relative importance of emissions from 
passenger cars and light trucks as a whole and to compare them against 
emissions projections from the transportation sector. As mentioned 
earlier, U.S. passenger cars and light trucks currently account for 
significant CO2 emissions in the United States. With the 
action alternatives reducing U.S. passenger car and light truck 
CO2 emissions by 7.8 to 19.8 percent, the CAFE alternatives 
would have a noticeable impact on total U.S. CO2 emissions. 
Compared to total U.S. CO2 emissions in 2100 projected by 
the MiniCAM reference scenario of 7,886 MMTCO2, the action 
alternatives would reduce annual U.S. CO2 emissions by 3.5 
to 8.9 percent in 2100.
    CO2 concentration, global mean surface temperature, sea-level rise, 
and precipitation: Estimated CO2 concentrations for 2100 
range from 778.4 ppm under the most stringent alternative (TCTB) to 
783.0 ppm under the No Action Alternative. For 2030 and 2050, the range 
is even smaller. Because CO2 concentration is the key driver 
of other climate effects (which in turn act as drivers on resource 
impacts), this leads to small differences in these effects. For the No 
Action alternative, the temperature increase from 1990 is 0.92 [deg]C 
for 2030, 1.56 [deg]C for 2050, and 3.14 [deg]C for 2100. The 
differences among alternatives are small. For 2100, the reduction in 
temperature increase, in relation to the No Action Alternative, ranges 
from 0.007 [deg]C to 0.018 [deg]C. Given that all the action 
alternatives reduce temperature increases slightly in relation to the 
No Action Alternative, they also slightly reduce predicted increases in 
precipitation.
    In summary, the impacts of the proposed action and alternatives on 
global mean surface temperature, precipitation, or sea-level rise are 
small in absolute terms. This is because the action alternatives have a 
small proportional change in the emissions trajectories in the RCP 4.5 
MiniCAM reference scenario.\639\ This is due primarily to the global 
and multi-sectoral nature of the climate change issues.
---------------------------------------------------------------------------

    \639\ These conclusions are not meant to be interpreted as 
expressing NHTSA's views that impacts on global mean surface 
temperature, precipitation, or sea-level rise are not areas of 
concern for policymakers. Under NEPA, the agency is obligated to 
discuss the environmental impact[s] of the proposed action. 42 
U.S.C. 4332(2)(C)(i) (emphasis added). This analysis fulfills 
NHTSA's obligations in this regard.
---------------------------------------------------------------------------

    Under CEQ regulations, NHTSA must also analyze cumulative impacts, 
defined as ``the impact on the environment which results from the 
incremental impact of the action when added to other past, present, and 
reasonably foreseeable future actions regardless of what agency or 
person undertakes such other actions.'' 40 CFR 1508.7. Following is a 
description of the cumulative effects of the proposed action and 
alternatives on energy, air quality, and climate.
    The methodology for evaluating cumulative effects includes the 
reasonably foreseeable future actions of projected average annual 
passenger-car and light-truck mpg estimates from 2016 through 2030 that 
differ from mpg estimates reflected in the analysis of the direct and 
indirect impacts of MY 2012 through MY 2016 fuel economy requirements 
under each of the action alternatives, assuming no further increases in 
average new passenger-car or light-truck mpg after 2016. The evaluation 
of cumulative effects projects ongoing gains in average new passenger-
car and light-truck mpg consistent with further increases in CAFE 
standards to an EISA-mandated minimum level of 35 mpg combined for 
passenger cars and light trucks by the year 2020, along with AEO April 
2009 (updated) Reference Case projections of annual percentage gains of 
0.51 percent in passenger-car mpg and 0.86 percent in light-truck mpg 
through 2030.\640\ AEO Reference Case

[[Page 49742]]

projections are regarded as the official U.S. government energy 
projections by both the public and private sector.
---------------------------------------------------------------------------

    \640\ NHTSA considers these AEO projected mpg increases to be 
reasonably foreseeable future actions under NEPA because the AEO 
projections reflect future consumer and industry actions that result 
in ongoing mpg gains through 2030. The AEO projections of fuel 
economy gains beyond the EISA requirement of combined achieved 35 
mpg by 2020 result from a future forecasted increase in consumer 
demand for fuel economy resulting from projected fuel price 
increases. Since the AEO forecasts do not extend beyond the year 
2030, the mpg estimates for MY 2030 through MY 2060 remain constant.
---------------------------------------------------------------------------

    The assumption that all action alternatives reach the EISA 35 mpg 
target by 2020, with mpg growth at the AEO forecast rate from 2020 to 
2030, results in estimated cumulative impacts for Alternatives 2, 3, 
and 4 that are substantially equivalent, with any minor variation in 
cumulative impacts across these Alternatives due to the specific 
modeling assumptions used to ensure that each Alternative achieves at 
least 35 mpg by 2020. Therefore, the cumulative impacts analysis adds 
substantively to the analysis of direct and indirect impacts when 
comparing cumulative impacts between Alternatives 4 through 9, but not 
when comparing cumulative impacts between Alternatives 2 through 4. 
Another important difference in the methodology for evaluating 
cumulative effects is that the No Action Alternative (Alternative 1) 
also reflects the AEO Reference Case projected annual percentage gains 
of 0.51 percent in car mpg and 0.86 percent in light truck mpg for the 
period 2016 through 2030, whereas the direct and indirect impacts 
analysis assumed no increases in average new passenger-car or light-
truck mpg after 2016 under any alternative, including the No Action 
Alternative. NHTSA also considered other reasonably foreseeable actions 
that would affect greenhouse gas emissions, such as regional, national, 
and international initiatives and programs to reduce GHG emissions.
    Fuel consumption: The nine alternatives examined in the DEIS will 
result in different future levels of fuel use, total energy, and 
petroleum consumption, which will in turn have an impact on emissions 
of GHG and criteria air pollutants. For passenger cars, by 2060, fuel 
consumption reaches 160.4 billion gallons under the No Action 
Alternative (Alternative 1). Consumption falls across the alternatives, 
from 139.4 billion gallons under the Preferred Alternative (Alternative 
4) to 125.7 billion gallons under the TCTB Alternative (Alternative 9) 
representing a fuel savings of 21.0 to 34.7 billion gallons in 2060, as 
compared to fuel consumption projected under the No Action Alternative. 
For light trucks, fuel consumption by 2060 reaches 94.8 billion gallons 
under the No Action Alternative (Alternative 1). Consumption declines 
across the alternatives, from 83.3 billion gallons under the 3-Percent 
Alternative (Alternative 2) to 75.7 billion gallons under the TCTB 
Alternative (Alternative 9). This represents a fuel savings of 11.5 to 
19.1 billion gallons in 2060, as compared to fuel consumption projected 
under the No Action Alternative.
    Air quality: In the case of PM2.5, SOX, 
NOX, and VOCs, the No Action Alternative results in the 
highest emissions, and emissions generally decline as fuel economy 
standards increase across alternatives. Exceptions to this declining 
trend are NOX under the Preferred Alternative (Alternative 
4); PM2.5 under Alternatives 3 and 4, and Alternatives 8 and 
9; SOX under Alternatives 3 (4-Percent Alternative) and 4 
(Preferred Alternative); and VOCs under Alternative 4. Despite these 
individual increases, emissions of PM2.5, SOX, 
NOX, and VOCs remain below the levels under the No Action 
Alternative (Alternative 1). In the case of CO, emissions under 
Alternatives 2 through 4 are slightly higher than under the No Action 
Alternative. Emissions of CO decline as fuel economy standards increase 
across Alternatives 5 through 9.
    As with criteria pollutants, emissions of most toxic air pollutants 
would decrease from one alternative to the next more stringent 
alternative. The exceptions are acetaldehyde emissions, which would 
increase under Alternative 4; acrolein emissions, which increase under 
each of the alternatives; benzene emissions, which would increase under 
Alternative 4; 1,3-butadiene, which would increase under Alternatives 2 
and 4; diesel particulate matter (DPM), which would increase under 
Alternatives 3 and 4; and formaldehyde, which would increase under 
Alternatives 3, 5, 6, 8, and 9. The changes in toxic air pollutant 
emissions, whether positive or negative, generally would be small 
relative to Alternative 1 emissions levels.\641\ The exceptions are 
acetaldehyde emissions, which would decrease by more than 10 percent 
under Alternative 9; acrolein emissions, which would increase across 
successive alternatives (as noted above, the acrolein emissions are an 
upper-bound estimate and actual emissions might be less); benzene 
emissions, which would decrease by more than 10 percent under 
Alternatives 8 and 9; and DPM emissions, which would decrease by more 
than 10 percent under all action alternatives.
---------------------------------------------------------------------------

    \641\ These conclusions are not meant to be interpreted as 
expressing NHTSA's views that impacts on air quality is not an area 
of concern for policymakers. Under NEPA, the agency is obligated to 
discuss the environmental impact[s] of the proposed action. 42 
U.S.C. 4332(2)(C)(i) (emphasis added). This analysis fulfills 
NHTSA's obligations in this regard.
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    Cumulative emissions generally would be less than noncumulative 
emissions for the same combination of pollutant, year, and alternative 
because of differing changes in VMT and fuel consumption under the 
cumulative case compared to the noncumulative case. The exceptions are 
acrolein for all alternatives except Alternative 9, and 1,3-butadiene 
for all alternatives except Alternative 2 (3-Percent Alternative).
    The reductions in emissions are expected to lead to reductions in 
cumulative adverse health effects. There would be reductions in adverse 
health effects nationwide under Alternatives 2 (3-Percent Alternative) 
through 9 (TCTB) compared to the No Action Alternative. Reductions in 
adverse health effects decrease from Alternative 2 (3-Percent 
Alternative) through Alternative 4 (Preferred Alternative), and then 
increase under Alternatives 5 (5-Percent Alternative through 
Alternative 9 (TCTB). These reductions primarily reflect the projected 
PM2.5 reductions, and secondarily the reductions in 
SO2. The economic value of health impacts would vary 
proportionally with changes in health outcomes.
    Climate change: As with the analysis of the direct and indirect 
effects of the proposed action and alternatives on climate change, for 
the cumulative impacts analysis this EIS uses MAGICC version 5.3.v2 to 
estimate the changes in CO2 concentrations, global mean 
surface temperature, and changes in sea level for each alternative CAFE 
standard. To estimate changes in global precipitation, NHTSA uses 
increases in global mean surface temperature combined with a scaling 
approach and coefficients from the IPCC Fourth Assessment Report. A 
sensitivity analysis was completed to examine the relationship among 
the alternatives and likely climate sensitivities, and the associated 
direct and indirect effects for each combination. These relationships 
can be used to infer the effect of emissions associated with the 
regulatory alternatives on direct and indirect climate effects.
    One of the key categories of inputs to MAGICC is a time series of 
global GHG emissions. In assessing the cumulative effects on climate, 
NHTSA used the CCSP SAP 2.1 MiniCAM Level 3 scenario to represent a 
Reference Case global emission scenario, that is, future global 
emissions assuming significant global actions to address climate 
change. This Reference Case global emission scenario serves as a 
baseline against which the climate benefits of the various alternatives 
can be measured.
    The Reference Case global emissions scenario used in the cumulative 
impacts analysis (and described in Chapter 4 of this EIS) differs from 
the global emissions scenario used for the climate

[[Page 49743]]

change modeling presented in Chapter 3. In Chapter 4, the Reference 
Case global emission scenario reflects reasonably foreseeable actions 
in global climate change policy; in Chapter 3, the global emissions 
scenario used for the analysis assumes that there are no significant 
global controls. Given that the climate system is non-linear, the 
choice of a global emissions scenario could produce different estimates 
of the benefits of the proposed action and alternatives, if the 
emission reductions of the alternatives were held constant.
    The SAP 2.1 MiniCAM Level 3 scenario assumes a moderate level of 
global GHG reductions, resulting in a global atmospheric CO2 
concentration of roughly 650 parts per million by volume (ppmv) as of 
2100. The following regional, national, and international initiatives 
and programs are reasonably foreseeable actions to reduce GHG 
emissions: Regional Greenhouse Gas Initiative (RGGI); Western Climate 
Initiative (WCI); Midwestern Greenhouse Gas Reduction Accord; EPA's 
Proposed GHG Emissions Standards; H.R. 2454: American Clean Energy and 
Security Act (``Waxman-Markey Bill''); Renewable Fuel Standard (RFS2); 
Program Activities of DOE's Office of Fossil Energy; Program Activities 
of DOE's Office of Nuclear Energy; United Nation's Framework Convention 
on Climate Change (UNFCCC)--The Kyoto Protocol and upcoming Conference 
of the Parties (COP) 15 in Copenhagen, Denmark; G8 Declaration--Summit 
2009; and the Asia Pacific Partnership on Clean Development and 
Climate.\642\ The SAP 2.1 MiniCAM Level 3 scenario provides a global 
context for emissions of a full suite of GHGs and ozone precursors for 
a Reference Case harmonious with implementation of the above policies 
and initiatives. Each of the action alternatives was simulated by 
calculating the difference in annual GHG emissions in relation to the 
No Action Alternative, and subtracting this change in the MiniCAM Level 
3 scenario to generate modified global-scale emissions scenarios, which 
each show the effect of the various regulatory alternatives on the 
global emissions path.
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    \642\ The regional, national, and international initiatives and 
programs discussed above are those which NHTSA has tentatively 
concluded are reasonably foreseeable past, current, or future 
actions to reduce GHG emissions. Although some of the actions, 
policies, or programs listed are not associated with precise GHG 
reduction commitments, collectively they illustrate a current and 
continuing trend of U.S. and global awareness, emphasis, and efforts 
towards significant GHG reductions. Together they imply that future 
commitments for reductions are probable and, therefore, reasonably 
foreseeable under NEPA.
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    NHTSA used the MiniCAM Level 3 scenario as the primary global 
emissions scenario for evaluating climate effects, and used the MiniCAM 
Level 2 scenario and the RCP 4.5 MiniCAM reference emissions scenario 
to evaluate the sensitivity of the results to alternative emission 
scenarios. The sensitivity analysis provides a basis for determining 
climate responses to varying levels of climate sensitivities and global 
emissions and under the No Action Alternative (Alternative 1) and the 
Preferred Alternative (Alternative 4). Some responses of the climate 
system are believed to be non-linear; by using a range of emissions 
cases and climate sensitivities, it is possible to estimate the effects 
of the alternatives in relation to different reference cases.
    Cumulative GHG emissions: Projections of GHG emissions reductions 
over the 2012 to 2100 period due to the MY 2012-2016 CAFE standards and 
other reasonably foreseeable future actions ranged from 27,164 to 
44,626 MMTCO2. Compared to global emissions of 3,919,462 
MMTCO2 over this period (projected by the SAP 2.1 MiniCAM 
Level 3 scenario), the incremental impact of this rulemaking is 
expected to reduce global CO2 emissions by about 0.7 to 1.1 
percent from their projected levels under the No Action Alternative.
    CO2 concentration, global mean surface temperature, sea-
level rise, and precipitation: For the mid-range results of MAGICC 
model simulations for the No Action Alternative and the eight action 
alternatives in terms of CO2 concentrations and increase in 
global mean surface temperature in 2030, 2050, and 2100, the impact on 
the growth in CO2 concentrations and temperature is just a 
fraction of the total growth in CO2 concentrations and 
global mean surface temperature. However, the relative impact of the 
action alternatives is illustrated by the reduction in growth of both 
CO2 concentrations and temperature in the TCTB Alternative 
(Alternative 9).
    There is a fairly narrow band of estimated CO2 
concentrations as of 2100, from 653.5 ppm for the TCTB Alternative 
(Alternative 9) to 657.5 ppm for the No Action Alternative (Alternative 
1). For 2030 and 2050, the range is even smaller. Because 
CO2 concentrations are the key driver of all other climate 
effects, this leads to small differences in these effects.
    The MAGICC simulations of mean global surface air temperature 
increases are also shown in Table S-18. For all alternatives, the 
cumulative global mean surface temperature increase is about 0.80 
[deg]C to 0.81 [deg]C as of 2030; 1.32 to 1.33 [deg]C as of 2050; and 
2.59 to 2.61 [deg]C as of 2100.\643\ The differences among alternatives 
are small. For 2100, the reduction in temperature increase for the 
action alternatives in relation to the No Action Alternative is about 
0.01 to 0.02 [deg]C.
---------------------------------------------------------------------------

    \643\ Because the actual increase in global mean surface 
temperature lags the commitment to warming, the impact on global 
mean surface temperature increase is less than the long-term 
commitment to warming.
---------------------------------------------------------------------------

    The impact on sea-level rise in 2100 ranges from 32.84 centimeters 
under the No Action Alternative (Alternative 1) to 32.68 centimeters 
under the TCTB Alternative (Alternative 9), for a maximum reduction of 
0.16 centimeter by 2100 from the action alternatives.
    Given that the action alternatives would reduce temperature 
increases slightly in relation to the No Action Alternative 
(Alternative 1), they also would reduce predicted increases in 
precipitation slightly. In summary, the impacts of the proposed action 
and alternatives and other reasonably foreseeable future actions on 
global mean surface temperature, sea-level rise, and precipitation are 
relatively small in the context of the expected changes associated with 
the emissions trajectories in the SRES scenarios.\644\ This is due 
primarily to the global and multi-sectoral nature of the climate 
problem.
---------------------------------------------------------------------------

    \644\ These conclusions are not meant to be interpreted as 
expressing NHTSA's views that impacts on global mean surface 
temperature, precipitation, or sea-level rise are not areas of 
concern for policymakers. Under NEPA, the agency is obligated to 
discuss the environmental impact[s] of the proposed action. 42 
U.S.C. 4332(2)(C)(i) (emphasis added). This analysis fulfills 
NHTSA's obligations in this regard.
---------------------------------------------------------------------------

    NHTSA examined the sensitivity of climate effects on key 
assumptions used in the analysis. The two variables for which 
assumptions were varied were climate sensitivity and global emissions.
    Climate sensitivities used included 2.0, 3.0, and 4.5 [deg]C for a 
doubling of CO2 concentrations in the atmosphere. Global 
emissions scenarios used included the SAP 2.1 MiniCAM Level 3 (650 ppm 
as of 2100), the SAP 2.1 MiniCAM Level 2 (550 ppm as of 2100), and RCP 
4.5 MiniCAM reference scenario (783 ppm as of 2100). The sensitivity 
analysis is based on the results provided for two alternatives--the No 
Action Alternative (Alternative 1) and the Preferred Alternative 
(Alternative 4). The sensitivity analysis was conducted only for two 
alternatives, as this was deemed sufficient to assess the effect of 
various climate sensitivities on the results.

[[Page 49744]]

    The results of these simulations illustrate the uncertainty due to 
factors influencing future global emissions of GHGs (factors other than 
the CAFE rulemaking). The use of different climate sensitivities \645\ 
(the equilibrium warming that occurs at a doubling of CO2 
from pre-industrial levels) can affect not only warming but also 
indirectly affect sea-level rise and CO2 concentration. The 
use of alternative global emissions scenarios can influence the results 
in several ways. Emissions reductions can lead to larger reductions in 
the CO2 concentrations in later years because more 
anthropogenic emissions can be expected to stay in the atmosphere.
---------------------------------------------------------------------------

    \645\ Equilibrium climate sensitivity (or climate sensitivity) 
is the projected responsiveness of Earth's global climate system to 
forcing from GHG drivers, and is often expressed in terms of changes 
to global surface temperature resulting from a doubling of 
CO2 in relation to pre-industrial atmospheric 
concentrations. According to IPCC, using a likely emissions scenario 
that results in a doubling of the concentration of atmospheric 
CO2, there is a 66- to 90-percent probability of an 
increase in surface warming of 2.5 to 4.0 [deg]C by the end of the 
century (relative to 1990 average global temperatures), with 3 
[deg]C as the single most likely surface temperature increase.
---------------------------------------------------------------------------

    NHTSA's analysis indicates that the sensitivity of the simulated 
CO2 emissions in 2030, 2050, and 2100 to assumptions of 
global emissions and climate sensitivity is low; stated simply, 
CO2 emissions do not change much with changes in global 
emissions and climate sensitivity. For 2030 and 2050, the choice of 
global emissions scenario has little impact on the results. By 2100, 
the Preferred Alternative (Alternative 4) has the greatest impact in 
the global emissions scenario with the highest CO2 emissions 
(MiniCAM Reference) and the least impact in the scenario with the 
lowest CO2 emissions (MiniCAM Level 2). The total range of 
the impact of the Preferred Alternative on CO2 
concentrations in 2100 is from 2.2 to 2.6 ppm. The Reference Case using 
the MiniCAM Level 3 scenario and a 3.0 [deg]C climate sensitivity has 
an impact of 2.4 ppm.
    The sensitivity of the simulated global mean surface temperatures 
for 2030 is also low due primarily to the slow rate at which the global 
mean surface temperature increases in response to increases in 
radiative forcing. The relatively slow response in the climate system 
explains the observation that even by 2100, when CO2 
concentrations more than double in comparison to pre-industrial levels, 
the temperature increase is below the equilibrium sensitivity levels, 
i.e., the climate system has not had enough time to equilibrate to the 
new CO2 concentrations. Nonetheless, as of 2100 there is a 
larger range in temperatures across the different values of climate 
sensitivity: The reduction in global mean surface temperature from the 
No Action Alternative to the Preferred Alternative ranges from 0.008 
[deg]C for the 2.0 [deg]C climate sensitivity to 0.012 [deg]C for the 
4.5 [deg]C climate sensitivity, for the MiniCAM Level 3 emissions 
scenario.
    The impact on global mean surface temperature due to assumptions 
concerning global emissions of GHGs is also important. The scenario 
with the higher global emissions of GHGs (viz., the MiniCAM Reference) 
has a slightly lower reduction in global mean surface temperature, and 
the scenario with lower global emissions (viz., the MiniCAM Level 2) 
has a slightly higher reduction. This is in large part due to the non-
linear and near-logarithmic relationship between radiative forcing and 
CO2 concentrations. At high emissions levels, CO2 
concentrations are higher and, as a result, a fixed reduction in 
emissions yields a lower reduction in radiative forcing and global mean 
surface temperature.
    The sensitivity of the simulated sea-level rise to changes in 
climate sensitivity and global GHG emissions mirrors that of global 
temperature. Scenarios with lower climate sensitivities have lower 
increases in sea-level rise. The greater the climate sensitivity, the 
greater the decrement in sea-level rise for the Preferred Alternative 
as compared to the No Action Alternative.
    Resource impacts of climate change: The effects of the alternatives 
on climate--CO2 concentrations, temperature, precipitation, 
and sea-level rise--can translate into impacts on key resources 
including terrestrial and freshwater ecosystems; marine, coastal 
systems, and low-lying areas; food, fiber, and forest products; 
industries, settlements, and society; and human health. Although the 
alternatives have the potential to substantially decrease GHG 
emissions, they would not alone prevent climate change from occurring. 
The magnitude of the changes in climate effects that the alternatives 
would produce--two to five parts per million of CO2, a few 
hundredths of a degree Celsius difference in temperature, a small 
percentage change in the rate of precipitation increase, and 1 or 2 
millimeters of sea-level rise--are too small to address quantitatively 
in terms of their impacts on resources. Given the enormous resource 
values at stake, these distinctions could be important--very small 
percentages of huge numbers can still yield substantial results--but 
they are too small for current quantitative techniques to resolve. 
Consequently, the discussion of resource impacts does not distinguish 
among the CAFE alternatives; rather, it provides a qualitative review 
of the benefits of reducing GHG emissions and the magnitude of the 
risks involved in climate change.\646\
---------------------------------------------------------------------------

    \646\ See 42 U.S.C. 4332 (requiring Federal agencies to 
``identify and develop methods and procedures * * * which will 
insure that presently unquantified environmental amenities and 
values may be given appropriate consideration''); 40 CFR 1502.23 
(requiring an EIS to discuss the relationship between a cost-benefit 
analysis and any analyses of unquantified environmental impacts, 
values, and amenities); CEQ, Considering Cumulative Effects Under 
the National Environmental Policy Act (1984), available at http://ceq.hss.doe.gov/nepa/ccenepa/ccenepa.htm (recognizing that agencies 
are sometimes ``limited to qualitative evaluations of effects 
because cause-and-effect relationships are poorly understood'' or 
cannot be quantified).
---------------------------------------------------------------------------

    NHTSA examined the impacts resulting from global climate change due 
to all global emissions on the U.S. and global scale. Impacts to 
freshwater resources could include changes in precipitation patterns, 
decreasing aquifer recharge in some locations, changes in snowpack and 
timing of snowmelt, salt-water intrusion from sea-level changes, 
changes in weather patterns resulting in flooding or drought in certain 
regions, increased water temperature, and numerous other changes to 
freshwater systems that disrupt human use and natural aquatic habitats. 
Impacts to terrestrial ecosystems could include shifts in species range 
and migration patterns, potential extinctions of sensitive species 
unable to adapt to changing conditions, increases in the occurrence of 
forest fires and pest infestation, and changes in habitat productivity 
because of increased atmospheric CO2. Impacts to coastal 
ecosystems, primarily from predicted sea-level rise, could include the 
loss of coastal areas due to submersion and erosion, additional impacts 
from severe weather and storm surges, and increased salinization of 
estuaries and freshwater aquifers (for example, one impact could be 
reductions in manatee habitat in the Florida coastal areas). Impacts to 
land use and several key economic sectors could include flooding and 
severe-weather impacts to coastal, floodplain, and island settlements; 
extreme heat and cold waves; increases in drought in some locations; 
and weather- or sea-level related disruptions of the service, 
agricultural, and transportation sectors. Impacts to human health could 
include increased mortality and morbidity due to excessive heat, 
increases in respiratory conditions due to poor air quality, increases 
in water and food-

[[Page 49745]]

borne diseases, changes to the seasonal patterns of vector-borne 
diseases, and increases in malnutrition.
    Non-climate cumulative impacts of CO2 emissions: In 
addition to its role as a GHG in the atmosphere, CO2 is 
transferred from the atmosphere to water, plants, and soil. In water, 
CO2 combines with water molecules to form carbonic acid. 
When CO2 dissolves in seawater, a series of well-known 
chemical reactions begin that increase the concentration of hydrogen 
ions and make seawater more acidic, which has adverse effects on corals 
and some other marine life.
    Increased concentrations of CO2 in the atmosphere can 
also stimulate plant growth to some degree, a phenomenon known as the 
CO2 fertilization effect. This effect could have positive 
ramifications for agricultural productivity and forest growth. The 
available evidence indicates that different plants respond in different 
ways to enhanced CO2 concentrations.
    As with the climate effects of CO2, the changes in non-
climate impacts associated with the alternatives are difficult to 
assess quantitatively. Whether the distinction in concentrations is 
substantial across alternatives is not clear because the damage 
functions and potential existence of thresholds for CO2 
concentration are not known. However, what is clear is that a reduction 
in the rate of increase in atmospheric CO2, which all the 
action alternatives would provide to some extent, would reduce the 
ocean acidification effect and the CO2 fertilization effect.
    For much more information on NHTSA's NEPA analysis, please see the 
DEIS.
3. 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 proposed rule would not have a significant 
economic impact on a substantial number of small entities. The 
following is NHTSA's statement providing the factual basis for the 
certification (5 U.S.C. 605(b)).
    If adopted, the proposal would directly affect twenty-one large 
single stage motor vehicle manufacturers.\647\ The proposal would also 
affect two small domestic single stage motor vehicle manufacturers, 
Saleen and Tesla.\648\ According to the Small Business Administration's 
small business size standards (see 13 CFR 121.201), a single stage 
automobile or light truck manufacturer (NAICS code 336111, Automobile 
Manufacturing; 336112, Light Truck and Utility Vehicle Manufacturing) 
must have 1,000 or fewer employees to qualify as a small business. Both 
Saleen and Tesla have less than 1,000 employees and make less than 
1,000 vehicles per year. We believe that the rulemaking would not have 
a significant economic impact on these small vehicle manufacturers 
because under Part 525, passenger car manufacturers making less than 
10,000 vehicles per year can petition NHTSA to have alternative 
standards set for those manufacturers. Tesla produces only electric 
vehicles with fuel economy values far beyond those proposed today, so 
we would not expect them to need to petition for relief. Saleen 
modifies a very small number of vehicles produced by one of the 21 
large single-stage manufacturers, and currently does not meet the 27.5 
mpg passenger car standard, nor is it anticipated to be able to meet 
the standards proposed today. However, Saleen already petitions the 
agency for relief. If the standard is raised, it has no meaningful 
impact on Saleen, because it must still go through the same process to 
petition for relief. Given that there already is a mechanism for 
handling small businesses, which is the purpose of the Regulatory 
Flexibility Act, a regulatory flexibility analysis was not prepared.
---------------------------------------------------------------------------

    \647\ BMW, Daimler (Mercedes), Chrysler, Ferrari, Ford, Subaru, 
General Motors, Honda, Hyundai, Kia, Lotus, Maserati, Mazda, 
Mitsubishi, Nissan, Porsche, Subaru, Suzuki, Tata, Toyota, and 
Volkswagen.
    \648\ The Regulatory Flexibility Act only requires analysis of 
small domestic manufacturers. There are two passenger car 
manufacturers that we know of, Saleen and Tesla, and no light truck 
manufacturers.
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4. 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.
    NHTSA solicits comment on this proposed action from State and local 
officials. In his January 26 memorandum, the President requested NHTSA 
to ``consider whether any provisions regarding preemption are 
consistent with the EISA, the Supreme Court's decision in Massachusetts 
v. EPA and other relevant provisions of law and the policies underlying 
them.'' NHTSA is deferring consideration of the preemption issue. The 
agency believes that it is unnecessary to address the issue further at 
this time because of the consistent and coordinated Federal standards 
that would apply nationally under the proposed National Program.
5. Executive Order 12988 (Civil Justice Reform)
    Pursuant to Executive Order 12988, ``Civil Justice Reform,'' \649\ 
NHTSA has considered whether this rulemaking would have any retroactive 
effect. This proposed rule does not have any retroactive effect.
---------------------------------------------------------------------------

    \649\ 61 FR 4729 (Feb. 7, 1996).
---------------------------------------------------------------------------

6. Unfunded Mandates Reform Act
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of a proposed or final rule that includes a 
Federal mandate likely to result in the expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year (adjusted for inflation with base 
year of 1995). Adjusting this amount by the implicit gross domestic 
product price deflator for 2006 results in $126 million (116.043/
92.106=1.26). Before promulgating a rule for which a written statement 
is needed, section 205 of

[[Page 49746]]

UMRA generally requires NHTSA to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, most 
cost-effective, or least burdensome alternative that achieves the 
objectives of the rule. The provisions of section 205 do not apply when 
they are inconsistent with applicable law. Moreover, section 205 allows 
NHTSA to adopt an alternative other than the least costly, most cost-
effective, or least burdensome alternative if the agency publishes with 
the final rule an explanation why that alternative was not adopted.
    This proposed rule will not result in the expenditure by State, 
local, or tribal governments, in the aggregate, of more than $126 
million annually, but it will result in the expenditure of that 
magnitude by vehicle manufacturers and/or their suppliers. In 
promulgating this proposal, NHTSA considered a variety of alternative 
average fuel economy standards lower and higher than those proposed. 
NHTSA is statutorily required to set standards at the maximum feasible 
level achievable by manufacturers based on its consideration and 
balancing of relevant factors and has tentatively concluded that the 
proposed fuel economy standards are the maximum feasible standards for 
the passenger car and light truck fleets for MYs 2012-2016 in light of 
the statutory considerations.
7. Paperwork Reduction Act
    Under the procedures established by the Paperwork Reduction Act of 
1995, 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. This section describes a request for clearance for 
a collection of information associated with product plan information to 
assist the agency in developing final corporate average fuel economy 
standards for MY 2012 through 2016 passenger cars and light trucks. The 
establishment of those standards is required by the Energy Policy and 
Conservation Act, as amended by the Energy Independence and Security 
Act (EISA) of 2007, Pub. L. 110-140. In compliance with the PRA, this 
notice requests comment on the Information Collection Request (ICR) 
abstracted below. The ICR describes the nature of the information 
collection and its expected burden. This is a request for an extension 
of an existing collection.
    Agency: National Highway Traffic Safety Administration (NHTSA).
    Title: 49 CFR parts 531 and 533 Passenger Car Average Fuel Economy 
Standards--Model Years 2008-2020; Light Truck Average Fuel Economy 
Standards--Model Years 2008-2020; Production Plan Data
    Type of Request: Extension of existing collection.
    OMB Clearance Number: 2127-0655.
    Form Number: This collection of information will not use any 
standard forms.
Summary of the Collection of Information
    In this collection of information, NHTSA is requesting any updates 
to previously-submitted future product plans from vehicle 
manufacturers, as well as production data through the recent past, 
including data about engines and transmissions for model year (MY) 2008 
through MY 2020 passenger cars and light trucks and the assumptions 
underlying those plans. If manufacturers have not previously submitted 
product plan information to NHTSA and wish to do so, NHTSA also 
requests such information from them.
    NHTSA requests information for MYs 2008-2020 to supplement other 
information used by NHTSA in developing a realistic forecast of the MY 
2012-2016 vehicle market, and in evaluating what technologies may 
feasibly be applied by manufacturers to achieve compliance with the MY 
2012-2016 standards. Information regarding earlier model years may help 
the agency to better account for cumulative effects such as volume- and 
time-based reductions in costs, and also may help to reveal product mix 
and technology application trends during model years for which the 
agency is currently receiving actual corporate average fuel economy 
(CAFE) compliance data. Information regarding later model years may 
help the agency gain a better understanding of how manufacturers' plans 
through MY 2016 relate to their longer-term expectations regarding 
Energy Independence and Security Act requirements, market trends, and 
prospects for more advanced technologies.
    NHTSA will also consider information from model years before and 
after MYs 2012-2016 when reviewing manufacturers' planned schedules for 
redesigning and freshening their products, in order to examine how 
manufacturers anticipate tying technology introduction to product 
design schedules and to consider how the agency should account for 
those schedules in its analysis for the final rule. In addition, the 
agency is requesting information regarding manufacturers' estimates of 
the future vehicle population, and fuel economy improvements and 
incremental costs attributed to this notice.
Description of the Need for the Information and Use of the Information
    NHTSA needs the information described above to aid in assessing 
what CAFE standards should be established for MY 2012 through 2016 
passenger cars and light trucks.
Description of the Likely Respondents (Including Estimated Number, and 
Proposed Frequency of Response to the Collection of Information)
    It is estimated that this collection affects approximately 22 motor 
vehicle manufacturers. The information that is the subject of this 
collection of information is collected whenever NHTSA publishes a 
notice of proposed rulemaking for the purpose of setting CAFE 
standards.
Estimate of the Total Annual Reporting and Recordkeeping Burden 
Resulting From the Collection of Information
    It is estimated that this collection affects approximately 22 
vehicle manufacturers. One major manufacturer (General Motors) 
estimated their burden to be approximately 4,300 hours. The burden to 
other manufacturers was estimated using sales weights relative to 
General Motor's total sales (e.g., if a manufacturer produces 50 
percent as many vehicles as General Motors, their burden is estimated 
to be 4,300 * 0.5 = 2,150 hours). Therefore the burden to each 
manufacturer depends on the number of vehicles that manufacturer 
produces. The total estimated burden is 16,000 hours annually.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Number of Affected Vehicle Manufacturers..  22
Annual Labor Hours for Each Manufacturer    Variable
 To Prepare and Submit Required
 Information.
                                           -----------------------------
    Total Annual Information Collection     16,000 Hours
     Burden.
------------------------------------------------------------------------

The monetized cost associated with this information collection is 
determined by multiplying the total labor hours by an appropriate labor 
rate. For this information collection, we believe vehicle manufacturers 
will use mechanical engineers to prepare and submit the data. 
Therefore, we are applying a labor rate of $36.02 per hour which is the 
median national wage for mechanical engineers.\650\ Thus, the

[[Page 49747]]

estimated monetized annual cost is 16,000 hours x $36.02 per hour = 
$576,320.
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    \650\ The national median hourly rate for mechanical engineers, 
May 2008, according to the Bureau of Labor Statistics, is $36.02. 
See http://www.bls.gov/oes/2008/may/oes_nat.htm#b17-0000 (last 
accessed August 26, 2009).
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    Comments are specifically sought on the following issues:
     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.
    Please send comments to the docket number cited in the heading of 
this notice. PRA comments are due within 60 days following publication 
of this document in the Federal Register. The agency recognizes that 
the amendment to the existing collection of information may be subject 
to revision in response to public comments and the OMB review.
    For further information on this proposal to extend the collection 
of information, please contact Ken Katz, Fuel Economy Division, Office 
of International Policy, Fuel Economy, and Consumer Programs, National 
Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE., 
Washington, DC 20590. You may also contact him by phone at (202) 366-
0846 or by fax at (202) 493-2290.
8. Regulation Identifier Number
    The Department of Transportation assigns a regulation identifier 
number (RIN) to each regulatory action listed in the Unified Agenda of 
Federal Regulations. The Regulatory Information Service Center 
publishes the Unified Agenda in April and October of each year. You may 
use the RIN contained in the heading at the beginning of this document 
to find this action in the Unified Agenda.
9. Executive Order 13045
    Executive Order 13045 \651\ applies to any rule that: (1) Is 
determined to be economically significant as defined under E.O. 12866, 
and (2) concerns an environmental, health, or safety risk that NHTSA 
has reason to believe may have a disproportionate effect on children. 
If the regulatory action meets both criteria, we must evaluate the 
environmental health or safety effects of the proposed rule on 
children, and explain why the proposed regulation is preferable to 
other potentially effective and reasonably foreseeable alternatives 
considered by us.
---------------------------------------------------------------------------

    \651\ 62 FR 19885 (Apr. 23, 1997).
---------------------------------------------------------------------------

    Chapter 4 of NHTSA's DEIS notes that breathing PM can cause 
respiratory ailments, heart attack, and arrhythmias (Dockery et al. 
1993, Samet et al. 2000, Pope et al. 1995, 2002, 2004, Pope and Dockery 
2006, Dominici et al. 2006, Laden et al. 2006, all in Ebi et al. 2008). 
Populations at greatest risk could include children, the elderly, and 
those with heart and lung disease, diabetes (Ebi et al. 2008), and high 
blood pressure (K[uuml]nzli et al. 2005, in Ebi et al. 2008). Chronic 
exposure to PM could decrease lifespan by 1 to 3 years (Pope 2000, in 
American Lung Association 2008). Increasing PM concentrations are 
expected to have a measurable adverse impact on human health 
(Confalonieri et al. 2007).
    Additionally, the DEIS notes that substantial morbidity and 
childhood mortality has been linked to water- and food-borne diseases. 
Climate change is projected to alter temperature and the hydrologic 
cycle through changes in precipitation, evaporation, transpiration, and 
water storage. These changes, in turn, potentially affect water-borne 
and food-borne diseases, such as salmonellosis, campylobacter, 
leptospirosis, and pathogenic species of vibrio. They also have a 
direct impact on surface water availability and water quality. It has 
been estimated that more than 1 billion people in 2002 did not have 
access to adequate clean water (McMichael et al. 2003, in Epstein et 
al. 2006). Increased temperatures, greater evaporation, and heavy rain 
events have been associated with adverse impacts on drinking water 
through increased waterborne diseases, algal blooms, and toxins (Chorus 
and Bartram 1999, Levin et al. 2002, Johnson and Murphy 2004, all in 
Epstein et al. 2006). A seasonal signature has been associated with 
waterborne disease outbreaks (EPA 2009b). In the United States, 68 
percent of all waterborne diseases between 1948 and 1994 were observed 
after heavy rainfall events (Curriero et al. 2001a, in Epstein et al. 
2006).
    Climate change could further impact a pathogen by directly 
affecting its life cycle (Ebi et al. 2008). The global increase in the 
frequency, intensity, and duration of red tides could be linked to 
local impacts already associated with climate change (Harvell et al. 
1999, in Epstein et al. 2006); toxins associated with red tide directly 
affect the nervous system (Epstein et al. 2006).
    Many people do not report or seek medical attention for their 
ailments of water-borne or food-borne diseases; hence, the number of 
actual cases with these diseases is greater than clinical records 
demonstrate (Mead et al. 1999, in Ebi et al. 2008). Many of the 
gastrointestinal diseases associated with water-borne and food-borne 
diseases can be self-limiting; however, vulnerable populations include 
young children, those with a compromised immune system, and the 
elderly.
    Thus, as detailed in the DEIS, NHTSA has evaluated the 
environmental health and safety effects of the proposed rule on 
children. The DEIS also explains why the proposed regulation is 
preferable to other potentially effective and reasonably foreseeable 
alternatives considered by the agency.
10. National Technology Transfer and Advancement Act
    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTA to evaluate and use existing voluntary 
consensus standards in its regulatory activities unless doing so would 
be inconsistent with applicable law (e.g., the statutory provisions 
regarding NHTSA's vehicle safety authority) or otherwise impractical.
    Voluntary consensus standards are technical standards developed or 
adopted by voluntary consensus standards bodies. Technical standards 
are defined by the NTTAA as ``performance-base or design-specific 
technical specification and related management systems practices.'' 
They pertain to ``products and processes, such as size, strength, or 
technical performance of a product, process or material.''
    Examples of organizations generally regarded as voluntary consensus 
standards bodies include the American Society for Testing and Materials 
(ASTM), the Society of Automotive Engineers (SAE), and the American 
National Standards Institute (ANSI). If NHTSA does not use available 
and potentially applicable voluntary consensus standards, we are 
required by the Act to provide Congress, through OMB, an explanation of 
the reasons for not using such standards.
    There are currently no voluntary consensus standards relevant to 
today's proposed CAFE standards.
11. Executive Order 13211
    Executive Order 13211 \652\ 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

[[Page 49748]]

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 proposed rule and explain why the 
proposed regulation is preferable to other potentially effective and 
reasonably feasible alternatives considered by us.
---------------------------------------------------------------------------

    \652\ 66 FR 28355 (May 18, 2001).
---------------------------------------------------------------------------

    The proposed rule seeks to establish passenger car and light truck 
fuel economy standards that will reduce the consumption of petroleum 
and will not have any adverse energy effects. Accordingly, this 
proposed rulemaking action is not designated as a significant energy 
action.
12. Department of Energy Review
    In accordance with 49 U.S.C. 32902(j)(1), we submitted this 
proposed rule to the Department of Energy for review. That Department 
did not make any comments that we have not addressed.
13. Plain Language
    Executive Order 12866 requires each agency to write all rules in 
plain language. Application of the principles of plain language 
includes consideration of the following questions:
     Have we organized the material to suit the public's needs?
     Are the requirements in the rule clearly stated?
     Does the rule contain technical language or jargon that 
isn't clear?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the rule easier to understand?
     Would more (but shorter) sections be better?
     Could we improve clarity by adding tables, lists, or 
diagrams?
     What else could we do to make the rule easier to 
understand?
    If you have any responses to these questions, please include them 
in your comments on this proposal.
14. Privacy Act
    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an organization, business, labor union, etc.). You may review DOT's 
complete Privacy Act statement in the Federal Register (65 FR 19477-78, 
April 11, 2000) or you may visit http://www.dot.gov/privacy.html.

List of Subjects

40 CFR Part 86

    Administrative practice and procedure, Confidential business 
information, Labeling, Motor vehicle pollution, Reporting and 
recordkeeping requirements.

40 CFR Part 600

    Administrative practice and procedure, Electric power, Fuel 
economy, Incorporation by reference, Labeling, Reporting and 
recordkeeping requirements.

49 CFR Part 531 and 533

    Fuel economy.

49 CFR Part 537

    Fuel economy, Reporting and recordkeeping requirements.

49 CFR Part 538

    Administrative practice and procedure, Fuel economy, Motor 
vehicles, Reporting and recordkeeping requirements.

Environmental Protection Agency

40 CFR Chapter I

    For the reasons set forth in the preamble, the Environmental 
Protection Agency proposes to amend parts 86 and 600 of title 40, 
Chapter I of the Code of Federal Regulations as follows:

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

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

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

    2. Section 86.1 is amended by adding paragraphs (b)(2)(xxxix) 
through (xxxxi) to read as follows:


Sec.  86.1  Reference materials.

* * * * *
    (b) * * *
    (2) * * *
    (xxxix) SAE J2064, December 2005, R134a Refrigerant Automotive Air-
Conditioned Hose, IBR approved for Sec.  86.166-12.
    (xxxx) SAE J2727, revised August 2008, HFC-134a Mobile Air 
Conditioning System Refrigerant Emission Chart, IBR approved for Sec.  
86.166-12.
    (xxxxi) SAE J2765, October, 2008, Procedure for Measuring System 
COP [Coefficient of Performance] of a Mobile Air Conditioning System on 
a Test Bench, IBR approved for Sec.  86.1866-12.
* * * * *

Subpart B--[Amended]

    3. Section 86.111-94 is amended by revising paragraph (b) 
introductory text to read as follows:


Sec.  86.111-94  Exhaust gas analytical system.

* * * * *
    (b) Major component description. The exhaust gas analytical system, 
Figure B94-7, consists of a flame ionization detector (FID) (heated, 
235 [deg]  15 [deg]F (113 [deg]  8 [deg]C) for 
methanol-fueled vehicles) for the determination of THC, a methane 
analyzer (consisting of a gas chromatograph combined with a FID) for 
the determination of CH4, non-dispersive infrared analyzers 
(NDIR) for the determination of CO and CO2, a 
chemiluminescence analyzer (CL) for the determination of 
NOX, and an analyzer meeting the requirements specified in 
Sec.  86.167-12 for the determination of N2O for 2012 and 
later model year vehicles. A heated flame ionization detector (HFID) is 
used for the continuous determination of THC from petroleum-fueled 
diesel-cycle vehicles (may also be used with methanol-fueled diesel-
cycle vehicles), Figure B94-5 (or B94-6). The analytical system for 
methanol consists of a gas chromatograph (GC) equipped with a flame 
ionization detector. The analysis for formaldehyde is performed using 
high-pressure liquid chromatography (HPLC) of 2,4-
dinitrophenylhydrazine (DNPH) derivatives using ultraviolet (UV) 
detection. The exhaust gas analytical system shall conform to the 
following requirements:
* * * * *
    4. Section 86.127-00 is amended as follows:
    a. By revising the introductory text.
    b. By revising paragraph (a) introductory text.
    c. By revising paragraph (a)(1),
    d. By revising paragraph (b).
    e. By revising paragraph (c).
    f. By revising paragraphs (d) and (e).


Sec.  86.127-00  Test procedures; overview.

    Applicability. The procedures described in this subpart are used to 
determine the conformity of vehicles with the standards set forth in 
subpart A or S of this part (as applicable) for light-duty vehicles, 
light-duty trucks, and medium-duty passenger vehicles. Except where 
noted, the procedures of paragraphs (a) through (b) of this section, 
Sec.  86.127-96 (c) and (d), and the contents of Sec. Sec.  86.135-94, 
86.136-90, 86.137-96, 86.140-94, 86.142-90, and 86.144-94 are 
applicable for determining emission results for vehicle exhaust 
emission systems designed to comply with the FTP emission standards, or 
the FTP emission element required for determining compliance with 
composite SFTP standards. Paragraphs (f) and (g) of this section 
discuss the additional test elements of

[[Page 49749]]

aggressive driving (US06) and air conditioning (SC03) that comprise the 
exhaust emission components of the SFTP. Section 86.127-96(e) discusses 
fuel spitback emissions and paragraphs (h) and (i) of this section are 
applicable to all vehicle emission test procedures. Section 86.127-00 
includes text that specifies requirements that differ from Sec.  
86.127-96. Where a paragraph in Sec.  86.127-96 is identical and 
applicable to Sec.  86.127-00, this may be indicated by specifying the 
corresponding paragraph and the statement ``[Reserved]. For guidance 
see Sec.  86.127-96.''
    (a) The overall test consists of prescribed sequences of fueling, 
parking, and operating test conditions. Vehicles are tested for any or 
all of the following emissions, depending upon the specific test 
requirements and the vehicle fuel type:
    (1) Gaseous exhaust THC, NMHC, CO, NOX, CO2, 
N2O, CH4, CH3OH, 
C2H5OH, C2H4O, and HCHO.
* * * * *
    (b) The FTP Otto-cycle exhaust emission test is designed to 
determine gaseous THC, CO, CO2, CH4, 
NOX, N2O, and particulate mass emissions from 
gasoline-fueled, methanol-fueled and gaseous-fueled Otto-cycle vehicles 
as well as methanol and formaldehyde from methanol-fueled Otto-cycle 
vehicles, as well as methanol, ethanol, acetaldehyde, and formaldehyde 
from ethanol-fueled vehicles while simulating an average trip in an 
urban area of 11 miles (18 kilometers). The test consists of engine 
start-ups and vehicle operation on a chassis dynamometer through a 
specified driving schedule (see paragraph (a) of appendix I to this 
part for the Urban Dynamometer Driving Schedule). A proportional part 
of the diluted exhaust is collected continuously for subsequent 
analysis, using a constant volume (variable dilution) sampler or 
critical flow venturi sampler.
    (c) The diesel-cycle exhaust emission test is designed to determine 
particulate and gaseous mass emissions during a test similar to the 
test in Sec.  86.127(b). For petroleum-fueled diesel-cycle vehicles, 
diluted exhaust is continuously analyzed for THC using a heated sample 
line and analyzer; the other gaseous emissions (CH4, CO, 
CO2, N2O, and NOX) are collected 
continuously for analysis as in Sec.  86.127(b). For methanol- and 
ethanol-fueled vehicles, THC, methanol, formaldehyde, CO, 
CO2, CH4, N2O, and NOX are 
collected continuously for analysis as in Sec.  86.127(b). 
Additionally, for ethanol-fueled vehicles, ethanol and acetaldehyde are 
collected continuously for analysis as in Sec.  86.127(b). THC, 
methanol, ethanol, acetaldehyde, and formaldehyde are collected using 
heated sample lines, and a heated FID is used for THC analyses. 
Simultaneous with the gaseous exhaust collection and analysis, 
particulates from a proportional part of the diluted exhaust are 
collected continuously on a filter. The mass of particulate is 
determined by the procedure described in Sec.  86.139. This testing 
requires a dilution tunnel as well as the constant volume sampler.
    (d)-(e) [Reserved]. For guidance see Sec.  86.127-96.
* * * * *
    5. Section 86.135-00 is amended by revising paragraph (a) to read 
as follows:


Sec.  86.135-12  Dynamometer procedure.

* * * * *
    (a) Overview. The dynamometer run consists of two tests, a ``cold'' 
start test, after a minimum 12-hour and a maximum 36-hour soak 
according to the provisions of Sec. Sec.  86.132 and 86.133, and a 
``hot'' start test following the ``cold'' start by 10 minutes. Engine 
startup (with all accessories turned off), operation over the UDDS and 
engine shutdown make a complete cold start test. Engine startup and 
operation over the first 505 seconds of the driving schedule complete 
the hot start test. The exhaust emissions are diluted with ambient air 
in the dilution tunnel as shown in Figure B94-5 and Figure B94-6. A 
dilution tunnel is not required for testing vehicles waived from the 
requirement to measure particulates. Six particulate samples are 
collected on filters for weighing; the first sample plus backup is 
collected during the first 505 seconds of the cold start test; the 
second sample plus backup is collected during the remainder of the cold 
start test (including shutdown); the third sample plus backup is 
collected during the hot start test. Continuous proportional samples of 
gaseous emissions are collected for analysis during each test phase. 
For gasoline-fueled, natural gas-fueled and liquefied petroleum gas-
fueled Otto-cycle vehicles, the composite samples collected in bags are 
analyzed for THC, CO, CO2, CH4, NOX, 
and, for 2012 and later model year vehicles, N2O. For 
petroleum-fueled diesel-cycle vehicles (optional for natural gas-
fueled, liquefied petroleum gas-fueled and methanol-fueled diesel-cycle 
vehicles), THC is sampled and analyzed continuously according to the 
provisions of Sec.  86.110. Parallel samples of the dilution air are 
similarly analyzed for THC, CO, CO2, CH4, 
NOX, and, for 2012 and later model year vehicles, 
N2O. For natural gas-fueled, liquefied petroleum gas-fueled 
and methanol-fueled vehicles, bag samples are collected and analyzed 
for THC (if not sampled continuously), CO, CO2, 
CH4, NOX, and, for 2012 and later model year 
vehicles, N2O. For methanol-fueled vehicles, methanol and 
formaldehyde samples are taken for both exhaust emissions and dilution 
air (a single dilution air formaldehyde sample, covering the total test 
period may be collected). For ethanol-fueled vehicles, methanol, 
ethanol, acetaldehyde, and formaldehyde samples are taken for both 
exhaust emissions and dilution air (a single dilution air formaldehyde 
sample, covering the total test period may be collected). Parallel bag 
samples of dilution air are analyzed for THC, CO, CO2, 
CH4, NOX, and, for 2012 and later model year 
vehicles, N2O. Methanol and formaldehyde samples may be 
omitted for 1990 through 1994 model years when a FID calibrated on 
methanol is used.
* * * * *
    6. A new Sec.  86.165-12 is added to subpart B to read as follows:


Sec.  86.165-12  Air conditioning idle test procedure.

    (a) Applicability. This section describes procedures for 
determining air conditioning-related CO2 emissions from 2014 
and later model year light-duty vehicles, light-duty trucks, and 
medium-duty passenger vehicles. The results of this test are used to 
qualify for air conditioning efficiency CO2 credits 
according to Sec.  86.1866-12(c).
    (b) Overview. The test consists of a brief period to stabilize the 
vehicle at idle, followed by a ten-minute period at idle when 
CO2 emissions are measured without any air conditioning 
systems operating, followed by a ten-minute period at idle when 
CO2 emissions are measured with the air conditioning system 
operating. This test is designed to determine the air conditioning-
related CO2 emission value, in grams per minute. If engine 
stalling occurs during cycle operation, follow the provisions of Sec.  
86.136-90 to restart the test. Measurement instruments must meet the 
specifications described in this subpart.
    (c) Test cell ambient conditions.
    (1) Ambient humidity within the test cell during all phases of the 
test sequence shall be controlled to an average of 50  5 
grains of water/pound of dry air.
    (2) Ambient air temperature within the test cell during all phases 
of the test sequence shall be controlled to 75  2 [deg]F on 
average and 75  5 [deg]F as an instantaneous measurement. 
Air temperature shall be recorded

[[Page 49750]]

continuously at a minimum of 30 second intervals.
    (d) Test sequence.
    (1) Connect the vehicle exhaust system to the raw sampling location 
or dilution stage according to the provisions of this subpart. For 
dilution systems, dilute the exhaust as described in this subpart. 
Continuous sampling systems must meet the specifications provided in 
this subpart.
    (2) Test the vehicle in a fully warmed-up condition. If the vehicle 
has soaked for two hours or less since the last exhaust test element, 
preconditioning may consist of a 505 Cycle, 866 Cycle, US06, or SC03, 
as these terms are defined in Sec.  86.1803-01, or a highway fuel 
economy test procedure, as defined in Sec.  600.002-08 of this chapter. 
For longer soak periods, precondition the vehicle using one full Urban 
Dynamometer Driving Schedule. Ensure that the vehicle has stabilized at 
test cell ambient conditions such that the vehicle interior temperature 
is not substantially different from the external test cell temperature. 
Windows may be opened during preconditioning to achieve this 
stabilization.
    (3) Immediately after the preconditioning, turn off any cooling 
fans, if present, close the vehicle's hood, fully close all the 
vehicle's windows, ensure that all the vehicle's air conditioning 
systems are set to full off, start the CO2 sampling system, 
and then idle the vehicle for not less than 1 minute and not more than 
5 minutes to achieve normal and stable idle operation.
    (4) Measure and record the continuous CO2 concentration 
for 600 seconds. Measure the CO2 concentration continuously 
using raw or dilute sampling procedures. Multiply this concentration by 
the continuous (raw or dilute) flow rate at the emission sampling 
location to determine the CO2 flow rate. Calculate the 
CO2 cumulative flow rate continuously over the test 
interval. This cumulative value is the total mass of the emitted 
CO2.
    (5) Within 60 seconds after completing the measurement described in 
paragraph (d)(4) of this section, turn on the vehicle's air 
conditioning system. Set automatic air conditioning systems to a 
temperature 9 [deg]F (5 [deg]C) below the ambient temperature of the 
test cell. Set manual air conditioning systems to maximum cooling with 
recirculation turned off, except that recirculation shall be enabled if 
the air conditioning system automatically defaults to a recirculation 
mode when set to maximum cooling. Continue idling the vehicle while 
measuring and recording the continuous CO2 concentration for 
600 seconds as described in paragraph (d)(4) of this section. Air 
conditioning systems with automatic temperature controls are finished 
with the test. Manually controlled air conditioning systems must 
complete one additional idle period described in paragraph (d)(6) of 
this section.
    (6) This paragraph (d)(6) applies only to manually controlled air 
conditioning systems. Within 60 seconds after completing the 
measurement described in paragraph (d)(5) of this section, leave the 
vehicle's air conditioning system on and set as described in paragraph 
(d)(5) of this section but set the fan speed to the lowest setting that 
continues to provide air flow. Recirculation shall be turned off except 
that if the system defaults to a recirculation mode when set to maximum 
cooling and maintains recirculation with the low fan speed, then 
recirculation shall continue to be enabled. After the fan speed has 
been set, continue idling the vehicle while measuring and recording the 
continuous CO2 concentration for a total of 600 seconds as 
described in paragraph (d)(4) of this section.
    (e) Calculations. (1) For the measurement with no air conditioning, 
calculate the CO2 emissions (in grams per minute) by 
dividing the total mass of CO2 from paragraph (d)(4) of this 
section by 10.0 (the duration in minutes for which CO2 is measured). 
Round this result to the nearest whole gram per minute.
    (2)(i) For the measurement with air conditioning in operation for 
automatic air conditioning systems, calculate the CO2 
emissions (in grams per minute) by dividing the total mass of 
CO2 from paragraph (d)(5) of this section by 10.0. Round 
this result to the nearest whole gram per minute.
    (ii) For the measurement with air conditioning in operation for 
manually controlled air conditioning systems, calculate the 
CO2 emissions (in grams per minute) by summing the total 
mass of CO2 from paragraphs (d)(5) and (d)(6) of this 
section and dividing by 20.0. Round this result to the nearest whole 
gram per minute.
    (3) Calculate the increased CO2 emissions due to air 
conditioning (in grams per minute) by subtracting the results of 
paragraph (e)(1) of this section from the results of paragraph 
(e)(2)(i) or (ii) of this section, whichever is applicable.
    7. A new Sec.  86.166-12 is added to subpart B to read as follows:


Sec.  86.166-12  Method for calculating emissions due to air 
conditioning leakage.

    This section describes procedures used to determine a refrigerant 
leakage rate from vehicle-based air conditioning units. The results of 
this test are used to determine air conditioning leakage credits 
according to Sec.  86.1866-12(b).
    (a) Emission totals. Calculate an annual rate of refrigerant 
leakage from an air conditioning system using the following equation:

    Grams/YRTOT = Grams/YRRP + Grams/
YRSP + Grams/YRFH + Grams/YRMC + 
Grams/YRC - Grams/YRCREDIT

Where:

Grams/YRTOT = Total air conditioning system emission rate 
in grams per year and rounded to the nearest tenth of a gram per 
year.
Grams/YRRP = Emission rate for rigid pipe connections as 
described in paragraph (b) of this section.
Grams/YRSP = Emission rate for service ports and 
refrigerant control devices as described in paragraph (c) of this 
section.
Grams/YRFH = Emission rate for flexible hoses as 
described in paragraph (d) of this section.
Grams/YRMC = Emission rate for heat exchangers, mufflers, 
receiver/driers, and accumulators as described in paragraph (e) of 
this section.
Grams/YRC = Emission rate for compressors as described in 
paragraph (f) of this section.
Grams/YRCREDIT = Leakage monitoring credit, as 
applicable, from paragraph (g) of this section.

    (b) Fittings. Determine the grams per year emission rate for rigid 
pipe connections using the following equation:

Grams/YRRP = 0.00522 [middot] [(125 [middot] SO) + (75 
[middot] SCO) + (50 [middot] MO) + (10 [middot] SW) + (5 [middot] SWO) 
+ (MG)]

Where:

Grams/YRRP = Total emission rate for rigid pipe 
connections in grams per year.
SO = The number of single O-ring connections.
SCO = The number of single captured O-ring connections.
MO = The number of multiple O-ring connections.
SW = The number of seal washer connections.
SWO = The number of seal washer with O-ring connections.
MG = The number of metal gasket connections.

    (c) Service ports and refrigerant control devices. Determine the 
grams per year emission rate for service ports and refrigerant control 
devices using the following equation:

Grams/YRSP = (0.3 [middot] HSSP [middot] 0.522) + (0.2 
[middot] LSSP [middot] 0.522) + (0.2 [middot] STV [middot] 0.522) + 
(0.2 [middot] TXV [middot] 0.522)

Where:

Grams/YRSP = The emission rate for service ports and 
refrigerant control devices, in grams per year.
HSSP = The number of high side service ports.

[[Page 49751]]

LSSP = The number of low side service ports.
STV = The total number of switches, transducers, and pressure relief 
valves.
TXV = The number of TXV refrigerant control devices.

    (d) Flexible hoses. Determine the permeation emission rate in grams 
per year for each segment of flexible hose using the following 
equation, and then sum the values for each hose in the system to 
calculate a total emission rate for the system:

Grams/YRFH = 0.00522 [middot] (3.14159 [middot] ID [middot] 
L [middot] ER)

Where:

Grams/YRFH = Emission rate for a segment of flexible hose 
in grams per year.
ID = Inner diameter of hose, in millimeters.
L = Length of hose, in millimeters.
ER = Emission rate per unit internal surface area of the hose, in g/
mm\2\. Select the appropriate value from the following table:

------------------------------------------------------------------------
                                                   ER
    Material/configuration     -----------------------------------------
                                 High-pressure side   Low-pressure side
------------------------------------------------------------------------
All rubber hose...............              0.0216               0.0144
Standard barrier or veneer                  0.0054               0.0036
 hose.........................
Ultra-low permeation barrier                0.00225              0.00167
 or veneer hose...............
------------------------------------------------------------------------

    (e) Heat exchangers, mufflers, receiver/driers, and accumulators. 
Use an emission rate of 0.261 grams per year as a combined value for 
all heat exchangers, mufflers, receiver/driers, and accumulators 
(Grams/YRMC).
    (f) Compressors. Determine the emission rate for compressors using 
the following equation, except that the final term in the equation 
(``1500/SSL'') is not applicable to electric (or semi-hermetic) 
compressors:

Grams/YRC = 0.00522 [middot] [(300 [middot] OHS) + (200 
[middot] MHS) + (150 [middot] FAP) + (100 [middot] GHS) + (1500/SSL)]

Where:

Grams/YRC = The emission rate for the compressors in the 
air conditioning system, in grams per year.
OHS = The number of O-ring housing seals.
MHS = The number of molded housing seals.
FAP = The number of fitting adapter plates.
GHS = The number of gasket housing seals.
SSL = The number of lips on shaft seal (for belt-driven compressors 
only).

    (g) Leakage monitoring credits. Electronic monitoring systems that 
provide indication of a refrigerant loss to the operator through an 
interior driver information display or an air conditioning-specific 
malfunction indicator when the air conditioning system has lost 40 
percent of its charge capacity shall use a credit of 1 g/yr.
    (h) Definitions. The following definitions apply to this section:
    (1) All rubber hose means a Type A or Type B hose as defined by SAE 
J2064 with a permeation rate not greater than 15 kg/m\2\/year when 
tested according to SAE J2064. SAE J2064 is incorporated by reference; 
see Sec.  86.1.
    (2) Standard barrier or veneer hose means a Type C, D, E, or F hose 
as defined by SAE J2064 with a permeation rate not greater than 5 kg/
m\2\/year when tested according to SAE J2064. SAE J2064 is incorporated 
by reference; see Sec.  86.1.
    (3) Ultra-low permeation barrier or veneer hose means a hose with a 
permeation rate not greater than 1.5 kg/m\2\/year when tested according 
to SAE J2064. SAE J2064 is incorporated by reference; see Sec.  86.1.
    8. A new Sec.  86.167-12 is added to subpart B to read as follows:


Sec.  86.167-12  N2O measurement devices.

    (a) General component requirements. We recommend that you use an 
analyzer that meets the specifications in Table 1 of 40 CFR 1065.205. 
Note that your system must meet the linearity verification in 40 CFR 
1065.307.
    (b) Instrument types. You may use any of the following analyzers to 
measure N2O:
    (1) Nondispersive infra-red (NDIR) analyzer. You may use an NDIR 
analyzer that has compensation algorithms that are functions of other 
gaseous measurements and the engine's known or assumed fuel properties. 
The target value for any compensation algorithm is 0.0% (that is, no 
bias high and no bias low), regardless of the uncompensated signal's 
bias.
    (2) Fourier transform infra-red (FTIR) analyzer. You may use an 
FTIR analyzer that has compensation algorithms that are functions of 
other gaseous measurements and the engine's known or assumed fuel 
properties. The target value for any compensation algorithm is 0.0% 
(that is, no bias high and no bias low), regardless of the 
uncompensated signal's bias. Use EPA Test Method 320 ``Measurement of 
Vapor Phase Organic and Inorganic Emissions by Extractive Fourier 
Transform Infrared (FTIR) Spectroscopy'' for spectral interpretation 
(see 40 CFR part 63 appendix A).
    (3) Photoacoustic analyzer. You may use a photoacoustic analyzer 
that has compensation algorithms that are functions of other gaseous 
measurements. The target value for any compensation algorithm is 0.0% 
(that is, no bias high and no bias low), regardless of the 
uncompensated signal's bias. Use an optical wheel configuration that 
gives analytical priority to measurement of the least stable components 
in the sample. Select a sample integration time of at least 5 seconds. 
Take into account sample chamber and sample line volumes when 
determining flush times for your instrument.
    (4) Gas chromatograph (GC) analyzer. You may use a gas 
chromatograph with Electron Capture Detector (ECD) to measure 
N2O concentrations of diluted exhaust for batch sampling. 
You may use a packed or porous layer open tubular (PLOT) column phase 
of suitable polarity and length to achieve adequate resolution of the 
N2O peak for analysis. Examples of acceptable columns are a 
PLOT column consisting of bonded polystyrene-divinylbenzene or a 
Porapack Q packed column. Take the column temperature profile and 
carrier gas selection into consideration when setting up your method to 
achieve adequate N2O peak resolution.
    (c) Interference validation. Perform interference validation for 
NDIR, FTIR, and Photoacoustic analyzers using the procedures of Sec.  
86.168-12 as follows:
    (1) Certain interference gases can positively interfere with these 
analyzers by causing a response similar to N2O as follows:
    (i) The interference gases for NDIR analyzers are CO, 
CO2, H2O, CH4 and SO2. Note 
that interference species, with the exception of H2O, are 
dependent on the N2O infrared absorption band chosen by the 
instrument manufacturer and should be determined independently for each 
analyzer.
    (ii) Use good engineering judgment to determine interference gases 
for FTIR. Note that interference species, with the exception of 
H2O, are dependent on the N2O infrared absorption 
band chosen by the instrument manufacturer and should be determined 
independently for each analyzer.
    (iii) The interference gases for photoacoustic analyzers are CO, 
CO2, and H2O.

[[Page 49752]]

    (2) Analyzers must have combined interference that is within (0.0 
 1.0) mol/mol. We strongly recommend a lower interference 
that is within (0.0  0.5) mol/.
    9. A new Sec.  86.168-12 is added to subpart B to read as follows:


Sec.  86.168-12  Interference verification for N2O 
analyzers.

    (a) Scope and frequency. See 40 CFR 1065.275 to determine whether 
you need to verify the amount of interference after initial analyzer 
installation and after major maintenance.
    (b) Measurement principles. Interference gasses can positively 
interfere with certain analyzers by causing a response similar to 
N2O. If the analyzer uses compensation algorithms that 
utilize measurements of other gases to meet this interference 
verification, simultaneously conduct these other measurements to test 
the compensation algorithms during the analyzer interference 
verification.
    (c) System requirements. See 40 CFR 1065.275 for system 
requirements related to allowable interference levels.
    (d) Procedure. Perform the interference verification as follows:
    (1) Start, operate, zero, and span the N2O FTIR analyzer 
as you would before an emission test. If the sample is passed through a 
dryer during emission testing, you may run this verification test with 
the dryer if it meets the requirements of 40 CFR 1065.342. Operate the 
dryer at the same conditions as you will for an emission test. You may 
also run this verification test without the sample dryer.
    (2) Create a humidified test gas by bubbling a multi component span 
gas that incorporates the target interference species and meets the 
specifications in 40 CFR 1065.750 through distilled water in a sealed 
vessel. If the sample is not passed through a dryer during emission 
testing, control the vessel temperature to generate an H2O 
level at least as high as the maximum expected during emission testing. 
If the sample is passed through a dryer during emission testing, 
control the vessel temperature to generate an H2O level at 
least as high as the level determined in 40 CFR 1065.145(e)(2) for that 
dryer. Use interference span gas concentrations that are at least as 
high as the maximum expected during testing.
    (3) Introduce the humidified interference test gas into the sample 
system. You may introduce it downstream of any sample dryer, if one is 
used during testing.
    (4) If the sample is not passed through a dryer during this 
verification test, measure the water mole fraction, xH2O, of 
the humidified interference test gas as close as possible to the inlet 
of the analyzer. For example, measure dewpoint, Tdew, and 
absolute pressure, ptotal, to calculate xH2O. 
Verify that the water content meets the requirement in paragraph (d)(2) 
of this section. If the sample is passed through a dryer during this 
verification test, you must verify that the water content of the 
humidified test gas downstream of the vessel meets the requirement in 
paragraph (d)(2) of this section based on either direct measurement of 
the water content (e.g., dewpoint and pressure) or an estimate based on 
the vessel pressure and temperature. Use good engineering judgment to 
estimate the water content. For example, you may use previous direct 
measurements of water content to verify the vessel's level of 
saturation.
    (5) If a sample dryer is not used in this verification test, use 
good engineering judgment to prevent condensation in the transfer 
lines, fittings, or valves from the point where xH2O is 
measured to the analyzer. We recommend that you design your system so 
that the wall temperatures in the transfer lines, fittings, and valves 
from the point where xH2O is measured to the analyzer are at 
least 5 [deg]C above the local sample gas dewpoint.
    (6) Allow time for the analyzer response to stabilize. 
Stabilization time may include time to purge the transfer line and to 
account for analyzer response.
    (7) While the analyzer measures the sample's concentration, record 
its output for 30 seconds. Calculate the arithmetic mean of this data.
    (8) The analyzer meets the interference verification if the result 
of paragraph (d)(7) of this section meets the tolerance in 40 CFR 
1065.275.
    (9) You may also run interference procedures separately for 
individual interference gases. If the interference gas levels used are 
higher than the maximum levels expected during testing, you may scale 
down each observed interference value by multiplying the observed 
interference by the ratio of the maximum expected concentration value 
to the actual value used during this procedure. You may run separate 
interference concentrations of H2O (down to 0.025 mol/mol 
H2O content) that are lower than the maximum levels expected 
during testing, but you must scale up the observed H2O 
interference by multiplying the observed interference by the ratio of 
the maximum expected H2O concentration value to the actual 
value used during this procedure. The sum of the scaled interference 
values must meet the tolerance specified in 40 CFR 1065.275.

Subpart S--[Amended]

    10. A new Sec.  86.1801-12 is added to read as follows:


Sec.  86.1801-12  Applicability.

    (a) Applicability. Except as otherwise indicated, the provisions of 
this subpart apply to new light-duty vehicles, light-duty trucks, 
medium-duty passenger vehicles, and Otto-cycle complete heavy-duty 
vehicles, including multi-fueled, alternative fueled, hybrid electric, 
plug-in hybrid electric, and electric vehicles. These provisions also 
apply to new incomplete light-duty trucks below 8,500 Gross Vehicle 
Weight Rating. In cases where a provision applies only to a certain 
vehicle group based on its model year, vehicle class, motor fuel, 
engine type, or other distinguishing characteristics, the limited 
applicability is cited in the appropriate section of this subpart.
    (b) Aftermarket conversions. The provisions of this subpart apply 
to aftermarket conversion systems, aftermarket conversion installers, 
and aftermarket conversion certifiers, as those terms are defined in 40 
CFR 85.502, of all model year light-duty vehicles, light-duty trucks, 
medium-duty passenger vehicles, and complete Otto-cycle heavy-duty 
vehicles.
    (c) Optional applicability.
    (1) [Reserved]
    (2) A manufacturer may request to certify any incomplete Otto-cycle 
heavy-duty vehicle of 14,000 pounds Gross Vehicle Weight Rating or less 
in accordance with the provisions for complete heavy-duty vehicles. 
Heavy-duty engine or heavy-duty vehicle provisions of subpart A of this 
part do not apply to such a vehicle.
    (3) [Reserved]
    (4) Upon preapproval by the Administrator, a manufacturer may 
optionally certify an aftermarket conversion of a complete heavy-duty 
vehicle greater than 10,000 pounds Gross Vehicle Weight Rating and of 
14,000 pounds Gross Vehicle Weight Rating or less under the heavy-duty 
engine or heavy-duty vehicle provisions of subpart A of this part. Such 
preapproval will be granted only upon demonstration that chassis-based 
certification would be infeasible or unreasonable for the manufacturer 
to perform.
    (5) A manufacturer may optionally certify an aftermarket conversion 
of a complete heavy-duty vehicle greater than 10,000 pounds Gross 
Vehicle Weight Rating and of 14,000 pounds

[[Page 49753]]

Gross Vehicle Weight Rating or less under the heavy-duty engine or 
heavy-duty vehicle provisions of subpart A of this part without advance 
approval from the Administrator if the vehicle was originally certified 
to the heavy-duty engine or heavy-duty vehicle provisions of subpart A 
of this part.
    (d) Small volume manufacturers. Special certification procedures 
are available for any manufacturer whose projected or actual combined 
sales in all States and territories of the United States of light-duty 
vehicles, light-duty trucks, heavy-duty vehicles, and heavy-duty 
engines in its product line (including all vehicles and engines 
imported under the provisions of 40 CFR 85.1505 and 85.1509) are fewer 
than 15,000 units for the model year in which the manufacturer seeks 
certification. The small volume manufacturer's light-duty vehicle and 
light-duty truck certification procedures and described in Sec.  
86.1838-01.
    (e)-(g) [Reserved]
    (h) Applicability of provisions of this subpart to light-duty 
vehicles, light-duty trucks, medium-duty passenger vehicles, and heavy-
duty vehicles. Numerous sections in this subpart provide requirements 
or procedures applicable to a ``vehicle'' or ``vehicles.'' Unless 
otherwise specified or otherwise determined by the Administrator, the 
term ``vehicle'' or ``vehicles'' in those provisions apply equally to 
light-duty vehicles (LDVs), light-duty trucks (LDTs), medium-duty 
passenger vehicles (MDPVs), and heavy-duty vehicles (HDVs), as those 
terms are defined in Sec.  86.1803-01.
    (i) Applicability of provisions of this subpart to exhaust CO2 
emissions. Numerous sections in this subpart refer to requirements 
relating to ``exhaust emissions.'' Unless otherwise specified or 
otherwise determined by the Administrator, the term ``exhaust 
emissions'' refers at a minimum to emissions of all pollutants 
described by emission standards in this subpart, including carbon 
dioxide (CO2) starting with the 2012 model year.
    (j) Conditional exemption from greenhouse gas emission standards 
for small businesses. Businesses meeting the Small Business 
Administration size standard defining a small business as described in 
13 CFR 121.201 are eligible for exemption from the greenhouse gas 
emission standards specified in Sec.  86.1818-12 and associated 
provisions. To be exempted from these provisions, businesses must 
submit a declaration to EPA containing a detailed written description 
of how the business qualifies as a small business under the provisions 
of 13 CFR 121.201. This declaration must be signed by a chief officer 
of the company, and must be made prior to each model year for which the 
small business status is requested. The declaration must be submitted 
to EPA at least 30 days prior to the introduction into commerce of any 
vehicles for each model year for which the small business status is 
requested, but not later than December of the calendar year prior to 
the model year for which exemption is requested. Exemption will be 
granted when EPA approves the small business declaration. The 
declaration of small business status must be sent to the Environmental 
Protection Agency at the following address: Director, Certification and 
Innovative Strategies Division, U.S. Environmental Protection Agency, 
2000 Traverwood Drive, Ann Arbor, Michigan 48105.
    (1) The following categories of businesses (with their associated 
NAICS codes) may apply for exemption based on the Small Business 
Administration size standards in 13 CFR 121.201.
    (i) Vehicle manufacturers (NAICS code 336111).
    (ii) Independent commercial importers (NAICS codes 811111, 811112, 
811198, 423110, 424990, and 441120).
    (iii) Alternate fuel vehicle converters (NAICS codes 335312, 
336312, 336322, 336399, 454312, 485310, and 811198).
    (2) For purposes of determining the number of employees or annual 
sales revenue for small entities, the entity shall include the 
employees or annual sales revenue of any subsidiary companies, any 
parent company, subsidiaries of the parent company in which the parent 
has a controlling interest, and any joint ventures.
    (3) An entity may use the provisions of this paragraph (j) only if 
it has primary responsibility for designing and assembling, converting, 
or modifying the subject vehicles.
    (4) An entity may import vehicles under this paragraph (j) only if 
that entity has primary responsibility for designing and assembling, 
converting or modifying the subject vehicles.
    11. Section 86.1803-01 is amended as follows:
    a. By adding the definition for ``Air conditioning idle test.''
    b. By adding the definition for ``Air conditioning system.''
    c. By revising the definition for ``Banking.''
    d. By adding the definition for ``Base level.''
    e. By adding the definition for ``Base tire.''
    f. By adding the definition for ``Base vehicle.''
    g. By revising the definition for ``Basic engine.''
    h. By adding the definition for ``Battery electric vehicle.''
    i. By adding the definition for ``Carbon-related exhaust 
emissions.''
    j. By adding the definition for ``Combined CO2.''
    k. By adding the definition for ``Electric vehicle.''
    l. By revising the definition for ``Engine code.''
    m. By adding the definition for ``Ethanol fueled vehicle.''
    n. By revising the definition for ``Flexible fuel vehicle.''
    o. By adding the definition for ``Footprint.''
    p. By adding the definition for ``Fuel cell.''
    q. By adding the definition for ``Fuel cell electric vehicle.''
    r. By adding the definition for ``Highway fuel economy test 
procedure.''
    s. By adding the definition for ``Hybrid electric vehicle.''
    t. By adding the definition for ``Interior volume index.''
    u. By adding the definition for ``Motor vehicle.''
    v. By adding the definition for ``Multi-fuel vehicle.''
    w. By adding the definition for ``Petroleum equivalency factor.''
    x. By adding the definition for ``Petroleum-equivalent fuel 
economy.''
    y. By adding the definition for ``Petroleum powered accessory.''
    z. By adding the definition for ``Plug-in hybrid electric 
vehicle.''
    aa. By adding the definition for ``Production volume.''
    bb. By revising the definition for ``Round, rounded, or rounding.''
    cc. By adding the definition for ``Subconfiguration.''
    dd. By adding the definition for ``Track width.''
    ee. By revising the definition for ``Transmission class.''
    ff. By revising the definition for ``Transmission configuration.''
    gg. By adding the definition for ``Wheelbase.''


Sec.  86.1803-01  Definitions.

* * * * *
    Air Conditioning Idle Test means the test procedure specified in 
Sec.  86.165-12.
    Air conditioning system means a unique combination of air 
conditioning and climate control components, including: compressor type 
(e.g., belt, gear, or electric-driven, or a combination of compressor 
drive mechanisms); compressor refrigerant capacity; the number and type 
of rigid pipe and flexible hose connections; the

[[Page 49754]]

number of high side service ports; the number of low side service 
ports; the number of switches, transducers, and expansion valves; the 
number of TXV refrigerant control devices; the number and type of heat 
exchangers, mufflers, receiver/dryers, and accumulators; and the type 
of flexible hose (e.g., rubber, standard barrier or veneer, ultra-low 
permeation).
* * * * *
    Banking means one of the following:
    (1) The retention of NOX emission credits for complete 
heavy-duty vehicles by the manufacturer generating the emission 
credits, for use in future model year certification programs as 
permitted by regulation.
    (2) The retention of cold temperature non-methane hydrocarbon 
(NMHC) emission credits for light-duty vehicles, light-duty trucks, and 
medium-duty passenger vehicles by the manufacturer generating the 
emission credits, for use in future model year certification programs 
as permitted by regulation.
    (3) The retention of NOX emission credits for light-duty 
vehicles, light-duty trucks, and medium-duty passenger vehicles for use 
in future model year certification programs as permitted by regulation.
    (4) The retention of CO2 emission credits for light-duty 
vehicles, light-duty trucks, and medium-duty passenger vehicles for use 
in future model year certification programs as permitted by regulation.
    Base level has the meaning given in Sec.  600.002-08 of this 
chapter.
    Base tire has the meaning given in Sec.  600.002-08 of this 
chapter.
    Base vehicle has the meaning given in Sec.  600.002-08 of this 
chapter.
    Basic engine has the meaning given in Sec.  600.002-08 of this 
chapter.
    Battery electric vehicle means a motor vehicle propelled solely by 
an electric motor where energy for the motor is supplied by a battery.
* * * * *
    Carbon-related exhaust emissions means the summation of the carbon-
containing constituents of the exhaust emissions, with each constituent 
adjusted by a coefficient representing the carbon weight fraction of 
each constituent, as specified in Sec.  600.113-08.
* * * * *
    Combined CO2 means the CO2 value determined for a 
vehicle (or vehicles) by averaging the city and highway fuel economy 
values, weighted 0.55 and 0.45 respectively.
* * * * *
    Electric vehicle means a motor vehicle that is powered solely by an 
electric motor drawing current from a rechargeable energy storage 
system, such as from storage batteries or other portable electrical 
energy storage devices, including hydrogen fuel cells, provided that:
    (1) Recharge energy must be drawn from a source off the vehicle, 
such as residential electric service; and
    (2) The vehicle must be certified to the emission standards of Bin 
1 of Table S04-1 in Sec.  86.1811-09(c)(6).
* * * * *
    Engine code means a unique combination within a test group of 
displacement, fuel injection (or carburetor) calibration, choke 
calibration, distributor calibration, auxiliary emission control 
devices, and other engine and emission control system components 
specified by the Administrator. For electric vehicles, engine code 
means a unique combination of manufacturer, electric traction motor, 
motor configuration, motor controller, and energy storage device.
* * * * *
    Ethanol-fueled vehicle means any motor vehicle or motor vehicle 
engine that is engineered and designed to be operated using ethanol 
fuel (i.e., a fuel that contains at least 50 percent ethanol 
(C2H5OH) by volume) as fuel.
* * * * *
    Flexible fuel vehicle means any motor vehicle engineered and 
designed to be operated on a petroleum fuel, a methanol or ethanol 
fuel, or any mixture of the two. Methanol-fueled and ethanol-fueled 
vehicles that are only marginally functional when using gasoline (e.g., 
the engine has a drop in rated horsepower of more than 80 percent) are 
not flexible fuel vehicles.
    Footprint is the product of track width (measured in inches, 
calculated as the average of front and rear track widths, and rounded 
to the nearest tenth of an inch) and wheelbase (measured in inches and 
rounded to the nearest tenth of an inch), divided by 144 and then 
rounded to the nearest tenth of a square foot.
    Fuel cell means an electrochemical cell that produces electricity 
via the reaction of a consumable fuel on the anode with an oxidant on 
the cathode in the presence of an electrolyte.
    Fuel cell electric vehicle means a motor vehicle propelled solely 
by an electric motor where energy for the motor is supplied by a fuel 
cell.
* * * * *
    Highway Fuel Economy Test Procedure (HFET) has the meaning given in 
Sec.  600.002-08 of this chapter.
* * * * *
    Hybrid electric vehicle (HEV) means a motor vehicle which draws 
propulsion energy from onboard sources of stored energy that are both 
an internal combustion engine or heat engine using consumable fuel, and 
a rechargeable energy storage system such as a battery, capacitor, 
hydraulic accumulator, or flywheel.
* * * * *
    Interior volume index has the meaning given in Sec.  600.315-08 of 
this chapter.
* * * * *
    Motor vehicle has the meaning given in 40 CFR 85.1703.
* * * * *
    Multi-fuel vehicle means any motor vehicle capable of operating on 
two or more different fuel types, either separately or simultaneously.
* * * * *
    Petroleum equivalency factor means the value specified in 10 CFR 
474.3(b), which incorporates the parameters listed in 49 U.S.C. 
32904(a)(2)(B) and is used to calculate petroleum-equivalent fuel 
economy.
    Petroleum-equivalent fuel economy means the value, expressed in 
miles per gallon, that is calculated for an electric vehicle in 
accordance with 10 CFR 474.3(a), and reported to the Administrator of 
the Environmental Protection Agency for use in determining the vehicle 
manufacturer's corporate average fuel economy.
* * * * *
    Petroleum-powered accessory means a vehicle accessory (e.g., a 
cabin heater, defroster, and/or air conditioner) that:
    (1) Uses gasoline or diesel fuel as its primary energy source; and
    (2) Meets the requirements for fuel, operation, and emissions in 40 
CFR part 88.104-94(g).
    Plug-in hybrid electric vehicle (PHEV) means a hybrid electric 
vehicle that:
    (1) Has the capability to charge the battery from an off-vehicle 
electric source, such that the off-vehicle source cannot be connected 
to the vehicle while the vehicle is in motion, and
    (2) Has an equivalent all-electric range of no less than 10 miles.
* * * * *
    Production volume has the meaning given in Sec.  600.002-08 of this 
chapter.
* * * * *
    Round, rounded or rounding means, unless otherwise specified, that 
numbers will be rounded according to ASTM-E29-93a, which is 
incorporated by reference in this part pursuant to Sec.  86.1.
* * * * *

[[Page 49755]]

    Subconfiguration has the meaning given in Sec.  600.002-08 of this 
chapter.
* * * * *
    Track width is the lateral distance between the centerlines of the 
base tires at ground, including the camber angle.
* * * * *
    Transmission class has the meaning given in Sec.  600.002-08 of 
this chapter.
    Transmission configuration has the meaning given in Sec.  600.002-
08 of this chapter.
* * * * *
    Wheelbase is the longitudinal distance between front and rear wheel 
centerlines.
* * * * *
    12. A new section 86.1805-12 is added to read as follows:


Sec.  86.1805-12  Useful life.

    (a) Except as permitted under paragraph (b) of this section or 
required under paragraphs (c) and (d) of this section, the full useful 
life for all LDVs and LLDTs is a period of use of 10 years or 120,000 
miles, whichever occurs first. The full useful life for all HLDTs, 
MDPVs, and complete heavy-duty vehicles is a period of 11 years or 
120,000 miles, whichever occurs first. These full useful life values 
apply to all exhaust, evaporative and refueling emission requirements 
except for standards which are specified to only be applicable at the 
time of certification. These full useful life requirements also apply 
to all air conditioning leakage credits, air conditioning efficiency 
credits, and other credit programs used by the manufacturer to comply 
with fleet average CO2 emission standards.
    (b) Manufacturers may elect to optionally certify a test group to 
the Tier 2 exhaust emission standards for 150,000 miles to gain 
additional NOX credits, as permitted in Sec.  86.1860-04(g), 
or to opt out of intermediate life standards as permitted in Sec.  
86.1811-04(c). In such cases, useful life is a period of use of 15 
years or 150,000 miles, whichever occurs first, for all exhaust, 
evaporative and refueling emission requirements except for cold CO 
standards and standards which are applicable only at the time of 
certification.
    (c) Where intermediate useful life exhaust emission standards are 
applicable, such standards are applicable for five years or 50,000 
miles, whichever occurs first.
    (d) Where cold CO standards are applicable, the useful life 
requirement for compliance with the cold CO standard only, is 5 years 
or 50,000 miles, whichever occurs first.
    13. Section 86.1806-05 is amended by revising paragraph (a)(1) to 
read as follows:


Sec.  86.1806-05  On-board diagnostics for vehicles less than or equal 
to 14,000 pounds GVWR.

    (a) * * *
    (1) Except as provided by paragraph (a)(2) of this section, all 
light-duty vehicles, light-duty trucks and complete heavy-duty vehicles 
weighing 14,000 pounds GVWR or less (including MDPVs) must be equipped 
with an onboard diagnostic (OBD) system capable of monitoring all 
emission-related powertrain systems or components during the applicable 
useful life of the vehicle. All systems and components required to be 
monitored by these regulations must be evaluated periodically, but no 
less frequently than once per applicable certification test cycle as 
defined in paragraphs (a) and (d) of Appendix I of this part, or 
similar trip as approved by the Administrator. Emissions of 
CO2 are not required to be monitored by the OBD system.
* * * * *
    14. Section 86.1809-10 is amended by revising paragraphs (d)(1) and 
(e) to read as follows:


Sec.  86.1809-10  Prohibition of defeat devices.

* * * * *
    (d) * * *
    (1) The manufacturer must show to the satisfaction of the 
Administrator that the vehicle design does not incorporate strategies 
that unnecessarily reduce emission control effectiveness exhibited 
during the Federal Test Procedure or Supplemental Federal Test 
Procedure (FTP or SFTP), or, for 2012 and later model years, the 
Highway Fuel Economy Test Procedure or the Air Conditioning Idle Test, 
when the vehicle is operated under conditions that may reasonably be 
expected to be encountered in normal operation and use.
* * * * *
    (e) For each test group the manufacturer must submit, with the Part 
II certification application, an engineering evaluation demonstrating 
to the satisfaction of the Administrator that a discontinuity in 
emissions of non-methane organic gases, carbon monoxide, carbon 
dioxide, oxides of nitrogen and formaldehyde measured on the Federal 
Test Procedure (subpart B of this part) does not occur in the 
temperature range of 20 to 86 [deg]F. For diesel vehicles, the 
engineering evaluation must also include particulate emissions.
    15. Section 86.1810-09 is amended by revising paragraph (f) to read 
as follows:


Sec.  86.1810-09  General standards; increase in emissions; unsafe 
condition; waivers.

* * * * *
    (f) Altitude requirements. (1) All emission standards apply at low 
altitude conditions and at high altitude conditions, except for the 
following standards, which apply only at low altitude conditions:
    (i) The supplemental exhaust emission standards as described in 
Sec.  86.1811-04(f);
    (ii) The cold temperature NMHC emission standards as described in 
Sec.  86.1811-10(g);
    (iii) The evaporative emission standards as described in Sec.  
86.1811-09(e).
    (2) For vehicles that comply with the cold temperature NMHC 
standards described in Sec.  86.1811-10(g) and the CO2, 
N2O, and CH4 exhaust emission standards described 
in Sec.  86.1818-12, manufacturers must submit an engineering 
evaluation indicating that common calibration approaches are utilized 
at high altitudes. Any deviation from low altitude emission control 
practices must be included in the auxiliary emission control device 
(AECD) descriptions submitted at certification. Any AECD specific to 
high altitude must require engineering emission data for EPA evaluation 
to quantify any emission impact and validity of the AECD.
* * * * *
    16. A new Sec.  86.1818-12 is added to read as follows:


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

    (a) Applicability. This section contains regulations implementing 
greenhouse gas emission standards for CO2, N2O, 
and CH4 applicable to all LDVs, LDTs and MDPVs. This section 
applies to 2012 and later model year LDVs, LDTs and MDPVs, including 
multi-fuel vehicles, vehicles fueled with alternative fuels, hybrid 
electric vehicles, plug-in hybrid electric vehicles, electric vehicles, 
and fuel cell electric vehicles. Unless otherwise specified, multi-fuel 
vehicles must comply with all requirements established for each 
consumed fuel. The provisions of this section also apply to aftermarket 
conversion systems, aftermarket conversion installers, and aftermarket 
conversion certifiers, as those terms are defined in 40 CFR 85.502, of 
all model year light-duty vehicles, light-duty trucks, and

[[Page 49756]]

medium-duty passenger vehicles. Manufacturers meeting the requirements 
of Sec.  86.1801-12(j) are exempted from the requirements of this 
section.
    (b) Definitions. For the purposes of this section, the following 
definitions shall apply:
    (1) Passenger automobile means a motor vehicle that is a passenger 
automobile as that term is defined in 49 CFR 523.4.
    (2) Light truck means a motor vehicle that is a non-passenger 
automobile as that term is defined by the Department of Transportation 
in 49 CFR 523.5.
    (c) Fleet average CO2 standards for passenger 
automobiles and light trucks. (1) For a given individual model year's 
production of vehicles, manufacturers must comply with a fleet average 
CO2 standard calculated according to the provisions of this 
paragraph (c). Manufacturers must calculate separate fleet average 
CO2 standards for their passenger automobile and the light 
truck fleets, as those terms are defined in this section. Each 
manufacturer's fleet average CO2 standards determined in 
this paragraph (c) shall be expressed in whole grams per mile, in the 
model year specified as applicable. Manufacturers eligible for and 
choosing to participate in the optional interim fleet average 
CO2 standards for qualifying manufacturers specified in 
paragraph (e) of this section shall not include vehicles subject to the 
optional interim fleet average CO2 standards in the 
calculations of their primary passenger automobile or light truck 
standards determined in this paragraph (c). Manufacturers shall 
demonstrate compliance with the applicable standards according to the 
provisions of Sec.  86.1865-12.
    (2) Passenger automobiles.
    (i) Calculation of CO2 target values for passenger automobiles. A 
CO2 target value shall be determined for each passenger 
automobile as follows:
    (A) For passenger automobiles with a footprint of less than or 
equal to 41 square feet, the gram/mile CO2 target value 
shall be selected for the appropriate model year from the following 
table:

------------------------------------------------------------------------
                                                        CO2 target value
                      Model year                          (grams/mile)
------------------------------------------------------------------------
2012.................................................                242
2013.................................................                234
2014.................................................                227
2015.................................................                215
2016 and later.......................................                204
------------------------------------------------------------------------

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

------------------------------------------------------------------------
                                                        CO2 target value
                      Model year                          (grams/mile)
------------------------------------------------------------------------
2012.................................................                313
2013.................................................                305
2014.................................................                297
2015.................................................                286
2016 and later.......................................                275
------------------------------------------------------------------------

     (C) For passenger automobiles with a footprint that is greater 
than 41 square feet and less than or equal to 56 square feet, the gram/
mile CO2 target value shall be calculated using the 
following equation:
    TargetCO2 = [4.72 x f] + b

Where:

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

------------------------------------------------------------------------
                      Model year                               b
------------------------------------------------------------------------
2012.................................................               48.8
2013.................................................               40.8
2014.................................................               33.2
2015.................................................               22.0
2016 and later.......................................               10.9
------------------------------------------------------------------------

     (ii) Calculation of the fleet average CO2 standard for 
passenger automobiles. In each model year manufacturers must comply 
with the CO2 exhaust emission standard for their passenger 
automobile fleet, calculated for that model year as follows:
    (A) A CO2 target value shall be determined according to 
paragraph (c)(2)(i) of this section for each unique combination of 
model type and footprint value.
    (B) Each CO2 target value, determined for each unique 
combination of model type and footprint value, shall be multiplied by 
the total production of that model type/footprint combination for the 
appropriate model year.
    (C) The resulting products shall be summed, and that sum shall be 
divided by the total production of passenger automobiles in that model 
year. The result shall be rounded to the nearest whole gram per mile. 
This result shall be the applicable fleet average CO2 
standard for the manufacturer's passenger automobile fleet.
    (3) Light trucks.
    (i) Calculation of CO2 target values for light trucks. A 
CO2 target value shall be determined for each light truck as 
follows:
    (A) For light trucks with a footprint of less than or equal to 41 
square feet, the gram/mile CO2 target value shall be 
selected for the appropriate model year from the following table:

------------------------------------------------------------------------
                                                        CO2 target value
                      Model year                          (grams/mile)
------------------------------------------------------------------------
2012.................................................                298
2013.................................................                287
2014.................................................                276
2015.................................................                261
2016 and later.......................................                246
------------------------------------------------------------------------

     (B) For light trucks with a footprint of greater than 66 square 
feet, the gram/mile CO2 target value shall be selected for 
the appropriate model year from the following table:

------------------------------------------------------------------------
                                                        CO2 target value
                      Model year                          (grams/mile)
------------------------------------------------------------------------
2012.................................................                399
2013.................................................                388
2014.................................................                377
2015.................................................                362
2016 and later.......................................                347
------------------------------------------------------------------------

    (C) For light trucks with a footprint that is greater than 41 
square feet and less than or equal to 66 square feet, the gram/mile 
CO2 target value shall be calculated using the following 
equation:
    CO2TargetValue = (4.04 x f) + b

Where:

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

------------------------------------------------------------------------
                      Model year                               b
------------------------------------------------------------------------
2012.................................................              132.6
2013.................................................              121.6
2014.................................................              110.3
2015.................................................               95.2
2016 and later.......................................               80.4
------------------------------------------------------------------------

     (ii) Calculation of fleet average CO2 standards for 
light trucks. In each model year manufacturers must comply with the 
CO2 exhaust emission standard for their light truck fleet, 
calculated for that model year as follows:
    (A) A CO2 target value shall be determined according to 
paragraph (c)(2)(i) of this section for each unique combination of 
model type and footprint value.
    (B) Each CO2 target value, which represents a unique 
combination of model type and footprint value, shall be multiplied by 
the total production of that model type/footprint combination for the 
appropriate model year.
    (C) The resulting products shall be summed, and that sum shall be 
divided by the total production of light trucks in that model year. The 
result shall be rounded to the nearest whole gram per mile. This result 
shall be the applicable fleet average CO2 standard for the 
manufacturer's light truck fleet.
    (d) In-use CO2 exhaust emission standards. The in-use 
exhaust CO2 emission standard for each model type

[[Page 49757]]

shall be the combined city/highway carbon-related exhaust emission 
value calculated according to the provisions of 40 CFR 600.208-08 
(except that total model year production data shall be used instead of 
sales projections) multiplied by 1.1 and rounded to the nearest whole 
gram per mile. These standards apply to in-use testing performed by the 
manufacturer pursuant to regulations at Sec.  86.1845-04 and 86.1846-01 
and to in-use testing performed by EPA. For any model type that is not 
covered by vehicle testing conducted according to 40 CFR 600.208-08 the 
applicable in-use standard shall be the CO2-equivalent value 
submitted at certification according to the provisions of Sec.  86.1841 
multiplied by 1.1 and rounded to the nearest whole gram per mile.
    (e) Optional interim fleet average CO2 standards for 
qualifying manufacturers. (1) The interim fleet average CO2 
standards in this paragraph (e) are optionally applicable to each 
qualifying manufacturer as follows:
    (i) A qualifying manufacturer is a manufacturer with sales of 2009 
model year combined passenger automobiles and light trucks in the 
United States of less than 400,000 vehicles, except that manufacturers 
with no U.S. sales in the 2009 model year do not qualify for the 
optional interim standards.
    (ii) For the purposes of making the determination in paragraph 
(e)(1)(i) of this section, ``manufacturer'' shall mean that term as 
defined at 49 CFR 531.4 and as that definition was applied to the 2009 
model year for the purpose of determining compliance with the 2009 
corporate average fuel economy standards at 49 CFR parts 531 and 533.
    (iii) Only 2012 through 2015 model year passenger automobiles and 
light trucks are eligible for these standards. All model year 2016 and 
later passenger automobiles and light trucks are subject to the fleet 
average standards described in paragraph (c) of this section.
    (iv) A qualifying manufacturer may select any combination of 2012 
through 2015 model year passenger automobiles and/or light trucks to 
comply with these optional standards up to a cumulative total of 
100,000 vehicles. Vehicles selected to comply with these standards 
shall not be included in the calculations of the manufacturer's fleet 
average standards under paragraph (c) of this section.
    (v) A qualifying manufacturer may not use these optional interim 
fleet average CO2 standards until they have used all 
available banked CO2 credits and/or CO2 credits 
available for transfer. A qualifying manufacturer with a net positive 
credit balance in any model year after considering all available 
credits generated, carried forward from a prior model year, transferred 
from other averaging sets, or obtained from other manufacturers, may 
not use these optional interim fleet average CO2 standards 
in such model year.
    (2) To calculate an optional interim fleet average CO2 
standard, qualifying manufacturers shall determine the fleet average 
standard separately for the passenger automobiles and light trucks 
selected by the manufacturer to be subject to the interim fleet average 
CO2 standard, subject to the limitations expressed in 
paragraphs (e)(1)(iii) and (iv) of this section.
    (i) The interim fleet average CO2 standard applicable to 
qualified passenger automobiles shall be the standard calculated using 
the provisions of paragraph (c)(2)(ii) of this section for the 
appropriate model year multiplied by 1.25 and rounded to the nearest 
whole gram per mile. For the purposes of applying paragraph (c)(2)(ii) 
of this section to determine the standard, the passenger automobile 
fleet shall be limited to those passenger automobiles subject to the 
interim fleet average CO2 standard.
    (ii) The interim fleet average CO2 standard applicable 
to qualified light trucks shall be the standard calculated using the 
provisions of paragraph (c)(3)(ii) of this section for the appropriate 
model year multiplied by 1.25 and rounded to the nearest whole gram per 
mile. For the purposes of applying paragraph (c)(3)(ii) of this section 
to determine the standard, the light truck fleet shall be limited to 
those light trucks subject to the interim fleet average CO2 
standard.
    (3) Manufacturers choosing to optionally apply these standards are 
subject to the restrictions on credit banking and trading specified in 
Sec.  86.1865-12.
    (f) N2O standards for light-duty vehicles, light-duty trucks, and 
medium-duty passenger vehicles. Exhaust emissions of nitrous oxide 
(N2O) shall not exceed 0.010 grams per mile at full useful 
life, as measured according to the Federal Test Procedure (FTP) 
described in subpart B of this part.
    (g) Methane standards for light-duty vehicles, light-duty trucks, 
and medium-duty passenger vehicles. Exhaust emissions of methane 
(CH4) shall not exceed 0.030 grams per mile at full useful 
life, as measured according to the Federal Test Procedure (FTP) 
described in subpart B of this part.
    17. Section 86.1823-08 is amended by adding paragraph (m) to read 
as follows:


Sec.  86.1823-08  Durability demonstration procedures for exhaust 
emissions.

* * * * *
    (m) Durability demonstration procedures for vehicles subject to the 
greenhouse gas exhaust emission standards specified in 86.1818-12.
    (1) CO2. (i) Unless otherwise specified under paragraph (m)(1)(ii) 
of this section, manufacturers may use a multiplicative CO2 
deterioration factor of one or an additive deterioration factor of 
zero.
    (ii) Based on an analysis of industry-wide data, EPA may 
periodically establish and/or update the deterioration factor for 
CO2 emissions including air conditioning and other credit 
related emissions. Deterioration factors established and/or updated 
under this paragraph (m)(1)(ii) will provide adequate lead time for 
manufacturers to plan for the change.
    (iii) Alternatively, manufacturers may use the whole-vehicle 
mileage accumulation procedures in Sec.  86.1823-08 paragraphs (c) or 
(d)(1) to determine CO2 deterioration factors. In this case, 
each FTP test performed on the durability data vehicle selected under 
Sec.  86.1822-01 of this part must also be accompanied by an HFET test, 
and combined FTP/HFET CO2 results determined by averaging 
the city (FTP) and highway (HFET) CO2 values, weighted 0.55 
and 0.45 respectively. The deterioration factor will be determined for 
this combined CO2 value. Calculated multiplicative 
deterioration factors that are less than one shall be set to equal one, 
and calculated additive deterioration factors that are less than zero 
shall be set to zero.
    (iv) If, in the good engineering judgment of the manufacturer, the 
deterioration factors determined according to paragraphs (m)(1)(i), 
(m)(1)(ii), or (m)(1)(iii) of this section do not adequately account 
for the expected CO2 emission deterioration over the 
vehicle's useful life, the manufacturer may petition EPA to request a 
more appropriate deterioration factor.
    (2) N2O and CH4. Deterioration factors for N2O and 
CH4 shall be determined according to the provisions of Sec.  
86.1823-08.
    (3) Air Conditioning leakage and efficiency or other emission 
credit requirements to comply with exhaust CO2 standards. Manufactures 
will attest to the durability of components and systems used to meet 
the CO2 standards. Manufacturers may submit engineering data 
to provide durability demonstration.

[[Page 49758]]

    18. Section 86.1827-01 is amended by revising paragraph (a)(5) and 
by adding paragraph (f) to read as follows:


Sec.  86.1827-01  Test group determination.

* * * * *
    (a) * * *
    (5) Subject to the same emission standards (except for 
CO2), or FEL in the case of cold temperature NMHC standards, 
except that a manufacturer may request to group vehicles into the same 
test group as vehicles subject to more stringent standards, so long as 
all the vehicles within the test group are certified to the most 
stringent standards applicable to any vehicle within that test group. 
Light-duty trucks and light-duty vehicles may be included in the same 
test group if all vehicles in the test group are subject to the same 
emission standards, with the exception of the CO2 standard, 
the light-duty truck idle CO standard, and/or the total HC standard.
* * * * *
    (f) Unless otherwise approved by the Administrator, a manufacturer 
of electric vehicles must create separate test groups based on the type 
of battery technology, the capacity and voltage of the battery, and the 
type and size of the electric motor.
    19. Section 86.1829-01 is amended by revising paragraph (b)(1)(i) 
and by adding paragraph (b)(1)(iii)(G) to read as follows:


Sec.  86.1829-01  Durability and emission testing requirements; 
waivers.

* * * * *
    (b) * * *
    (1) * * *
    (i) Testing at low altitude. One EDV shall be tested in each test 
group for exhaust emissions using the FTP and SFTP test procedures of 
subpart B of this part and the HFET test procedure of subpart B of part 
600 of this chapter. The configuration of the EDV will be determined 
under the provisions of Sec.  86.1828-01 of this subpart.
* * * * *
    (iii) * * *
    (G) For the 2012 model year only, in lieu of testing a vehicle for 
N2O emissions, a manufacturer may provide a statement in its 
application for certification that such vehicles comply with the 
applicable standards. Such a statement must be based on previous 
emission tests, development tests, or other appropriate information and 
good engineering judgment.
* * * * *
    20. Section 86.1835-01 is amended as follows:
    a. By revising paragraph (a)(4).
    b. By revising paragraph (b)(1) introductory text.
    c. By adding paragraph (b)(1)(vi).
    d. By revising paragraph (b)(3).
    e. By revising paragraph (c)(1)(ii).


Sec.  86.1835-01  Confirmatory certification testing.

    (a)  * * *
    (4) Retesting for fuel economy reasons or for compliance with 
applicable exhaust CO2 emission standards may be conducted 
under the provisions of 40 CFR 600.008-01.
    (b)  * * *
    (1) If the Administrator determines not to conduct a confirmatory 
test under the provisions of paragraph (a) of this section, 
manufacturers of light-duty vehicles, light-duty trucks, and/or medium-
duty passenger vehicles will conduct a confirmatory test at their 
facility after submitting the original test data to the Administrator 
whenever any of the conditions listed in paragraphs (b)(1)(i) through 
(vi) of this section exist, and complete heavy-duty vehicles 
manufacturers will conduct a confirmatory test at their facility after 
submitting the original test data to the Administrator whenever the 
conditions listed in paragraph (b)(1)(i) or (b)(1)(ii) of this section 
exist, as follows:
* * * * *
    (vi) The exhaust CO2 emissions of the test as measured 
in accordance with the procedures in 40 CFR Part 600 are lower than 
expected based on procedures approved by the Administrator.
* * * * *
    (3) For light-duty vehicles, light-duty trucks, and medium-duty 
passenger vehicles the manufacturer shall conduct a retest of the FTP 
or highway test if the difference between the fuel economy or carbon-
related exhaust emissions of the confirmatory test and the original 
manufacturer's test equals or exceeds three percent (or such lower 
percentage to be applied consistently to all manufacturer conducted 
confirmatory testing as requested by the manufacturer and approved by 
the Administrator).
    (i) For use in the fuel economy and CO2 fleet averaging 
program described in 40 CFR parts 86 and 600, the manufacturer may, in 
lieu of conducting a retest, accept as official the lower of the 
original and confirmatory test fuel economy results, and the higher of 
the original and confirmatory test CO2 results.
    (ii) The manufacturer shall conduct a second retest of the FTP or 
highway test if the fuel economy or CO2 emissions difference 
between the second confirmatory test and the original manufacturer test 
equals or exceeds three percent (or such lower percentage as requested 
by the manufacturer and approved by the Administrator) and the fuel 
economy or CO2 emissions difference between the second 
confirmatory test and the first confirmatory test equals or exceeds 
three percent (or such lower percentage as requested by the 
manufacturer and approved by the Administrator). In lieu of conducting 
a second retest, the manufacturer may accept as official (for use in 
the fuel economy program and the CO2 fleet averaging 
program) the lowest fuel economy and highest CO2 emissions 
of the original test, the first confirmatory test, and the second 
confirmatory test fuel economy results.
    (c)  * * *
    (1) * * *
    (ii) Official test results for fuel economy and exhaust 
CO2 emission purposes are determined in accordance with the 
provisions of 40 CFR 600.008-01.
* * * * *
    21. Section 86.1841-01 is amended by adding paragraph (a)(3) and 
revising paragraph (b) to read as follows:


Sec.  86.1841-01  Compliance with emission standards for the purpose of 
certification.

    (a) * * *
    (3) Compliance with CO2 exhaust emission standards shall 
be demonstrated at certification by the certification levels on the FTP 
and HFET tests for carbon-related exhaust emissions determined 
according to Sec.  600.113-08 of this chapter.
* * * * *
    (b) To be considered in compliance with the standards for the 
purposes of certification, the certification levels for the test 
vehicle calculated in paragraph (a) of this section shall be less than 
or equal to the standards for all emission constituents to which the 
test group is subject, at both full and intermediate useful life as 
appropriate for that test group.
* * * * *
    22. Section 86.1845-04 is amended as follows:
    a. By revising paragraph (a)(1).
    b. By revising paragraph (b)(5)(i).
    c. By revising paragraph (c)(5)(i).


Sec.  86.1845-04  Manufacturer in-use verification testing 
requirements.

    (a) * * *
    (1) A manufacturer of LDVs, LDTs, MDPVs and/or complete HDVs must 
test, or cause to have tested, a specified number of LDVs, LDTs, MDPVs 
and complete HDVs. Such testing must be conducted in accordance with 
the provisions of this section. For purposes of this section, the term 
vehicle includes light-duty vehicles, light-duty trucks and medium-duty 
passenger vehicles.
* * * * *

[[Page 49759]]

    (b) * * *
    (5) * * *
    (i) Each test vehicle of a test group shall be tested in accordance 
with the Federal Test Procedure and the US06 portion of the 
Supplemental Federal Test Procedure as described in subpart B of this 
part, when such test vehicle is tested for compliance with applicable 
exhaust emission standards under this subpart. Test vehicles subject to 
applicable exhaust CO2 emission standards under this subpart 
shall also be tested in accordance with the highway fuel economy test 
as described in subpart B of 40 CFR part 600.
* * * * *
    (c) * * *
    (5) * * *
    (i) Each test vehicle shall be tested in accordance with the 
Federal Test Procedure and the US06 portion of the Supplemental Federal 
Test Procedure as described in subpart B of this part when such test 
vehicle is tested for compliance with applicable exhaust emission 
standards under this subpart. Test vehicles subject to applicable 
exhaust CO2 emission standards under this subpart shall also 
be tested in accordance with the highway fuel economy test as described 
in subpart B of 40 CFR part 600. The US06 portion of the SFTP is not 
required to be performed on vehicles certified in accordance with the 
National LEV provisions of subpart R of this part. One test vehicle 
from each test group shall receive a Federal Test Procedure at high 
altitude. The test vehicle tested at high altitude is not required to 
be one of the same test vehicles tested at low altitude. The test 
vehicle tested at high altitude is counted when determining the 
compliance with the requirements shown in Table S04-06 and Table S04-07 
in paragraph (b)(3) of this section or the expanded sample size as 
provided for in this paragraph (c).
* * * * *
    23. Section 86.1846-01 is amended by revising paragraphs (a)(1) and 
(b) introductory text to read as follows:


Sec.  86.1846-01  Manufacturer in-use confirmatory testing 
requirements.

    (a) * * *
    (1) A manufacturer of LDVs, LDTs and/or MDPVs must test, or cause 
testing to be conducted, under this section when the emission levels 
shown by a test group sample from testing under Sec. Sec.  86.1845-01 
or 86.1845-04, as applicable, exceeds the criteria specified in 
paragraph (b) of this section. The testing required under this section 
applies separately to each test group and at each test point (low and 
high mileage) that meets the specified criteria. The testing 
requirements apply separately for each model year starting with model 
year 2001. These provisions do not apply to heavy-duty vehicles or 
heavy-duty engines prior to the 2007 model year. These provisions do 
not apply to emissions of CO2, CH4, and 
N2O.
* * * * *
    (b) Criteria for additional testing. A manufacturer shall test a 
test group or a subset of a test group as described in paragraph (j) of 
this section when the results from testing conducted under Sec. Sec.  
86.1845-01 and 86.1845-04, as applicable, show mean emissions for that 
test group of any pollutant(s) (except CO2, CH4, 
and N2O) to be equal to or greater than 1.30 times the 
applicable in-use standard and a failure rate, among the test group 
vehicles, for the corresponding pollutant(s) of fifty percent or 
greater.
* * * * *
    24. Section 86.1848-10 is amended by adding paragraph (c)(9) to 
read as follows:


Sec.  86.1848-10  Certification.

* * * * *
    (c) * * *
    (9) For 2012 and later model year LDVs, LDTs, and MDPVs, all 
certificates of conformity issued are conditional upon compliance with 
all provisions of Sec. Sec.  86.1818-12 and 86.1865-12 both during and 
after model year production. The manufacturer bears the burden of 
establishing to the satisfaction of the Administrator that the terms 
and conditions upon which the certificate(s) was (were) issued were 
satisfied. For recall and warranty purposes, vehicles not covered by a 
certificate of conformity will continue to be held to the standards 
stated or referenced in the certificate that otherwise would have 
applied to the vehicles.
    (i) Failure to meet the fleet average CO2 requirements 
will be considered a failure to satisfy the terms and conditions upon 
which the certificate(s) was (were) issued and the vehicles sold in 
violation of the fleet average CO2 standard will not be 
covered by the certificate(s). The vehicles sold in violation will be 
determined according to Sec.  86.1865-12(k)(7).
    (ii) Failure to comply fully with the prohibition against selling 
credits that are not generated or that are not available, as specified 
in Sec.  86.1865-12, will be considered a failure to satisfy the terms 
and conditions upon which the certificate(s) was (were) issued and the 
vehicles sold in violation of this prohibition will not be covered by 
the certificate(s).
* * * * *
    25. A new Sec.  86.1854-12 is added to read as follows:


Sec.  86.1854-12  Prohibited acts.

    (a) The following acts and the causing thereof are prohibited:
    (1) In the case of a manufacturer, as defined by Sec.  86.1803, of 
new motor vehicles or new motor vehicle engines for distribution in 
commerce, the sale, or the offering for sale, or the introduction, or 
delivery for introduction, into commerce, or (in the case of any 
person, except as provided by regulation of the Administrator), the 
importation into the United States of any new motor vehicle or new 
motor vehicle engine subject to this subpart, unless such vehicle or 
engine is covered by a certificate of conformity issued (and in effect) 
under regulations found in this subpart (except as provided in Section 
203(b) of the Clean Air Act (42 U.S.C. 7522(b)) or regulations 
promulgated thereunder).
    (2)(i) For any person to fail or refuse to permit access to or 
copying of records or to fail to make reports or provide information 
required under Section 208 of the Clean Air Act (42 U.S.C. 7542) with 
regard to vehicles.
    (ii) For a person to fail or refuse to permit entry, testing, or 
inspection authorized under Section 206(c) (42 U.S.C. 7525(c)) or 
Section 208 of the Clean Air Act (42 U.S.C. 7542) with regard to 
vehicles.
    (iii) For a person to fail or refuse to perform tests, or to have 
tests performed as required under Section 208 of the Clean Air Act (42 
U.S.C. 7542) with regard to vehicles.
    (iv) For a person to fail to establish or maintain records as 
required under Sec. Sec.  86.1844, 86.1862, 86.1864, and 86.1865 with 
regard to vehicles.
    (v) For any manufacturer to fail to make information available as 
provided by regulation under Section 202(m)(5) of the Clean Air Act (42 
U.S.C. 7521(m)(5)) with regard to vehicles.
    (3)(i) For any person to remove or render inoperative any device or 
element of design installed on or in a vehicle or engine in compliance 
with regulations under this subpart prior to its sale and delivery to 
the ultimate purchaser, or for any person knowingly to remove or render 
inoperative any such device or element of design after such sale and 
delivery to the ultimate purchaser.
    (ii) For any person to manufacture, sell or offer to sell, or 
install, any part or component intended for use with, or as part of, 
any vehicle or engine, where a principal effect of the part or 
component is to bypass, defeat, or render inoperative any device or

[[Page 49760]]

element of design installed on or in a vehicle or engine in compliance 
with regulations issued under this subpart, and where the person knows 
or should know that the part or component is being offered for sale or 
installed for this use or put to such use.
    (4) For any manufacturer of a vehicle or engine subject to 
standards prescribed under this subpart:
    (i) To sell, offer for sale, introduce or deliver into commerce, or 
lease any such vehicle or engine unless the manufacturer has complied 
with the requirements of Section 207 (a) and (b) of the Clean Air Act 
(42 U.S.C. 7541 (a), (b)) with respect to such vehicle or engine, and 
unless a label or tag is affixed to such vehicle or engine in 
accordance with Section 207(c)(3) of the Clean Air Act (42 U.S.C. 
7541(c)(3)).
    (ii) To fail or refuse to comply with the requirements of Section 
207 (c) or (e) of the Clean Air Act (42 U.S.C. 7541 (c) or (e)).
    (iii) Except as provided in Section 207(c)(3) of the Clean Air Act 
(42 U.S.C. 7541(c)(3)), to provide directly or indirectly in any 
communication to the ultimate purchaser or any subsequent purchaser 
that the coverage of a warranty under the Clean Air Act is conditioned 
upon use of any part, component, or system manufactured by the 
manufacturer or a person acting for the manufacturer or under its 
control, or conditioned upon service performed by such persons.
    (iv) To fail or refuse to comply with the terms and conditions of 
the warranty under Section 207 (a) or (b) of the Clean Air Act (42 
U.S.C. 7541 (a) or (b)).
    (b) For the purposes of enforcement of this subpart, the following 
apply:
    (1) No action with respect to any element of design referred to in 
paragraph (a)(3) of this section (including any adjustment or 
alteration of such element) shall be treated as a prohibited act under 
paragraph (a)(3) of this section if such action is in accordance with 
Section 215 of the Clean Air Act (42 U.S.C. 7549);
    (2) Nothing in paragraph (a)(3) of this section is to be construed 
to require the use of manufacturer parts in maintaining or repairing a 
vehicle or engine. For the purposes of the preceding sentence, the term 
``manufacturer parts'' means, with respect to a motor vehicle engine, 
parts produced or sold by the manufacturer of the motor vehicle or 
motor vehicle engine;
    (3) Actions for the purpose of repair or replacement of a device or 
element of design or any other item are not considered prohibited acts 
under paragraph (a)(3) of this section if the action is a necessary and 
temporary procedure, the device or element is replaced upon completion 
of the procedure, and the action results in the proper functioning of 
the device or element of design;
    (4) Actions for the purpose of a conversion of a motor vehicle or 
motor vehicle engine for use of a clean alternative fuel (as defined in 
title II of the Clean Air Act) are not considered prohibited acts under 
paragraph (a) of this section if:
    (i) The vehicle complies with the applicable standard when 
operating on the alternative fuel; and
    (ii) In the case of engines converted to dual fuel or flexible use, 
the device or element is replaced upon completion of the conversion 
procedure, and the action results in proper functioning of the device 
or element when the motor vehicle operates on conventional fuel.
    26. A new Sec.  86.1865-12 is added to subpart S to read as 
follows:


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

    (a) Applicability. (1) Unless otherwise exempted under the 
provisions of Sec.  86.1801-12(j), CO2 fleet average exhaust 
emission standards apply to:
    (i) 2012 and later model year passenger automobiles and light 
trucks.
    (ii) Aftermarket conversion systems as defined in 40 CFR 85.502.
    (iii) Vehicles imported by ICIs as defined in 40 CFR 85.1502.
    (2) The terms ``passenger automobile'' and ``light truck'' as used 
in this section have the meanings as defined in Sec.  86.1818-12.
    (b) Useful life requirements. Full useful life requirements for 
CO2 standards are defined in Sec.  86.1818-12. There is not 
an intermediate useful life standard for CO2 standards.
    (c) Altitude. Altitude requirements for CO2 standards 
are provided in Sec.  86.1810-12(f).
    (d) Small volume manufacturer certification procedures. 
Certification procedures for small volume manufacturers are provided in 
Sec.  86.1838-01. Small businesses meeting certain criteria may be 
exempted from the fleet average CO2 standards under Sec.  
86.1801-12(j).
    (e) CO2 fleet average exhaust emission standards. The fleet average 
standards referred to in this section are the corporate fleet average 
CO2 standards for passenger automobiles and light trucks set 
forth in 86.1818-12(c) and (e). The fleet average CO2 
standards applicable in a given model year are calculated separately 
for passenger automobiles and light trucks for each manufacturer and 
each model year according to the provisions in Sec.  86.1818-12. Each 
manufacturer must comply with the applicable CO2 fleet 
average standard on a production-weighted average basis, for each 
separate averaging set, at the end of each model year, using the 
procedure described in paragraph (c) of this section.
    (f) In-use CO2 standards. In-use CO2 exhaust emission 
standards applicable to each model type are provided in Sec.  86.1818-
12(d).
    (g) Durability procedures and method of determining deterioration 
factors (DFs). Deterioration factors for CO2 exhaust 
emission standards are provided in Sec.  86.1823-08(m).
    (h) Vehicle test procedures. (1) The test procedures for 
demonstrating compliance with CO2 exhaust emission standards 
are contained in subpart B of this part and subpart B of part 600 of 
this chapter.
    (2) Testing of all passenger automobiles and light trucks to 
determine compliance with CO2 exhaust emission standards set 
forth in this section must be on a loaded vehicle weight (LVW) basis, 
as defined in Sec.  86.1803-01.
    (3) Testing for the purpose of providing certification data is 
required only at low altitude conditions. If hardware and software 
emission control strategies used during low altitude condition testing 
are not used similarly across all altitudes for in-use operation, the 
manufacturer must include a statement in the application for 
certification, in accordance with Sec. Sec.  86.1844-01(d)(11) and 
86.1810-12(f), stating what the different strategies are and why they 
are used.
    (i) Calculating the fleet average carbon-related exhaust emissions. 
(1) Manufacturers must compute separate production-weighted fleet 
average carbon-related exhaust emissions at the end of the model year 
for passenger automobiles and light trucks, using actual production, 
where production means vehicles produced and delivered for sale, and 
certifying model types to standards as defined in Sec.  86.1818-12. The 
model type carbon-related exhaust emission results determined according 
to 40 CFR 600 subpart F become the certification standard for each 
model type.
    (2) Manufacturers must separately calculate production-weighted 
fleet average carbon-related exhaust emissions levels for the following 
averaging sets according to the provisions of part 600 subpart F of 
this chapter:

[[Page 49761]]

    (i) Passenger automobiles subject to the fleet average 
CO2 standards specified in Sec.  86.1818-12(c)(2);
    (ii) Light trucks subject to the fleet average CO2 
standards specified in Sec.  86.1818-12(c)(3);
    (iii) Passenger automobiles subject to the optional interim fleet 
average CO2 standards specified in Sec.  86.1818-12(e), if 
applicable; and
    (iv) Light trucks subject to the optional interim fleet average 
CO2 standards specified in Sec.  86.1818-12(e), if 
applicable.
    (j) Certification compliance and enforcement requirements for CO2 
exhaust emission standards. (1) Compliance and enforcement requirements 
are provided in Sec.  86.1864-10 and Sec.  86.1848-10(c)(8).
    (2) The certificate issued for each test group requires all model 
types within that test group to meet the emission standard to which 
each model type is certified.
    (3) Each manufacturer must comply with the applicable 
CO2 fleet average standard on a production-weighted average 
basis, at the end of each model year, using the procedure described in 
paragraph (i) of this section.
    (4) Manufacturers must compute separate CO2 fleet 
averages for passenger automobiles and light trucks. The production-
weighted CO2 fleet averages must be compared with the 
applicable fleet average standard.
    (5) Each manufacturer must comply on an annual basis with the fleet 
average standards as follows:
    (i) Manufacturers must report in their annual reports to the Agency 
that they met the relevant corporate average standard by showing that 
their production-weighted average CO2 emissions levels of 
passenger automobiles and light trucks, as applicable, are at or below 
the applicable fleet average standard; or
    (ii) If the production-weighted average is above the applicable 
fleet average standard, manufacturers must obtain and apply sufficient 
CO2 credits as authorized under paragraph (k)(7) of this 
section. A manufacturer must show that they have offset any exceedence 
of the corporate average standard via the use of credits. Manufacturers 
must also include their credit balances or deficits in their annual 
report to the Agency.
    (iii) If a manufacturer fails to meet the corporate average 
CO2 standard for four consecutive years, the vehicles 
causing the corporate average exceedence will be considered not covered 
by the certificate of conformity (see paragraph (k)(7) of this 
section). A manufacturer will be subject to penalties on an individual-
vehicle basis for sale of vehicles not covered by a certificate.
    (iv) EPA will review each manufacturer's production to designate 
the vehicles that caused the exceedence of the corporate average 
standard. EPA will designate as nonconforming those vehicles in test 
groups with the highest certification emission values first, continuing 
until reaching a number of vehicles equal to the calculated number of 
noncomplying vehicles as determined in paragraph (k)(7) of this 
section. In a group where only a portion of vehicles would be deemed 
nonconforming, EPA will determine the actual nonconforming vehicles by 
counting backwards from the last vehicle produced in that test group. 
Manufacturers will be liable for penalties for each vehicle sold that 
is not covered by a certificate.
    (k) Requirements for the CO2 averaging, banking and trading (ABT) 
program. (1) A manufacturer whose CO2 fleet average 
emissions exceed the applicable standard must complete the calculation 
in paragraph (k)(4) of this section to determine the size of its 
CO2 deficit. A manufacturer whose CO2 fleet 
average emissions are less than the applicable standard must complete 
the calculation in paragraph (k)(4) of this section to generate 
CO2 credits. In either case, the number of credits or debits 
must be rounded to the nearest whole number.
    (2) There are no property rights associated with CO2 
credits generated under this subpart. Credits are a limited 
authorization to emit the designated amount of emissions. Nothing in 
this part or any other provision of law should be construed to limit 
EPA's authority to terminate or limit this authorization through a 
rulemaking.
    (3) Each manufacturer must comply with the reporting and 
recordkeeping requirements of paragraph (l) of this section for 
CO2 credits, including early credits. The averaging, banking 
and trading program is enforceable through the certificate of 
conformity that allows the manufacturer to introduce any regulated 
vehicles into commerce.
    (4) Credits are earned on the last day of the model year. 
Manufacturers must calculate, for a given model year, the number of 
credits or debits it has generated according to the following equation, 
rounded to the nearest megagram:

CO2 Credits or Debits (Mg) = [(CO2 Standard--
Manufacturer's Production-Weighted Fleet Average CO2 
Emissions) x (Total Number of Vehicles Produced) x (Vehicle Lifetime 
Miles)] / 1,000,000

Where:

CO2 Standard = the applicable standard for the model year 
as determined by Sec.  86.1818-12;
Manufacturer's Production-Weighted Fleet Average CO2 
Emissions = average calculated according to paragraph (i) of this 
section;
Total Number of Vehicles Produced = The number of vehicles 
domestically produced plus those imported as defined in 40 CFR 
600.511-80; and
Vehicle Lifetime Miles is 190,971 for passenger automobiles and 
221,199 for light trucks.

    (5) Total credits or debits generated in a model year, maintained 
and reported separately for passenger automobiles and light trucks, 
shall be the sum of the credits or debits calculated in paragraph 
(k)(4) of this section and any of the following credits, if applicable:
    (i) Air conditioning leakage credits earned according to the 
provisions of 86.1866-12(b);
    (ii) Air conditioning efficiency credits earned according to the 
provisions of 86.1866-12(c);
    (iii) Off-cycle technology credits earned according to the 
provisions of 86.1866-12(d).
    (6) Unused CO2 credits shall retain their full value 
through the five subsequent model years after the model year in which 
they were generated. Credits available at the end of the fifth model 
year after the year in which they were generated shall expire.
    (7) Credits may be used as follows:
    (i) Credits generated and calculated according to the method in 
paragraph (k)(4) of this section may not be used to offset deficits 
other than those deficits accrued with respect to the standard in Sec.  
86.1818-12. Credits may be banked and used in a future model year in 
which a manufacturer's average CO2 level exceeds the 
applicable standard. Credits may be exchanged between the passenger 
automobile and light truck fleets of a given manufacturer. Credits may 
also be traded to another manufacturer according to the provisions in 
paragraph (k)(8) of this section. Before trading or carrying over 
credits to the next model year, a manufacturer must apply available 
credits to offset any deficit, where the deadline to offset that credit 
deficit has not yet passed.
    (ii) The use of credits shall not change Selective Enforcement 
Auditing or in-use testing failures from a failure to a non-failure. 
The enforcement of the averaging standard occurs through the vehicle's 
certificate of conformity. A manufacturer's certificate of conformity 
is conditioned upon compliance with the averaging provisions. The 
certificate will be void ab initio if a manufacturer

[[Page 49762]]

fails to meet the corporate average standard and does not obtain 
appropriate credits to cover its shortfalls in that model year or 
subsequent model years (see deficit carry-forward provisions in 
paragraph (k)(7) of this section). Manufacturers must track their 
certification levels and production unless they produce only vehicles 
certified to CO2 levels below the standard and do not plan 
to bank credits.
    (iii) Special provisions for manufacturers using the optional 
interim fleet average CO2 standards. (A) Credits generated by vehicles 
subject to the fleet average CO2 standards specified in 
Sec.  86.1818-12(c) may only be used to offset a deficit generated by 
vehicles subject to the optional interim fleet average CO2 
standards specified in Sec.  86.1818-12(e).
    (B) Credits generated by a passenger automobile or light truck 
averaging set subject to the optional interim fleet average 
CO2 standards specified in Sec.  86.1818-12(e)(2)(i) or (ii) 
of this section may be used to offset a deficit generated by an 
averaging set subject to the optional interim fleet average 
CO2 standards through the 2015 model year.
    (C) Credits generated by an averaging set subject to the optional 
interim fleet average CO2 standards specified in Sec.  
86.1818-12(e)(2)(i) or (ii) of this section may not be used to offset a 
deficit generated by an averaging set subject to the fleet average 
CO2 standards specified in Sec.  86.1818-12(c)(2) or (3) or 
otherwise transferred to an averaging set subject to the fleet average 
CO2 standards specified in Sec.  86.1818-12(c)(2) or (3).
    (D) Credits generated by vehicles subject to the optional interim 
fleet average CO2 standards specified in Sec.  86.1818-
12(e)(2)(i) or (ii) may be banked for use in a future model year, 
except that all such credits shall expire at the end of the 2015 model 
year.
    (E) A manufacturer with any vehicles subject to the optional 
interim fleet average CO2 standards specified in Sec.  
86.1818-12(e)(2)(i) or (ii) of this section in a model year in which 
that manufacturer also generates credits with vehicles subject to the 
fleet average CO2 standards specified in Sec.  86.1818-12(c) 
may not trade those credits or bank those credits earned against the 
fleet average standards in Sec.  86.1818-12(c) for use in a future 
model year.
    (8) The following provisions apply if debits are accrued:
    (i) If a manufacturer calculates that it has negative credits (also 
called ``debits'' or a ``credit deficit'') for a given model year, it 
may carry that deficit forward into the next three model years. Such a 
carry-forward may only occur after the manufacturer exhausts any supply 
of banked credits. At the end of the third model year, the deficit must 
be covered with an appropriate number of credits that the manufacturer 
generates or purchases. Any remaining deficit is subject to a voiding 
of the certificate ab initio, as described in this paragraph (k)(8). 
Manufacturers are not permitted to have a credit deficit for four 
consecutive years.
    (ii) If debits are not offset within the specified time period, the 
number of vehicles not meeting the fleet average CO2 
standards (and therefore not covered by the certificate) must be 
calculated.
    (A) Determine the gram per mile quantity of debits for the 
noncompliant vehicle category by multiplying the total megagram deficit 
by 1,000,000 and then dividing by the vehicle lifetime miles for the 
vehicle category (passenger automobile or light truck) specified in 
paragraph (k)(4) of this section.
    (B) Divide the result by the fleet average standard applicable to 
the model year in which the deficit failed to be offset and round to 
the nearest whole number to determine the number of vehicles not 
meeting the fleet average CO2 standards.
    (iii) EPA will determine the vehicles not covered by a certificate 
because the condition on the certificate was not satisfied by 
designating vehicles in those test groups with the highest 
CO2 emission values first and continuing until reaching a 
number of vehicles equal to the calculated number of noncomplying 
vehicles as determined in paragraph (k)(7) of this section. If this 
calculation determines that only a portion of vehicles in a test group 
contribute to the debit situation, then EPA will designate actual 
vehicles in that test group as not covered by the certificate, starting 
with the last vehicle produced and counting backwards.
    (iv)(A) If a manufacturer ceases production of passenger cars and 
light trucks, the manufacturer continues to be responsible for 
offsetting any debits outstanding within the required time period. Any 
failure to offset the debits will be considered a violation of 
paragraph (k)(7)(i) of this section and may subject the manufacturer to 
an enforcement action for sale of vehicles not covered by a 
certificate, pursuant to paragraphs (k)(7)(ii) and (iii) of this 
section.
    (B) If a manufacturer is purchased by, merges with, or otherwise 
combines with another manufacturer, the controlling entity is 
responsible for offsetting any debits outstanding within the required 
time period. Any failure to offset the debits will be considered a 
violation of paragraph (k)(7)(i) of this section and may subject the 
manufacturer to an enforcement action for sale of vehicles not covered 
by a certificate, pursuant to paragraphs (k)(7)(ii) and (iii) of this 
section.
    (v) For purposes of calculating the statute of limitations, a 
violation of the requirements of paragraph (k)(7)(i) of this section, a 
failure to satisfy the conditions upon which a certificate(s) was 
issued and hence a sale of vehicles not covered by the certificate, all 
occur upon the expiration of the deadline for offsetting debits 
specified in paragraph (k)(7)(i) of this section.
    (9) The following provisions apply to CO2 credit 
trading:
    (i) EPA may reject CO2 credit trades if the involved 
manufacturers fail to submit the credit trade notification in the 
annual report.
    (ii) A manufacturer may not sell credits that are not available for 
sale pursuant to the provisions in paragraph (k)(6)(i) of this section.
    (iii) In the event of a negative credit balance resulting from a 
transaction, both the buyer and seller are liable. EPA may void ab 
initio the certificates of conformity of all test groups participating 
in such a trade.
    (iv) (A) If a manufacturer trades a credit that it has not 
generated pursuant to paragraph (k) of this section or acquired from 
another party, the manufacturer will be considered to have generated a 
debit in the model year that the manufacturer traded the credit. The 
manufacturer must offset such debits by the deadline for the annual 
report for that same model year.
    (B) Failure to offset the debits within the required time period 
will be considered a failure to satisfy the conditions upon which the 
certificate(s) was issued and will be addressed pursuant to paragraph 
(k)(7) of this section.
    (v) A manufacturer may only trade credits that it has generated 
pursuant to paragraph (k)(4) of this section or acquired from another 
party.
    (l) Maintenance of records and submittal of information relevant to 
compliance with fleet average CO2 standards--(1) Maintenance of 
records. (i) Manufacturers producing any light-duty vehicles, light-
duty trucks, or medium-duty passenger vehicles subject to the 
provisions in this subpart must establish, maintain, and retain all the 
following information in adequately organized records for each model 
year:
    (A) Model year.
    (B) Applicable fleet average CO2 standards for each 
averaging set as defined in paragraph (i) of this section.

[[Page 49763]]

    (C) The calculated fleet average CO2 value for each 
averaging set as defined in paragraph (i) of this section.
    (D) All values used in calculating the fleet average CO2 
values.
    (ii) Manufacturers producing any passenger cars or light trucks 
subject to the provisions in this subpart must establish, maintain, and 
retain all the following information in adequately organized records 
for each passenger car or light truck subject to this subpart:
    (A) Model year.
    (B) Applicable fleet average CO2 standard.
    (C) EPA test group.
    (D) Assembly plant.
    (E) Vehicle identification number.
    (F) Carbon-related exhaust emission standard to which the passenger 
car or light truck is certified.
    (G) In-use carbon-related exhaust emission standard.
    (H) Information on the point of first sale, including the 
purchaser, city, and State.
    (iii) Manufacturers must retain all required records for a period 
of eight years from the due date for the annual report. Records may be 
stored in any format and on any media, as long as manufacturers can 
promptly send EPA organized written records in English if we ask for 
them. Manufacturers must keep records readily available as EPA may 
review them at any time.
    (iv) The Administrator may require the manufacturer to retain 
additional records or submit information not specifically required by 
this section.
    (v) Pursuant to a request made by the Administrator, the 
manufacturer must submit to the Administrator the information that the 
manufacturer is required to retain.
    (vi) EPA may void ab initio a certificate of conformity for 
vehicles certified to emission standards as set forth or otherwise 
referenced in this subpart for which the manufacturer fails to retain 
the records required in this section or to provide such information to 
the Administrator upon request, or to submit the reports required in 
this section in the specified time period.
    (2) Reporting. (i) Each manufacturer must submit an annual report. 
The annual report must contain for each applicable CO2 
standard, the calculated fleet average CO2 value, all values 
required to calculate the CO2 emissions value, the number of 
credits generated or debits incurred, all the values required to 
calculate the credits or debits, and the resulting balance of credits 
or debits.
    (ii) For each applicable fleet average CO2 standard, the 
annual report must also include documentation on all credit 
transactions the manufacturer has engaged in since those included in 
the last report. Information for each transaction must include all of 
the following:
    (A) Name of credit provider.
    (B) Name of credit recipient.
    (C) Date the trade occurred.
    (D) Quantity of credits traded in megagrams.
    (E) Model year in which the credits were earned.
    (iii) Manufacturers calculating early air conditioning leakage and/
or efficiency credits under paragraph (b) of this section shall report 
the following information for each model year separately for passenger 
automobiles and light trucks and for each air conditioning system used 
to generate credits:
    (A) A description of the air conditioning system.
    (B) The leakage credit value and all the information required to 
determine this value.
    (C) The total credits earned for each averaging set, model year, 
and region, as applicable.
    (iv) Manufacturers calculating early advanced technology vehicle 
credits under paragraph (c) of this section shall report, for each 
model year and separately for passenger automobiles and light trucks, 
the following information:
    (A) The number of each model type of eligible vehicle sold.
    (B) The carbon-related exhaust emission value by model type and 
model year.
    (v) Manufacturers calculating early off-cycle technology credits 
under paragraph (d) of this section shall report, for each model year 
and separately for passenger automobiles and light trucks, all test 
results and data required for calculating such credits.
    (vi) Unless a manufacturer reports the data required by this 
section in the annual production report required under Sec.  86.1844-
01(e) or the annual report required under Sec.  600.512-12, a 
manufacturer must submit an annual report for each model year after 
production ends for all affected vehicles produced by the manufacturer 
subject to the provisions of this subpart and no later than May 1 of 
the calendar year following the given model year. Annual reports must 
be submitted to: Director, Compliance and Innovative Strategies 
Division, U.S. Environmental Protection Agency, 2000 Traverwood, Ann 
Arbor, Michigan 48105.
    (vii) Failure by a manufacturer to submit the annual report in the 
specified time period for all vehicles subject to the provisions in 
this section is a violation of section 203(a)(1) of the Clean Air Act 
(42 U.S.C. 7522 (a)(1)) for each applicable vehicle produced by that 
manufacturer.
    (viii) If EPA or the manufacturer determines that a reporting error 
occurred on an annual report previously submitted to EPA, the 
manufacturer's credit or debit calculations will be recalculated. EPA 
may void erroneous credits, unless traded, and will adjust erroneous 
debits. In the case of traded erroneous credits, EPA must adjust the 
selling manufacturer's credit balance to reflect the sale of such 
credits and any resulting credit deficit.
    (3) Notice of opportunity for hearing. Any revoking of the 
certificate under paragraph (l)(1)(vi) of this section will be made 
only after EPA has offered the affected manufacturer an opportunity for 
a hearing conducted in accordance with Sec.  86.614-84 for light-duty 
vehicles or Sec.  86.1014-84 for light-duty trucks and, if a 
manufacturer requests such a hearing, will be made only after an 
initial decision by the Presiding Officer.
    27. A new section 86.1866-12 is added to subpart S to read as 
follows:


Sec.  86.1866-12  CO2 fleet average credit programs.

    (a) Additional credits for certification of advanced technology 
vehicles. A manufacturer may generate additional credits by certifying 
and producing electric vehicles, plug-in hybrid electric vehicles, or 
fuel cell electric vehicles, as those terms are defined in Sec.  
86.1803-01, in the 2012 through 2016 model years. When calculating the 
fleet average CO2 emissions according to the provisions of 
part 600 subpart F of this chapter, the manufacturer may multiply the 
number of advanced technology vehicles produced by [1.2-2.0]. This 
multiplier may be used if the following conditions are met:
    (1) Documentation of the use of this multiplier and the number of 
credits generated by its use shall be included in the annual report to 
the Administrator;
    (2) Vehicles must be certified to Tier 2 Bin No. 5 or a more 
stringent set of emissions standards in Sec.  86.1811-04(c)(6);
    (3) These multipliers may not be used after the 2016 model year;
    (b) Credits for reduction of air conditioning refrigerant leakage. 
Manufacturers may generate credits applicable to the CO2 
fleet average program described in Sec.  86.1865-12 by implementing 
specific air conditioning system technologies designed to reduce air 
conditioning refrigerant leakage over the useful life of their 
passenger cars and/or light trucks. Credits shall be calculated 
according to this paragraph

[[Page 49764]]

(b) for each air conditioning system that the manufacturer is using to 
generate CO2 credits.
    (1) The manufacturer shall calculate an annual rate of refrigerant 
leakage from an air conditioning system in grams per year according to 
the provisions of Sec.  86.166-12.
    (2) The CO2-equivalent gram per mile leakage reduction 
to be used to calculate the total credits generated by the air 
conditioning system shall be determined according to the following 
formulae, rounded to the nearest tenth of a gram per mile:
    (i) Passenger automobiles:
    [GRAPHIC] [TIFF OMITTED] TP28SE09.056
    
Where:

MaxCredit is 12.6 for air conditioning systems using HFC 134a, and 
13.8 for air conditioning systems using a refrigerant with a lower 
global warming potential.
Leakage means the annual refrigerant leakage rate determined 
according to the provisions of Sec.  86.166-12(a), except if the 
calculated rate is less than 8.3 grams per year the rate for the 
purpose of this formula shall be 8.3 grams per year;
GWPNEW means the global warming potential of the 
refrigerant, if such refrigerant is not R134a, as determined by the 
Administrator;
GWPHFC134a means the global warming potential of HFC 
134a, which shall be equal to 1430 unless determined otherwise by 
the Administrator.

    (ii) Light trucks:
    [GRAPHIC] [TIFF OMITTED] TP28SE09.057
    
Where:

    MaxCredit is 15.6 for air conditioning systems using HFC 134a, 
and 17.2 for air conditioning systems using a refrigerant with a 
lower global warming potential.
    Leakage means the annual refrigerant leakage rate determined 
according to the provisions of Sec.  86.166-12(a), except if the 
calculated rate is less than 10.4 grams per year the rate for the 
purpose of this formula shall be 10.4 grams per year;
GWPNEW means the global warming potential of the 
refrigerant, if such refrigerant is not HFC 134a, as determined by 
the Administrator;
GWPR134a means the global warming potential of HFC 134a, 
which shall be equal to 1430 unless determined otherwise by the 
Administrator.

    (3) The total leakage reduction credits generated by the air 
conditioning system shall be calculated separately for passenger cars 
and light trucks according to the following formula:

Total Credits (megagrams) = (Leakage x Production x VLM) / 1,000,000
Where:

Leakage = the CO2-equivalent leakage credit value in 
grams per mile determined in paragraph (b)(2) of this section.
Production = The total number of passenger cars or light trucks, 
whichever is applicable, produced with the air conditioning system 
to which to the leakage credit value from paragraph (b)(2) of this 
section applies.
VLM = vehicle lifetime miles, which for passenger cars shall be 
190,971 and for light trucks shall be 221,199.

    (4) The results of paragraph (b)(3) of this section, rounded to the 
nearest whole number, shall be included in the manufacturer's credit/
debit totals calculated in Sec.  86.1865-12(k)(5).
    (c) Credits for improving air conditioning system efficiency. 
Manufacturers may generate credits applicable to the CO2 
fleet average program described in Sec.  86.1865-12 by implementing 
specific air conditioning system technologies designed to reduce air 
conditioning-related CO2 emissions over the useful life of 
their passenger cars and/or light trucks. Credits shall be calculated 
according to this paragraph (c) for each air conditioning system that 
the manufacturer is using to generate CO2 credits. 
Manufacturers may also generate early air conditioning efficiency 
credits under this paragraph (b) for the 2009 through 2011 model years 
according to the provisions of Sec.  86.1867-12(c). For model years 
2012 and 2013 the manufacturer may determine air conditioning 
efficiency credits using the requirements in paragraphs (c)(1) through 
(4) of this section. For model years 2014 and later the eligibility 
requirements specified in paragraph (c)(5) of this section must be met 
before an air conditioning system is allowed to generate credits.
    (1) Air conditioning efficiency credits are available for the 
following technologies in the gram per mile amounts indicated:
    (i) Reduced reheat, with externally-controlled, variable-
displacement compressor: 1.7 g/mi.
    (ii) Reduced reheat, with externally-controlled, fixed-displacement 
or pneumatic variable displacement compressor: 1.1 g/mi.
    (iii) Default to recirculated air mode whenever the air 
conditioning system is being used to reduce cabin air temperature and 
the outside air temperature is greater than 75 [deg]F: 1.7 g/mi.
    (iv) Blower motor and cooling fan controls which limit waste energy 
(e.g. pulsewidth modulated power controller): 0.9 g/mi.
    (v) Electronic expansion valve: 1.1 g/mi.
    (vi) Improved evaporators and condensers (with system analysis on 
each component indicating a coefficient of performance improvement 
greater than 10%, when compared to previous design): 1.1 g/mi.
    (vii) Oil separator: 0.6 g/mi.
    (2) Air conditioning efficiency credits are determined on an air 
conditioning system basis. For each air conditioning system that is 
eligible for a credit based on the use of one or more of the items 
listed in paragraph (c)(1) of this section, the total credit value is 
the sum of the gram per mile values listed in paragraph (c)(1) of this 
section for each item that applies to the air conditioning system. If 
the sum of those values for an air conditioning system is greater than 
5.7 grams per mile, the total credit value is deemed to be 5.7 grams 
per mile.
    (3) The total efficiency credits generated by an air conditioning 
system shall be calculated separately for passenger cars and light 
trucks according to the following formula:

Total Credits (Megagrams) = (Credit x Production x VLM) / 1,000,000

Where:


[[Page 49765]]


Credit = the CO2 efficiency credit value in grams per 
mile determined in paragraph (c)(2) of this section.
Production = The total number of passenger cars or light trucks, 
whichever is applicable, produced with the air conditioning system 
to which the efficiency credit value from paragraph (c)(2) of this 
section applies.
VLM = vehicle lifetime miles, which for passenger cars shall be 
190,971 and for light trucks shall be 221,199.

    (4) The results of paragraph (c)(3) of this section, rounded to the 
nearest whole number, shall be included in the manufacturer's credit/
debit totals calculated in Sec.  86.1865-12(k)(5).
    (5) Use of the Air Conditioning Idle Test Procedure is required 
after the 2013 model year as specified in this paragraph (c)(5).
    (i) After the 2013 model year, for each air conditioning system 
selected by the manufacturer to generate air conditioning efficiency 
credits, the manufacturer shall perform the Air Conditioning Idle Test 
Procedure specified in Sec.  86.165-14 of this part.
    (ii) Using good engineering judgment, the manufacturer must select 
the vehicle configuration to be tested that is expected to result in 
the greatest increased CO2 emissions as a result of the 
operation of the air conditioning system for which efficiency credits 
are being sought. If the air conditioning system is being installed in 
passenger automobiles and light trucks, a separate determination of the 
quantity of credits for passenger automobiles and light trucks must be 
made, but only one test vehicle is required to represent the air 
conditioning system, provided it represents the worst-case impact of 
the system on CO2 emissions.
    (iii) For an air conditioning system to be eligible to generate 
credits in the 2014 and later model years, the increased CO2 
emissions as a result of the operation of that air conditioning system 
determined according to the Idle Test Procedure in Sec.  86.165-14 must 
be less than 14.9 grams per minute.
    (iv) Air conditioning systems with compressors that are solely 
powered by electricity shall submit Air Conditioning Idle Test 
Procedure data to be eligible to generate credits in the 2014 and later 
model years, but such systems are not required to meet a specific 
threshold to be eligible to generate such credits, as long as the 
engine remains off for a period of at least 2 minutes during the air 
conditioning on portion of the Idle Test Procedure in Sec.  86.165-12 
(d).
    (6) The following definitions apply to this paragraph (c):
    (i) Reduced reheat, with externally-controlled, variable 
displacement compressor means a system in which compressor displacement 
is controlled via an electronic signal, based on input from sensors 
(e.g. position or setpoint of interior temperature control, interior 
temperature, evaporator outlet air temperature, or refrigerant 
temperature) and air temperature at the outlet of the evaporator can be 
controlled to a level at 41 [deg]F, or higher.
    (ii) Reduced reheat, with externally-controlled, fixed-displacement 
or pneumatic variable displacement compressor means a system in which 
the output of either compressor is controlled by cycling the compressor 
clutch off-and-on via an electronic signal, based on input from sensors 
(e.g. position or setpoint of interior temperature control, interior 
temperature, evaporator outlet air temperature, or refrigerant 
temperature) and air temperature at the outlet of the evaporator can be 
controlled to a level at 41 [deg]F, or higher.
    (iii) Default to recirculated air mode means that the default 
position of the mechanism which controls the source of air supplied to 
the air conditioning system shall change from outside air to 
recirculated air when the operator or the automatic climate control 
system has engaged the air conditioning system (i.e. evaporator is 
removing heat), except under those conditions where dehumidification is 
required for visibility (i.e. defogger mode). In vehicles equipped with 
interior air quality sensors (e.g. humidity sensor, or carbon dioxide 
sensor), the controls may determine proper blend of air supply sources 
to maintain freshness of the cabin air while continuing to maximize the 
use of recirculated air. At any time, the vehicle operator may manually 
select the non-recirculated air setting during vehicle operation but 
the system must default to recirculated air mode on subsequent vehicle 
operations (i.e. next vehicle start). The climate control system may 
delay switching to recirculation mode until the interior air 
temperature is less than the outside air temperature, at which time the 
system must switch to recirculated air mode.
    (iv) Blower motor and cooling fan controls which limit waste energy 
means a method of controlling fan and blower speeds which does not use 
resistive elements to decrease the voltage supplied to the motor.
    (v) Electronic expansion valve means a valve which throttles the 
expansion of the refrigerant where the position of the valve (and flow 
of refrigerant) is controlled via an electronic signal, based on input 
from sensors (e.g. position or setpoint of interior temperature 
control, interior temperature, evaporator outlet air temperature, or 
refrigerant temperature).
    (vi) Improved evaporators and condensers means that the coefficient 
of performance (COP) of air conditioning system using improved 
evaporator and condenser designs is 10 percent higher, as determined 
using the bench test procedures described in SAE J2765 ``Procedure for 
Measuring System COP of a Mobile Air Conditioning System on a Test 
Bench,'' when compared to a system using standard, or prior model year, 
component designs. SAE J2765 is incorporated by reference; see Sec.  
86.1.
    (vii) Oil separator means a mechanism which removes at least 50 
percent of the oil entrained in the oil/refrigerant mixture exiting the 
compressor and returns it to the compressor housing or compressor 
inlet, or a compressor design which does not rely on the circulation of 
an oil/refrigerant mixture for lubrication.
    (d) Credits for CO2-reducing technologies where the 
CO2 reduction is not captured on the Federal Test Procedure 
or the Highway Fuel Economy Test. Manufacturers may optionally generate 
credits applicable to the CO2 fleet average program 
described in Sec.  86.1865-12 by implementing innovative technologies 
that have a measurable, demonstrable, and verifiable real-world 
CO2 reduction. These optional credits are referred to as 
``off-cycle'' credits and may be earned through the 2016 model year.
    (1) Qualification criteria. To qualify for this credit, the 
following must be true:
    (i) The technology must be an innovative and novel vehicle- or 
engine-based approach to reducing greenhouse gas emissions, and not in 
widespread use.
    (ii) The CO2-reducing impact of the technology must not 
be significantly measurable over the Federal Test Procedure and the 
Highway Fuel Economy Test. The technology must improve CO2 
emissions beyond the driving conditions of those tests.
    (iii) The technology must be able to be demonstrated to be 
effective for the full useful life of the vehicle. Unless the 
manufacturer demonstrates that the technology is not subject to in-use 
deterioration, the manufacturer must account for the deterioration in 
their analysis.
    (2) Quantifying the CO2 reductions of an off-cycle 
technology. The manufacturer may use one of the two options specified 
in this paragraph (d)(2) to measure the CO2-reducing 
potential of an innovative off-cycle technology. The option described 
in paragraph (d)(2)(ii) of this section may

[[Page 49766]]

be used only with EPA approval, and to use that option the manufacturer 
must be able to justify to the Administrator why the 5-cycle option 
described in paragraph (d)(2)(i) of this section insufficiently 
characterizes the effectiveness of the off-cycle technology. The 
manufacturer should notify EPA in their pre-model year report of their 
intention to generate any credits under paragraph (d) of this section.
    (i) Technology demonstration using EPA 5-cycle methodology. To 
demonstrate an off-cycle technology and to determine a CO2 
credit using the EPA 5-cycle methodology, the manufacturer shall 
determine 5-cycle city/highway combined carbon-related exhaust 
emissions both with the technology installed and operating and without 
the technology installed and/or operating. The manufacturer shall 
conduct the following steps, both with the off-cycle technology 
installed and operating and without the technology operating or 
installed.
    (A) Determine carbon-related exhaust emissions over the FTP, the 
HFET, the US06, the SC03, and the cold temperature FTP test procedures 
according to the test procedure provisions specified in 40 CFR part 600 
subpart B and using the calculation procedures specified in Sec.  
600.113-08 of this chapter.
    (B) Calculate 5-cycle city and highway carbon-related exhaust 
emissions using data determined in paragraph (d)(2)(i)(A) of this 
section according to the calculation procedures in paragraphs (d) 
through (f) of 40 CFR 600.114-08.
    (C) Calculate a 5-cycle city/highway combined carbon-related 
exhaust emission value using the city and highway values determined in 
paragraph (d)(2)(i)(B) of this section.
    (D) Subtract the 5-cycle city/highway combined carbon-related 
exhaust emission value determined with the off-cycle technology 
operating from the 5-cycle city/highway combined carbon-related exhaust 
emission value determined with the off-cycle technology not operating. 
The result is the gram per mile credit amount assigned to the 
technology.
    (ii) Technology demonstration using alternative EPA-approved 
methodology. In cases where the EPA 5-cycle methodology described in 
paragraph (d)(2)(i) of this section cannot adequately measure the 
emission reduction attributable to an innovative off-cycle technology, 
the manufacturer may develop an alternative approach. Prior to a model 
year in which a manufacturer intends to seek these credits, the 
manufacturer must submit a detailed analytical plan to EPA. EPA will 
work with the manufacturer to ensure that an analytical plan will 
result in appropriate data for the purposes of generating these 
credits. The alternative demonstration program must be approved in 
advance by the Administrator and should:
    (A) Use modeling, on-road testing, on-road data collection, or 
other approved analytical or engineering methods;
    (B) Be robust, verifiable, and capable of demonstrating the real-
world emissions benefit with strong statistical significance;
    (C) Result in a demonstration of baseline and controlled emissions 
over a wide range of driving conditions and number of vehicles such 
that issues of data uncertainty are minimized;
    (D) Result in data on a model type basis unless the manufacturer 
demonstrates that another basis is appropriate and adequate.
    (iii) Calculation of total off-cycle credits. Total off-cycle 
credits in Megagrams of CO2 shall be calculated separately 
for passenger automobiles and light trucks according to the following 
formula:
Total Credits (Megagrams) = (Credit x Production x VLM) / 1,000,000

Where:

Credit = the 5-cycle credit value in grams per mile determined in 
paragraph (d)(2)(i)(D) or (d)(2)(ii) of this section.
Production = The total number of passenger cars or light trucks, 
whichever is applicable, produced with the off-cycle technology to 
which to the credit value determined in paragraph (d)(2)(i)(D) or 
(d)(2)(ii) of this section applies.
VLM = vehicle lifetime miles, which for passenger cars shall be 
190,971 and for light trucks shall be 221,199.

    28. A new Sec.  86.1867-12 is added to subpart S to read as 
follows:

Sec.  86.1867-12  Optional early CO2 credit programs.

    Manufacturers may optionally generate CO2 credits in the 
2009 through 2011 model years for use in the 2012 and later model years 
subject to the provisions of this section. Manufacturers may generate 
early fleet average credits, air conditioning leakage credits, air 
conditioning efficiency credits, early advanced technology credits, and 
early off-cycle technology credits. Manufacturers generating any 
credits under this section must submit an early credits report to the 
Administrator as required in this section.
    (a) Early fleet average CO2 reduction credits. 
Manufacturers may optionally generate credits for reductions in their 
fleet average CO2 emissions achieved in the 2009 through 
2011 model years. To generate early fleet average CO2 
reduction credits, manufacturers must select one of the four pathways 
described in paragraphs (a)(1) through (4) of this section. The 
manufacturer may select only one pathway, and that pathway must remain 
in effect for the 2009 through 2011 model years. Fleet average credits 
(or debits) must be calculated and reported to EPA for each model year 
under each selected pathway. Early credits are subject to five year 
carry-forward restrictions based on the model year in which the credits 
are generated.
    (1) Pathway 1. To earn credits under this pathway, the manufacturer 
shall calculate an average carbon-related exhaust emission value to the 
nearest one gram per mile for the classes of motor vehicles identified 
in this paragraph (a)(1), and the results of such calculations will be 
reported to the Administrator for use in determining compliance with 
the applicable CO2 early credit threshold values.
    (i) An average carbon-related exhaust emission value calculation 
will be made for the combined LDV/LDT1 averaging set.
    (ii) An average carbon-related exhaust emission value calculation 
will be made for the combined LDT2/HLDT/MDPV averaging set.
    (iii) Average carbon-related exhaust emission values shall be 
determined according to the provisions of 40 CFR 600.510-12, except 
that:
    (A) Total U.S. model year sales data will be used, instead of 
production data;
    (B) The average carbon-related exhaust emissions for alcohol fueled 
model types shall be calculated according to the provisions of 40 CFR 
600.510-12(j)(2)(ii)(B), without the use of the 0.15 multiplicative 
factor.
    (C) The average carbon-related exhaust emissions for natural gas 
fueled model types shall be calculated according to the provisions of 
40 CFR 600.510-12(j)(2)(iii)(B), without the use of the 0.15 
multiplicative factor.
    (D) The average carbon-related exhaust emissions for alcohol dual 
fueled model types shall be calculated according to the provisions of 
40 CFR 600.510-12(j)(2)(vi), without the use of the 0.15 multiplicative 
factor and with F=0. For the 2010 and 2011 model years only, if the 
California Air Resources Board has approved a manufacturer's request to 
use a non-zero value of F, the manufacturer may use such an approved 
value.
    (E) The average carbon-related exhaust emissions for natural gas 
dual fueled model types shall be calculated according to the provisions 
of 40 CFR

[[Page 49767]]

600.510-12(j)(2)(vii), without the use of the 0.15 multiplicative 
factor and with F=0. For the 2010 and 2011 model years only, if the 
California Air Resources Board has approved a manufacturer's request to 
use a non-zero value of F, the manufacturer may use such an approved 
value.
    (F) 40 CFR 600.510-12(j)(3) shall not apply. Electric, fuel cell 
electric, and plug-in hybrid electric model type carbon-related exhaust 
emission values shall be included in the fleet average determined under 
paragraph (a)(1) of this section only to the extent that such vehicles 
are not being used to generate early advanced technology vehicle 
credits under paragraph (c) of this section.
    (iv) Fleet average CO2 credit threshold values.

------------------------------------------------------------------------
          Model year                 LDV/LDT1          LDT2/HLDT/MDPV
------------------------------------------------------------------------
2009..........................  321..............  437
2010..........................  299..............  418
2011..........................  265..............  388
------------------------------------------------------------------------

     (v) Credits are earned on the last day of the model year. 
Manufacturers must calculate, for a given model year, the number of 
credits or debits it has generated according to the following equation, 
rounded to the nearest megagram:

CO2 Credits or Debits (Mg) = [(CO2 Credit 
Threshold - Manufacturer's Sales Weighted Fleet Average CO2 
Emissions) x (Total Number of Vehicles Sold) x (Vehicle Lifetime 
Miles)] / 1,000,000

Where:

CO2 Credit Threshold = the applicable credit threshold 
value for the model year and vehicle averaging set as determined by 
paragraph (a)(1)(iv) of this section;
Manufacturer's Sales Weighted Fleet Average CO2 Emissions 
= average calculated according to paragraph (a)(1)(iii) of this 
section;
Total Number of Vehicles Sold = The number of vehicles domestically 
sold as defined in 40 CFR 600.511-80; and
Vehicle Lifetime Miles is 190,971 for the LDV/LDT1 averaging set and 
221,199 for the LDT2/HLDT/MDPV averaging set.

    (vi) Deficits generated against the applicable CO2 
credit threshold values in paragraph (a)(1)(iv) of this section in any 
averaging set for any of the 2009-2011 model years must be offset using 
credits accumulated by any averaging set in any of the 2009-2011 model 
years before determining the number of credits that may be carried 
forward to the 2012. Deficit carry forward and credit banking 
provisions of Sec.  86.1865-12 apply to early credits earned under this 
paragraph (a)(1), except that deficits may not be carried forward from 
any of the 2009-2011 model years into the 2012 model year.
    (2) Pathway 2. To earn credits under this pathway, manufacturers 
shall calculate an average carbon-related exhaust emission value to the 
nearest one gram per mile for the classes of motor vehicles identified 
in paragraph (a)(1) of this section, and the results of such 
calculations will be reported to the Administrator for use in 
determining compliance with the applicable CO2 early credit 
threshold values.
    (i) Credits under this pathway shall be calculated according to the 
provisions of paragraph (a)(1) of this section, except credits may only 
be generated by vehicles sold in a model year in States with a section 
177 program in effect in that model year. For the purposes of this 
section, ``section 177 program'' means State regulations or other laws 
that apply to any of the following categories of motor vehicles: 
Passenger cars, light-duty trucks up through 6,000 pounds GVWR, and 
medium-duty vehicles from 6,001 to 14,000 pounds GVWR, as these 
categories of motor vehicles are defined in the California Code of 
Regulations, Title 13, Division 3, Chapter 1, Article 1, Section 1900.
    (ii) A deficit in any averaging set for any of the 2009-2011 model 
years must be offset using credits accumulated by any averaging set in 
any of the 2009-2011 model years before determining the number of 
credits that may be carried forward to the 2012 model year. Deficit 
carry forward and credit banking provisions of Sec.  86.1865-12 apply 
to early credits earned under this paragraph (a)(1), except that 
deficits may not be carried forward from any of the 2009-2011 model 
years into the 2012 model year.
    (3) Pathway 3. Pathway 3 credits are those credits earned under 
Pathway 2 as described in paragraph (a)(2) of this section and in the 
section 177 States determined in paragraph (a)(2)(i) of this section, 
combined with additional credits earned in the set of states that does 
not include the section 177 States determined in paragraph (a)(2)(i) of 
this section and calculated according to this paragraph (a)(3).
    (i) Manufacturers shall earn additional credits under Pathway 3 by 
calculating an average carbon-related exhaust emission value to the 
nearest one gram per mile for the classes of motor vehicles identified 
in this paragraph (a)(3). The results of such calculations will be 
reported to the Administrator for use in determining compliance with 
the applicable CO2 early credit threshold values.
    (ii) Credits may only be generated by vehicles sold in the States 
not included in the section 177 States determined in paragraph 
(a)(2)(i) of this section.
    (iii) An average carbon-related exhaust emission value calculation 
will be made for the passenger automobile averaging set. The term 
``passenger automobile'' shall have the meaning given by the Department 
of Transportation at 49 CFR 523.4 for the specific model year for which 
the calculation is being made.
    (iv) An average carbon-related exhaust emission value calculation 
will be made for the light truck averaging set. The term ``light 
truck'' shall have the meaning given by the Department of 
Transportation at 49 CFR 523.5 for the specific model year for which 
the calculation is being made.
    (v) Average carbon-related exhaust emission values shall be 
determined according to the provisions of 40 CFR 600.510-12, except 
that:
    (A) Total model year sales data will be used, instead of production 
data, except that vehicles sold in the section 177 States determined in 
paragraph (a)(2)(i) of this section shall not be included;
    (B) The average carbon-related exhaust emissions for alcohol fueled 
model types shall be calculated according to the provisions of 40 CFR 
600.510-12(j)(2)(ii)(B), without the use of the 0.15 multiplicative 
factor.
    (C) The average carbon-related exhaust emissions for natural gas 
fueled model types shall be calculated according to the provisions of 
40 CFR 600.510-12(j)(2)(iii)(B), without the use of the 0.15 
multiplicative factor.
    (D) The average carbon-related exhaust emissions for alcohol dual 
fueled model types shall be calculated according to the provisions of 
40 CFR 600.510-12(j)(2)(vi), without the use of

[[Page 49768]]

the 0.15 multiplicative factor and with F=0.
    (E) The average carbon-related exhaust emissions for natural gas 
dual fueled model types shall be calculated according to the provisions 
of 40 CFR 600.510-12(j)(2)(vii), without the use of the 0.15 
multiplicative factor and with F=0.
    (F) 40 CFR 600.510-12(j)(3) shall not apply. Electric, fuel cell 
electric, and plug-in hybrid electric model type carbon-related exhaust 
emission values shall be included in the fleet average determined under 
paragraph (a)(1) of this section only to the extent that such vehicles 
are not being used to generate early advanced technology vehicle 
credits under paragraph (c) of this section.
    (vi) Pathway 3 fleet average CO2 credit threshold 
values.
    (A) For 2009 and 2010 model year passenger automobiles, the fleet 
average CO2 credit threshold value is 323 grams/mile.
    (B) For 2009 model year light trucks the fleet average 
CO2 credit threshold value is 381 grams/mile, or, if the 
manufacturer chose to optionally meet an alternative manufacturer-
specific light truck fuel economy standard calculated under 49 CFR 
533.5 for the 2009 model year, the gram per mile fleet average 
CO2 credit threshold shall be the CO2 value 
determined by dividing 8887 by that alternative manufacturer-specific 
fuel economy standard and rounding to the nearest whole gram per mile.
    (C) For 2010 model year light trucks the fleet average 
CO2 credit threshold value is 376 grams/mile, or, if the 
manufacturer chose to optionally meet an alternative manufacturer-
specific light truck fuel economy standard calculated under 49 CFR 
533.5 for the 2010 model year, the gram per mile fleet average 
CO2 credit threshold shall be the CO2 value 
determined by dividing 8887 by that alternative manufacturer-specific 
fuel economy standard and rounding to the nearest whole gram per mile.
    (D) For 2011 model year passenger automobiles the fleet average 
CO2 credit threshold value is the value determined by 
dividing 8887 by the manufacturer-specific passenger automobile fuel 
economy standard for the 2011 model year determined under 49 CFR 531.5 
and rounding to the nearest whole gram per mile.
    (E) For 2011 model year light trucks the fleet average 
CO2 credit threshold value is the value determined by 
dividing 8887 by the manufacturer-specific light truck fuel economy 
standard for the 2011 model year determined under 49 CFR 533.5 and 
rounding to the nearest whole gram per mile.
    (vii) Credits are earned on the last day of the model year. 
Manufacturers must calculate, for a given model year, the number of 
credits or debits it has generated according to the following equation, 
rounded to the nearest megagram:

CO2 Credits or Debits (Mg) = [(CO2 Credit 
Threshold - Manufacturer's Sales Weighted Fleet Average CO2 
Emissions) x (Total Number of Vehicles Sold) x (Vehicle Lifetime 
Miles)] / 1,000,000

Where:

CO2 Credit Threshold = the applicable credit threshold 
value for the model year and vehicle averaging set as determined by 
paragraph (a)(3)(vii) of this section;
Manufacturer's Sales Weighted Fleet Average CO2 Emissions 
= average calculated according to paragraph (a)(3)(vi) of this 
section;
Total Number of Vehicles Sold = The number of vehicles domestically 
sold as defined in 40 CFR 600.511-80 except that vehicles sold in 
the section 177 States determined in paragraph (a)(2)(i) of this 
section shall not be included; and
Vehicle Lifetime Miles is 190,971 for the LDV/LDT1 averaging set and 
221,199 for the LDT2/HLDT/MDPV averaging set.

    (viii) Deficits in any averaging set for any of the 2009-2011 model 
years must be offset using credits accumulated by any averaging set in 
any of the 2009-2011 model years before determining the number of 
credits that may be carried forward to the 2012. Deficit carry forward 
and credit banking provisions of 86.1865-12 apply to early credits 
earned under this paragraph (a)(3), except that deficits may not be 
carried forward from any of the 2009-2011 model years into the 2012 
model year.
    (4) Pathway 4. Pathway 4 credits are those credits earned under 
Pathway 3 as described in paragraph (a)(3) of this section in the set 
of states that does not include the section 177 States determined in 
paragraph (a)(2)(i) of this section and calculated according to 
paragraph (a)(3) of this section. Credits may only be generated by 
vehicles sold in the set of states that does not include the section 
177 States determined in paragraph (a)(2)(i) of this section.
    (b) Early air conditioning leakage and efficiency credits. (1) 
Manufacturers may optionally generate air conditioning refrigerant 
leakage credits according to the provisions of paragraph (b) of Sec.  
86.1866-12 and/or air conditioning efficiency credits according to the 
provisions of Sec.  86.1866-12(c) in model years 2009 through 2011. The 
early credits are subject to five year carry forward limits based on 
the model year in which the credits are generated. Credits must be 
tracked by model type and model year.
    (2) Manufacturers that select Pathway 4 described in paragraph 
(a)(4) of this section may not generate early air conditioning credits 
for vehicles sold in the section 177 States as determined in paragraph 
(a)(2)(i) of this section.
    (c) Early advanced technology vehicle credits. Vehicles eligible 
for this credit are electric vehicles, fuel cell electric vehicles, and 
plug-in hybrid electric vehicles, as those terms are defined in Sec.  
86.1803-01. If a manufacturer chooses to not include electric vehicles, 
fuel cell electric vehicles, and plug-in hybrid electric vehicles in 
their fleet averages calculated under any of the options described in 
paragraph (a) of this section, the manufacturer may generate early 
advanced technology vehicle credits pursuant to this paragraph (c).
    (1) The manufacturer shall record the sales and carbon-related 
exhaust emission values of eligible vehicles by model type and model 
year for model years 2009 through 2011 and report these values to the 
Administrator under paragraph (e) of this section.
    (2) Manufacturers may use the 2009 through 2011 eligible vehicles 
in their fleet average calculations starting with the 2012 model year, 
subject to a five-year carry-forward limitation.
    (i) Eligible 2009 model year vehicles may be used in the 
calculation of a manufacturer's fleet average carbon-related exhaust 
emissions in the 2012 through 2014 model years.
    (ii) Eligible 2010 model year vehicles may be used in the 
calculation of a manufacturer's fleet average carbon-related exhaust 
emissions in the 2012 through 2015 model years.
    (iii) Eligible 2011 model year vehicles may be used in the 
calculation of a manufacturer's fleet average carbon-related exhaust 
emissions in the 2012 through 2016 model years.
    (3) (i) To use advanced technology vehicle credits, the 
manufacturer will apply the 2009, 2010, and/or 2011 model type sales 
volumes and their model type emission levels to a manufacturer's fleet 
average calculation using the credit multiplier specified in Sec.  
86.1866-12(a).
    (ii) Early advanced technology vehicle credits must be used to 
offset a deficit in one of the 2012 through 2016 model years, as 
appropriate under paragraph (c)(2) of this section.
    (iii) The advanced technology vehicle sales and emission values may 
be included in a fleet average calculation for passenger automobiles or 
light

[[Page 49769]]

trucks, but may not be used to generate credits in the model year in 
which they are included or in the averaging set in which they are used. 
Use of early advanced technology vehicle credits is limited to 
offsetting a deficit that would otherwise be generated without the use 
of those credits. Manufacturers shall report the use of such credits in 
their model year report for the model year in which the credits are 
used.
    (d) Early off-cycle technology credits. Manufacturers may 
optionally generate credits for the implementation of certain 
CO2-reducing technologies according to the provisions of 
Sec.  86.1866-12(d).
    (e) Early credit reporting requirements. Each manufacturer shall 
submit a report to the Administrator, known as the early credits 
report, that reports the credits earned in the 2009 through 2011 model 
years under this section.
    (1) The report shall contain all information necessary for the 
calculation of the manufacturer's early credits in each of the 2009 
through 2011 model years.
    (2) The early credits report shall be in writing, signed by the 
authorized representative of the manufacturer and shall be submitted no 
later than 90 days after the end of the 2011 model year.
    (3) Manufacturers using one of the optional early fleet average 
CO2 reduction credit pathways described in paragraph (a) of 
this section shall report the following information separately for the 
LDV/LDT1 and LDT2/HLDT/MDPV averaging sets:
    (i) The pathway that they have selected (1, 2, 3, or 4).
    (ii) A carbon-related exhaust emission value for each model type of 
the manufacturer's product line calculated according to paragraph (a) 
of this section.
    (iii) The manufacturer's average carbon-related exhaust emission 
value calculated according to paragraph (a) of this section for the 
applicable averaging set and region and all data required to complete 
this calculation.
    (iv) The credits earned for each averaging set, model year, and 
region, as applicable.
    (4) Manufacturers calculating early air conditioning leakage and/or 
efficiency credits under paragraph (b) of this section shall report the 
following information for each model year separately for passenger 
automobiles and light trucks and for each air conditioning system used 
to generate credits:
    (i) A description of the air conditioning system.
    (ii) The leakage credit value and all the information required to 
determine this value.
    (iii) The total credits earned for each averaging set, model year, 
and region, as applicable.
    (5) Manufacturers calculating early advanced technology vehicle 
credits under paragraph (c) of this section shall report, for each 
model year and separately for passenger automobiles and light trucks, 
the following information:
    (i) The number of each model type of eligible vehicle sold.
    (ii) The carbon-related exhaust emission value by model type and 
model year.
    (6) Manufacturers calculating early off-cycle technology credits 
under paragraph (d) of this section shall report, for each model year 
and separately for passenger automobiles and light trucks, all test 
results and data required for calculating such credits.

PART 600--FUEL ECONOMY AND CARBON-RELATED EXHAUST EMISSIONS OF 
MOTOR VEHICLES

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

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

    30. The heading for Part 600 is revised as set forth above.

Subpart A--Fuel Economy and Carbon-Related Exhaust Emission 
Regulations for 1977 and Later Model Year Automobiles--General 
Provisions

    31. The heading for subpart A is revised as set forth above.
    32. A new Sec.  600.001-12 is added to subpart A to read as 
follows:


Sec.  600.001-12  General applicability.

    (a) The provisions of this subpart are applicable to 2012 and later 
model year automobiles and to the manufacturers of 2012 and later model 
year automobiles.
    (b) Fuel economy and related emissions data. Unless stated 
otherwise, references to fuel economy or fuel economy data in this 
subpart shall also be interpreted to mean the related exhaust emissions 
of CO2, HC, and CO, and where applicable for alternative 
fuel vehicles, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4. References 
to average fuel economy shall be interpreted to also mean average 
carbon-related exhaust emissions. References to fuel economy data 
vehicles shall also be meant to refer to vehicles tested for carbon-
related exhaust emissions for the purpose of demonstrating compliance 
with fleet average CO2 standards in 40 CFR 86.1818-12.
    33. Section 600.002-08 is amended as follows:
    a. By adding the definition for ``Base tire.''
    b. By adding the definition for ``Carbon-related exhaust 
emissions.''
    c. By adding the definition for ``Electric vehicle.''
    d. By adding the definition for ``Footprint.''
    e. By adding the definition for ``Fuel cell.''
    f. By adding the definition for ``Fuel cell electric vehicle.''
    g. By adding the definition for ``Hybrid electric vehicle.''
    h. By revising the definition for ``Non-passenger automobile.''
    i. By revising the definition for ``Passenger automobile.''
    j. By adding the definition for ``Plug-in hybrid electric 
vehicle.''


Sec.  600.002-08  Definitions.

* * * * *
    Base tire means the tire specified as standard equipment by the 
manufacturer.
* * * * *
    Carbon-related exhaust emissions means the summation of the carbon-
containing constituents of the exhaust emissions, with each constituent 
adjusted by a coefficient representing the carbon weight fraction of 
each constituent, as specified in Sec.  600.113-08.
* * * * *
    Electric vehicle means a vehicle that is powered solely by an 
electric motor drawing current from a rechargeable energy storage 
system, such as from storage batteries or other portable electrical 
energy storage devices, including hydrogen fuel cells, provided that:
    (1) Recharge energy must be drawn from a source off the vehicle, 
such as residential electric service; and
    (2) The vehicle must be certified to the emission standards of Bin 
1 of Table S04-1 in paragraph (c)(6) of Sec.  86.1811 of this 
chapter.
* * * * *
    Footprint is the product of track width (measured in inches, 
calculated as the average of front and rear track widths, and rounded 
to the nearest tenth of an inch) times wheelbase (measured in inches 
and rounded to the nearest tenth of an inch), divided by 144 and then 
rounded to the nearest tenth of a square foot. For purposes of this 
definition, track width is the lateral distance between the centerlines 
of the base tires at ground, including the camber angle. For purposes 
of this definition, wheelbase is the longitudinal distance

[[Page 49770]]

between front and rear wheel centerlines.
* * * * *
    Fuel cell means an electrochemical cell that produced electricity 
via the reaction of a consumable fuel on the anode with an oxidant on 
the cathode in the presence of an electrolyte.
    Fuel cell electric vehicle means a motor vehicle propelled solely 
by an electric motor where energy for the motor is supplied by a fuel 
cell.
* * * * *
    Hybrid electric vehicle (HEV) means a motor vehicle which draws 
propulsion energy from onboard sources or stored energy that are both 
an internal combustion engine or heat engine using consumable fuel, and 
a rechargeable energy storage system such as a battery, capacitor, or 
flywheel.
* * * * *
    Non-passenger automobile has the meaning given by the Department of 
Transportation at 49 CFR 523.5. This term is synonymous with ``light 
truck.''
* * * * *
    Passenger automobile has the meaning given by the Department of 
Transportation at 49 CFR 523.4.
* * * * *
    Plug-in hybrid electric vehicle (PHEV) means a hybrid electric 
vehicle that:
    (1) Has the capability to charge the battery from an off-vehicle 
electric source, such that the off-vehicle source cannot be connected 
to the vehicle while the vehicle is in motion, and
    (2) Has an equivalent all-electric range of no less than 10 miles.
* * * * *
    34. Section 600.006-08 is amended as follows:
    a. By revising the heading.
    b. By revising paragraph (b)(2)(ii).
    c. By revising paragraph (b)(2)(iv).
    d. By adding paragraph (c)(5).
    e. By revising paragraph (e).
    f. By revising paragraph (g)(3).


Sec.  600.006-08  Data and information requirements for fuel economy 
data vehicles.

* * * * *
    (b) * * *
    (2) * * *
    (ii) In the case of electric vehicles, plug-in hybrid electric 
vehicles, and hybrid electric vehicles, a description of all 
maintenance to electric motor, motor controller, battery configuration, 
or other components performed within 2,000 miles prior to fuel economy 
testing.
* * * * *
    (iv) In the case of electric vehicles, plug-in hybrid electric 
vehicles, and hybrid electric vehicles, a copy of calibrations for the 
electric motor, motor controller, battery configuration, or other 
components on the test vehicle as well as the design tolerances.
* * * * *
    (c) * * *
    (5) Starting with the 2012 model year, the data submitted according 
to paragraphs (c)(1) through (c)(4) of this section shall include total 
HC, CO, CO2, and, where applicable for alternative fuel 
vehicles, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4. The fuel 
economy and CO2 emission test results shall be adjusted in 
accordance with paragraph (g) of this section. Round the test results 
as follows:
* * * * *
    (e) In lieu of submitting actual data from a test vehicle, a 
manufacturer may provide fuel economy values derived from a previously 
tested vehicle, where the fuel economy and carbon-related exhaust 
emissions are expected to be equivalent (or less fuel-efficient and 
with higher carbon-related exhaust emissions). Additionally, in lieu of 
submitting actual data from a test vehicle, a manufacturer may provide 
fuel economy and carbon-related exhaust emission values derived from an 
analytical expression, e.g., regression analysis. In order for fuel 
economy values derived from analytical methods to be accepted, the 
expression (form and coefficients) must have been approved by the 
Administrator.
* * * * *
    (g) * * *
    (3)(i) The manufacturer shall adjust all fuel economy test data 
generated by vehicles with engine-drive system combinations with more 
than 6,200 miles by using the following equation:

FE4,000mi = FET[0.979 + 5.25 x 
10-6(mi)]-1

Where:

FE4,000mi = Fuel economy data adjusted to 4,000-mile test 
point rounded to the nearest 0.1 mpg.
FET = Tested fuel economy value rounded to the nearest 
0.1 mpg.
mi = System miles accumulated at the start of the test rounded to 
the nearest whole mile.

    (ii)(A) The manufacturer shall adjust all CO2 exhaust 
emission test data generated by vehicles with engine-drive system 
combinations with more than 6,200 miles by using the following 
equation:

CO24,000mi= CO2T[0.979 + 5.25 x 
10-6(mi)]

Where:

CO24,000mi = CO2 emission data adjusted to 
4,000-mile test point.
CO2T = Tested emissions value of CO2 in grams 
per mile.
mi = System miles accumulated at the start of the test rounded to 
the nearest whole mile.

    (B) Emissions test values and results used and determined in the 
calculations in paragraph (g)(3)(ii) of this section shall be rounded 
in accordance with 40 CFR 86.1837-01 as applicable. CO2 
values shall be rounded to the nearest gram per mile.
* * * * *
    35. Section 600.007-08 is amended as follows:
    a. By revising paragraph (b)(4) through (6).
    b. By revising paragraph (c).
    c. By revising paragraph (f) introductory text.


Sec.  600.007-08  Vehicle acceptability.

* * * * *
    (b) * * *
    (4) Each fuel economy data vehicle must meet the same exhaust 
emission standards as certification vehicles of the respective engine-
system combination during the test in which the city fuel economy test 
results are generated. This may be demonstrated using one of the 
following methods:
    (i) The deterioration factors established for the respective 
engine-system combination per Sec.  86.1841-01 of this chapter as 
applicable will be used; or
    (ii) The fuel economy data vehicle will be equipped with aged 
emission control components according to the provisions of 86.1823-01 
of this chapter.
    (5) The calibration information submitted under Sec.  600.006(b) 
must be representative of the vehicle configuration for which the fuel 
economy and carbon-related exhaust emissions data were submitted.
    (6) Any vehicle tested for fuel economy or carbon-related exhaust 
emissions purposes must be representative of a vehicle which the 
manufacturer intends to produce under the provisions of a certificate 
of conformity.
* * * * *
    (c) If, based on review of the information submitted under Sec.  
600.006(b), the Administrator determines that a fuel economy data 
vehicle meets the requirements of this section, the fuel economy data 
vehicle will be judged to be acceptable and fuel economy and carbon-
related exhaust emissions data from that fuel economy data vehicle will 
be reviewed pursuant to Sec.  600.008.
* * * * *
    (f) All vehicles used to generate fuel economy and carbon-related 
exhaust

[[Page 49771]]

emissions data, and for which emission standards apply, must be covered 
by a certificate of conformity under part 86 of this chapter before:
* * * * *
    36. Section 600.008-08 is amended by revising the heading and 
paragraph (a)(1) to read as follows:


Sec.  600.008-08  Review of fuel economy and carbon-related exhaust 
emission data, testing by the Administrator.

    (a) Testing by the Administrator. (1) (i) The Administrator may 
require that any one or more of the test vehicles be submitted to the 
Agency, at such place or places as the Agency may designate, for the 
purposes of conducting fuel economy tests. The Administrator may 
specify that such testing be conducted at the manufacturer's facility, 
in which case instrumentation and equipment specified by the 
Administrator shall be made available by the manufacturer for test 
operations. The tests to be performed may comprise the FTP, highway 
fuel economy test, US06, SC03, or Cold temperature FTP or any 
combination of those tests. Any testing conducted at a manufacturer's 
facility pursuant to this paragraph shall be scheduled by the 
manufacturer as promptly as possible.
    (ii) Starting with the 2012 model year, evaluations, testing, and 
test data described in this section pertaining to fuel economy shall 
also be performed for carbon-related exhaust emissions, except that 
carbon-related exhaust emissions shall be arithmetically averaged 
instead of harmonically averaged, and in cases where the manufacturer 
selects the lowest of several fuel economy results to represent the 
vehicle, the manufacturer shall select the highest of the carbon-
related exhaust emissions test results to represent the vehicle.
* * * * *

Subpart B--[Amended]

    37. A new Sec.  600.101-12 is added to subpart B to read as 
follows:


Sec.  600.101-12  General applicability.

    (a) The provisions of this subpart are applicable to 2012 and later 
model year automobiles and to the manufacturers of 2012 and later model 
year automobiles.
    (b) Fuel economy and carbon-related emissions data. Unless stated 
otherwise, references to fuel economy or fuel economy data in this 
subpart shall also be interpreted to mean the related exhaust emissions 
of CO2, HC, and CO, and where applicable for alternative 
fuel vehicles, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4. References 
to average fuel economy shall be interpreted to also mean average 
carbon-related exhaust emissions.

    38. Section 600.113-08 is amended as follows:
    a. By revising the introductory text.
    b. By revising paragraph (a)(1).
    c. By revising paragraph (b)(1) and (2).
    d. By revising paragraph (c)(1).
    e. By revising paragraph (d)(1) and (2).
    f. By revising paragraph (e).
    g. By adding paragraph (f)(4).
    h. By revising paragraphs (g) through (l).
    i. By adding paragraph (m).


Sec.  600.113-08  Fuel economy calculations for FTP, HFET, US06, SC03 
and cold temperature FTP tests.

    The Administrator will use the calculation procedure set forth in 
this paragraph for all official EPA testing of vehicles fueled with 
gasoline, diesel, alcohol-based or natural gas fuel. The calculations 
of the weighted fuel economy values require input of the weighted 
grams/mile values for total hydrocarbons (HC), carbon monoxide (CO), 
and carbon dioxide (CO2); and, additionally for methanol-
fueled automobiles, methanol (CH3OH) and formaldehyde 
(HCHO); and, additionally for ethanol-fueled automobiles, methanol 
(CH3OH), ethanol (C2H5OH), 
acetaldehyde (C2H4O), and formaldehyde (HCHO); 
and additionally for natural gas-fueled vehicles non-methane 
hydrocarbons (NMHC) and methane (CH4) for the FTP, HFET, 
US06, SC03 and cold temperature FTP tests. Additionally, the specific 
gravity, carbon weight fraction and net heating value of the test fuel 
must be determined. The FTP, HFET, US06, SC03 and cold temperature FTP 
fuel economy and carbon-related exhaust emission values shall be 
calculated as specified in this section. An example fuel economy 
calculation appears in Appendix II of this part.
    (a) * * *
    (1) Calculate the weighted grams/mile values for the FTP test for 
CO2, HC, and CO, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC 
and CH4 as specified in Sec.  86.144(b) of this chapter. 
Measure and record the test fuel's properties as specified in paragraph 
(f) of this section.
* * * * *
    (b) * * *
    (1) Calculate the mass values for the highway fuel economy test for 
HC, CO and CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC 
and CH4 as specified in Sec.  86.144(b) of this chapter. 
Measure and record the test fuel's properties as specified in paragraph 
(f) of this section.
    (2) Calculate the grams/mile values for the highway fuel economy 
test for HC, CO and CO2, and where applicable 
CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4 by dividing 
the mass values obtained in paragraph (b)(1) of this section, by the 
actual distance traveled, measured in miles, as specified in Sec.  
86.135(h) of this chapter.
* * * * *
    (c) * * *
    (1) Calculate the weighted grams/mile values for the cold 
temperature FTP test for HC, CO and CO2, and where 
applicable, CH3OH, C2H5OH, 
C2H4O, HCHO, NMHC and CH4 as specified 
in Sec.  86.144(b) of this chapter. For 2008 through 2010 diesel-fueled 
vehicles, HC measurement is optional.
* * * * *
    (d) * * *
    (1) Calculate the total grams/mile values for the US06 test for HC, 
CO and CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC 
and CH4 as specified in Sec.  86.144(b) of this chapter.
    (2) Calculate separately the grams/mile values for HC, CO and 
CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC 
and CH4, for both the US06 City phase and the US06 Highway 
phase of the US06 test as specified in Sec.  86.164 of this chapter. In 
lieu of directly measuring the emissions of the separate city and 
highway phases of the US06 test according to the provisions of Sec.  
86.159 of this chapter, the manufacturer may, with the advance approval 
of the Administrator and using good engineering judgment, optionally 
analytically determine the grams/mile values for the city and highway 
phases of the US06 test. To analytically determine US06 City and US06 
Highway phase emission results, the manufacturer shall multiply the 
US06 total grams/mile values determined in paragraph (d)(1) of this 
section by the estimated proportion of fuel use for the city and 
highway phases relative to the total US06 fuel use. The manufacturer 
may estimate the proportion of fuel use for the US06 City and US06 
Highway phases by using modal CO2, HC, and CO emissions 
data, or by using appropriate OBD data (e.g., fuel flow rate in grams 
of fuel per second), or another method approved by the Administrator.
* * * * *
    (e) Calculate the SC03 fuel economy.
    (1) Calculate the grams/mile values for the SC03 test for HC, CO 
and CO2, and where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC 
and CH4 as specified in Sec.  86.144(b) of this chapter.

[[Page 49772]]

    (2) Measure and record the test fuel's properties as specified in 
paragraph (f) of this section.
    (f) * * *
    (4) Ethanol test fuel shall be analyzed to determine the following 
fuel properties:
    (i) Specific gravity using either:
    (A) ASTM D 1298-85 (Reapproved 1990) ``Standard Practice for 
Density, Relative Density (Specific Gravity), or API Gravity of Crude 
Petroleum and Liquid Petroleum Products by Hydrometer Method'' for the 
blend. This incorporation by reference was approved by the Director of 
the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 
51. Copies may be obtained from the American Society for Testing and 
Materials, 100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, PA 
19428-2959. Copies may be inspected at U.S. EPA Headquarters Library, 
EPA West Building, Constitution Avenue and 14th Street, NW., Room 3340, 
Washington, DC, or at the National Archives and Records Administration 
(NARA). For information on the availability of this material at NARA, 
call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html or:
    (B) ASTM D 1298-85 (Reapproved 1990) ``Standard Practice for 
Density, Relative Density (Specific Gravity), or API Gravity of Crude 
Petroleum and Liquid Petroleum Products by Hydrometer Method'' for the 
gasoline fuel component and also for the methanol fuel component and 
combining as follows. This incorporation by reference was approved by 
the Director of the Federal Register in accordance with 5 U.S.C. 552(a) 
and 1 CFR part 51. Copies may be obtained from the American Society for 
Testing and Materials, 100 Barr Harbor Drive, P.O. Box C700, West 
Conshohocken, PA 19428-2959. Copies may be inspected at U.S. EPA 
Headquarters Library, EPA West Building, Constitution Avenue and 14th 
Street, NW., Room 3340, Washington, DC, or at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.

SG = SGg x volume fraction gasoline + SGm x volume fraction ethanol.

    (ii)(A) Carbon weight fraction using the following equation:

CWF = CWFg x MFg+ 0.375 x MFe


Where:

CWFg = Carbon weight fraction of gasoline portion of blend per ASTM 
D 3343-90 ``Standard Test Method for Estimation of Hydrogen Content 
of Aviation Fuels.'' This incorporation by reference was approved by 
the Director of the Federal Register in accordance with 5 U.S.C. 
552(a) and 1 CFR part 51. Copies may be obtained from the American 
Society for Testing and Materials, 100 Barr Harbor Drive, P.O. Box 
C700, West Conshohocken, PA 19428-2959. Copies may be inspected at 
U.S. EPA Headquarters Library, EPA West Building, Constitution 
Avenue and 14th Street, NW., Room 3340, Washington, DC, or at the 
National Archives and Records Administration (NARA). For information 
on the availability of this material at NARA, call 202-741-6030, or 
go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.

MFg = Mass fraction gasoline = (G x SGg)/(G x SGg + E x SGm)
MFe = Mass fraction methanol = (E x SGm)/(G x SGg + E x SGm)

Where:

G = Volume fraction gasoline.
E = Volume fraction ethanol.
SGg = Specific gravity of gasoline as measured by ASTM D 1298-85 
(Reapproved 1990) ``Standard Practice for Density, Relative Density 
(Specific Gravity), or API Gravity of Crude Petroleum and Liquid 
Petroleum Products by Hydrometer Method.'' This incorporation by 
reference was approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be 
obtained from the American Society for Testing and Materials, 100 
Barr Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428-2959. 
Copies may be inspected at U.S. EPA Headquarters Library, EPA West 
Building, Constitution Avenue and 14th Street, NW, Room 3340, 
Washington DC, or at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
SGm = Specific gravity of methanol as measured by ASTM D 1298-85 
(Reapproved 1990) ``Standard Practice for Density, Relative Density 
(Specific Gravity), or API Gravity of Crude Petroleum and Liquid 
Petroleum Products by Hydrometer Method.'' This incorporation by 
reference was approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be 
obtained from the American Society for Testing and Materials, 100 
Barr Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428-2959. 
Copies may be inspected at U.S. EPA Headquarters Library, EPA West 
Building, Constitution Avenue and 14th Street, NW, Room 3340, 
Washington DC, or at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.

    (B) Upon the approval of the Administrator, other procedures to 
measure the carbon weight fraction of the fuel blend may be used if the 
manufacturer can show that the procedures are superior to or equally as 
accurate as those specified in this paragraph (f)(2)(ii).
    (iii) Net heating value (BTU/lb) per ASTM D 240-92 ``Standard Test 
Method for Heat of Combustion of Liquid Hydrocarbon Fuels by Bomb 
Calorimeter.'' This incorporation by reference was approved by the 
Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 
1 CFR part 51. Copies may be obtained from the American Society for 
Testing and Materials, 100 Barr Harbor Drive, P.O. Box C700, West 
Conshohocken, PA 19428-2959. Copies may be inspected at U.S. EPA 
Headquarters Library, EPA West Building, Constitution Avenue and 14th 
Street, NW, Room 3340, Washington DC, or at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
* * * * *
    (g) Calculate separate FTP, highway, US06, SC03 and Cold 
temperature FTP fuel economy from the grams/mile values for total HC, 
CO, CO2 and, where applicable, CH3OH, 
C2H5OH, C2H4O, HCHO, NMHC 
and CH4, and the test fuel's specific gravity, carbon weight 
fraction, net heating value, and additionally for natural gas, the test 
fuel's composition.
    (1) If the emission values (obtained per paragraph (a) through (e) 
of this section, as applicable) were obtained from testing with aged 
exhaust emission control components as allowed under 86.1823-01, then 
these test values shall be used in the calculations of this section.
    (2) If the emission values (obtained per paragraph (a) through (e) 
of this section, as applicable) were not obtained from testing with 
aged exhaust emission control components as allowed under 86.1823-01, 
then these test values shall be adjusted by the appropriate 
deterioration factor

[[Page 49773]]

determined according to 86.1823-01 before being used in the 
calculations of this section.
    (3) The emission values determined in paragraph (g)(1) or (2) of 
this section shall be rounded in accordance with Sec.  86.094-
26(a)(6)(iii) or Sec.  86.1837-01 of this chapter as applicable. The 
CO2 values (obtained per this section, as applicable) used 
in each calculation of this section shall be rounded to the nearest 
gram/mile. The specific gravity and the carbon weight fraction 
(obtained per paragraph (f) of this section) shall be recorded using 
three places to the right of the decimal point. The net heating value 
(obtained per paragraph (f) of this section) shall be recorded to the 
nearest whole Btu/lb.
    (h)(1) For gasoline-fueled automobiles tested on test fuel 
specified in Sec.  86.113-04(a), the fuel economy in miles per gallon 
is to be calculated using the following equation and rounded to the 
nearest 0.1 miles per gallon:

mpg = (5174 x 10\4\ x CWF x SG)/[((CWF x HC) + (0.429 x CO) + (0.273 x 
CO2)) x ((0.6 x SG x NHV) + 5471)]


Where:

HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CWF = Carbon weight fraction of test fuel as obtained in paragraph 
(g) of this section.
NHV = Net heating value by mass of test fuel as obtained in 
paragraph (g) of this section.
SG = Specific gravity of test fuel as obtained in paragraph (g) of 
this section.

    (2) For 2012 and later model year gasoline-fueled automobiles 
tested on test fuel specified in Sec.  86.113-04(a), the carbon-related 
exhaust emissions in grams per mile is to be calculated using the 
following equation and rounded to the nearest 1 gram per mile:

CREE = CWF*HC + 1.571*CO + CO2

Where:

CREE means the carbon-related exhaust emissions as defined in Sec.  
600.002-08.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CWF = Carbon weight fraction of test fuel as obtained in paragraph 
(g) of this section.

    (i)(1) For diesel-fueled automobiles, calculate the fuel economy in 
miles per gallon of diesel fuel by dividing 2778 by the sum of three 
terms and rounding the quotient to the nearest 0.1 mile per gallon:
    (i)(A) 0.866 multiplied by HC (in grams/miles as obtained in 
paragraph (g) of this section), or
    (B) Zero, in the case of cold FTP diesel tests for which HC was not 
collected, as permitted in Sec.  600.113-08(c);
    (ii) 0.429 multiplied by CO (in grams/mile as obtained in paragraph 
(g) of this section); and
    (iii) 0.273 multiplied by CO2 (in grams/mile as obtained 
in paragraph (g) of this section).
    (2) For 2012 and later model year diesel-fueled automobiles, the 
carbon-related exhaust emissions in grams per mile is to be calculated 
using the following equation and rounded to the nearest 1 gram per 
mile:

CREE = 0.866*HC + 1.571*CO + CO2

Where:

CREE means the carbon-related exhaust emissions as defined in Sec.  
600.002-08.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.

    (j)(1) For methanol-fueled automobiles and automobiles designed to 
operate on mixtures of gasoline and methanol, the fuel economy in miles 
per gallon is to be calculated using the following equation:

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

Where:

CWF = Carbon weight fraction of the fuel as determined in paragraph 
(f)(2)(ii) of this section.
SG = Specific gravity of the fuel as determined in paragraph 
(f)(2)(i) of this section.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in (f)(2)(ii) of this section (for 
M100 fuel, CWFexHC= 0.866).
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.

    (2) For 2012 and later model year methanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and methanol, 
the carbon-related exhaust emissions in grams per mile is to be 
calculated using the following equation and rounded to the nearest 1 
gram per mile:

CREE = (CWFexHC x HC) + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in (f)(2)(ii) of this section (for 
M100 fuel, CWFexHC = 0.866).
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.

    (k)(1) For automobiles fueled with natural gas, the fuel economy in 
miles per gallon of natural gas is to be calculated using the following 
equation:
[GRAPHIC] [TIFF OMITTED] TP28SE09.058


Where:

mpge = miles per equivalent gallon of natural gas.
CWFHC/NG = carbon weight fraction based on the 
hydrocarbon constituents in the natural gas fuel as obtained in 
paragraph (g) of this section.
DNG = density of the natural gas fuel [grams/ft \3\ at 68 
[deg]F (20 [deg]C) and 760 mm Hg (101.3 kPa)] pressure as obtained 
in paragraph (g) of this section.
CH4, NMHC, CO, and CO2 = weighted mass exhaust 
emissions [grams/mile] for methane, non-methane HC, carbon monoxide, 
and carbon dioxide as calculated in Sec.  600.113.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section.

[[Page 49774]]

CO2NG = grams of carbon dioxide in the natural gas fuel 
consumed per mile of travel.
CO2NG = FCNG x DNG x 
WFCO2
Where:

[GRAPHIC] [TIFF OMITTED] TP28SE09.059

Where:

CWFNG = the carbon weight fraction of the natural gas 
fuel as calculated in paragraph (f) of this section.
WFCO2 = weight fraction carbon dioxide of the natural gas 
fuel calculated using the mole fractions and molecular weights of 
the natural gas fuel constituents per ASTM D 1945-91 ``Standard Test 
Method for Analysis of Natural Gas by Gas Chromatography.'' This 
incorporation by reference was approved by the Director of the 
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 
51. Copies may be obtained from the American Society for Testing and 
Materials, 100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, 
PA 19428-2959. Copies may be inspected at U.S. EPA Headquarters 
Library, EPA West Building, Constitution Avenue and 14th Street, 
NW., Room 3340, Washington, DC, or at the National Archives and 
Records Administration (NARA). For information on the availability 
of this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.

    (2) For automobiles fueled with natural gas, the carbon-related 
exhaust emissions in grams per mile is to be calculated for 2012 and 
later model year vehicles using the following equation and rounded to 
the nearest 1 gram per mile:

CREE = 10.916 x CH4 + CWFNMHC x NMHC + 1.571 x CO 
+ CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CH4 = Grams/mile CH4 as obtained in paragraph (g) of this 
section.
NMHC = Grams/mile NMHC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section.

    (l)(1) For ethanol-fueled automobiles and automobiles designed to 
operate on mixtures of gasoline and ethanol, the fuel economy in miles 
per gallon is to be calculated using the following equation:

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


Where:

CWF = Carbon weight fraction of the fuel as determined in paragraph 
(f)(4) of this section.
SG = Specific gravity of the fuel as determined in paragraph (f)(4) 
of this section.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWFg as determined in (f)(4) of this section.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.
C2H5OH = Grams/mile CH3OH (ethanol) 
as obtained in paragraph (d) of this section.
C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (d) of this section.

    (2) For 2012 and later model year ethanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and ethanol, 
the carbon-related exhaust emissions in grams per mile is to be 
calculated using the following equation and rounded to the nearest 1 
gram per mile:

CREE = (CWFexHC x HC) + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + (0.955 x 
C2H5OH) + (0.999 x C2H4O) + 
CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002-08.
CWFexHC= Carbon weight fraction of exhaust hydrocarbons = 
CWFg as determined in (f)(4) of this section.
HC = Grams/mile HC as obtained in paragraph (g) of this section.
CO = Grams/mile CO as obtained in paragraph (g) of this section.
CO2= Grams/mile CO2as obtained in paragraph 
(g) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (d) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph (g) 
of this section.
C2H5OH = Grams/mile CH3OH (ethanol) 
as obtained in paragraph (d) of this section.
C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (d) of this section.

    (m) Equations for fuels other than those specified in paragraphs 
(h) through (l) of this section may be used with advance EPA approval. 
Alternate calculation methods may be used if shown to yield equivalent 
or superior results and if approved in advance by the Administrator.
    39. Section 600.114-08 is amended as follows:
    a. By revising the heading.
    b. By revising the introductory text.
    c. By adding paragraphs (d) through (f).


Sec.  600.114-08  Vehicle-specific 5-cycle fuel economy and carbon-
related exhaust emission calculations.

    Paragraphs (a) through (c) of this section apply to data used for 
fuel economy labeling under Subpart D of this part. Paragraphs (d) 
through (f) of this section are used to calculate 5-cycle carbon-
related exhaust emissions values for the purpose of determining 
optional technology-based CO2 emissions credits under the 
provisions of paragraph (d) of Sec.  86.1866-12 of this title.
* * * * *
    (d) City carbon-related exhaust emission value. For each vehicle 
tested, determine the 5-cycle city carbon-related exhaust emissions 
using the following equation:

(1) CityCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(i) StartCREE =
[GRAPHIC] [TIFF OMITTED] TP28SE09.060


[[Page 49775]]


Where:

StartCREEx = 3.6 x (Bag1CREEx - 
Bag3CREEx)

Where:

Bag Y CREEx = the carbon-related exhaust emissions in 
grams per mile during the specified bag of the FTP test conducted at 
an ambient temperature of 75 [deg]F or 20 [deg]F.

    (ii) Running CREE=
0.82 x [(0.48 x Bag275CREE) + (0.41 x 
Bag375CREE) + 0.11 x US06CityCREE)] + 0.18 x [(0.5 x 
Bag220CREE) + (0.5 x Bag320CREE)] + 0.144 x 
[SC03CREE - ((0.61 x Bag375CREE) + (0.39 x 
Bag275CREE))]

Where:

BagYXCREE = carbon-related exhaust emissions in grams per 
mile over Bag Y at temperature X.
US06 City CREE = carbon-related exhaust emissions in grams per mile 
over the ``city'' portion of the US06 test.
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

    (e) Highway carbon-related exhaust emissions. (1) For each vehicle 
tested, determine the 5-cycle highway carbon-related exhaust emissions 
using the following equation:

HighwayCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(1) StartCREE =
[GRAPHIC] [TIFF OMITTED] TP28SE09.061

Where:

StartCREEx = 3.6 x (Bag1CREEx - 
Bag3CREEx)

    (ii) Running CREE =

1.007 x [(0.79 x US06 Highway CREE) + (0.21 x HFET CREE)] + 0.045 x 
[SC03CREE - ((0.61 x Bag375CREE) + (0.39 x 
Bag275CREE))]

Where:

BagYXCREE =carbon-related exhaust emissions in grams per 
mile over Bag Y at temperature X,
US06 Highway CREE = carbon-related exhaust emissions in grams per 
mile over the highway portion of the US06 test,
HFET CREE = carbon-related exhaust emissions in grams per mile over 
the HFET test,
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

    (f) Carbon-related exhaust emissions calculations for hybrid 
electric vehicles. Hybrid electric vehicles shall be tested according 
to California test methods which require FTP emission sampling for the 
75 [deg]F FTP test over four phases (bags) of the UDDS (cold-start, 
transient, warm-start, transient). Optionally, these four phases may be 
combined into two phases (phases 1 + 2 and phases 3 + 4). Calculations 
for these sampling methods follow.
    (1) Four-bag FTP equations. If the 4-bag sampling method is used, 
manufacturers may use the equations in paragraphs (a) and (b) of this 
section to determine city and highway carbon-related exhaust emissions 
values. If this method is chosen, it must be used to determine both 
city and highway carbon-related exhaust emissions. Optionally, the 
following calculations may be used, provided that they are used to 
determine both city and highway carbon-related exhaust emissions 
values:
(i) City carbon-related exhaust emissions.

CityCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(A) StartCREE =
[GRAPHIC] [TIFF OMITTED] TP28SE09.062

Where:

(1) StartCREE75 =
3.6 x (Bag1CREE75 - Bag3CREE75) + 3.9 x 
(Bag2CREE75 - Bag4CREE75)
and
(2) StartCREE20 =

= 3.6 x (Bag1CREE20 - Bag3CREE20)

(B) RunningCREE =

0.82 x [(0.48 x Bag475CREE) + (0.41 x Bag375CREE) 
+ (0.11 x US06CityCREE)] + 0.18 x [(0.5 x Bag220 CREE) + 
(0.5 x Bag375 CREE)] + 0.144 x [(SC03CREE - ((0.61 x 
Bag375 CREE) + (0.39 x Bag475 CREE))]

Where:

US06 Highway CREE = carbon-related exhaust emissions in grams per 
mile over the city portion of the US06 test.
US06 Highway CREE = carbon-related exhaust emissions in miles per 
gallon over the Highway portion of the US06 test.
HFET CREE = carbon-related exhaust emissions in grams per mile over 
the HFET test.
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

    (ii) Highway carbon-related exhaust emissions.

HighwayCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(A) StartCREE =
[GRAPHIC] [TIFF OMITTED] TP28SE09.063

Where:

StartCREE75 = 3.6 x (Bag1CREE75 - 
Bag3CREE75) + 3.9 x (Bag2CREE75 - 
Bag4CREE75)
and
StartCREE20 = 3.6 x (Bag1CREE20 - 
Bag3CREE20)

(B) RunningCREE =

1.007 x [(0.79 x US06 HighwayCREE) + (0.21 x HFET CREE)] + 0.045 x 
[SC03CREE = ((0.61 x Bag375CREE) + (0.39 x 
Bag475CREE))]


[[Page 49776]]


Where:

US06 Highway CREE = carbon-related exhaust emissions in grams per 
mile over the Highway portion of the US06 test,
HFET CREE = carbon-related exhaust emissions in grams per mile over 
the HFET test,
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test.

(2) Two-bag FTP equations. If the 2-bag sampling method is used for the 
75 [deg]F FTP test, it must be used to determine both city and highway 
carbon-related exhaust emissions. The following calculations must be 
used to determine both city and highway carbon-related exhaust 
emissions:
(i) City carbon-related exhaust emissions.

CityCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(A) StartCREE =
[GRAPHIC] [TIFF OMITTED] TP28SE09.064

Where:

StartCREE75 = 3.6 x (Bag\1/2\CREE75 - Bag\3/
4\CREE75)
and
StartCREE20 = 3.6 x (Bag1CREE20 - 
Bag3CREE20)
Where:

Bag Y FE20= the carbon-related exhaust emissions in grams 
per mile of fuel during Bag 1 or Bag 3 of the 20 [deg]F FTP test, 
and
Bag X/Y FE75 = carbon-related exhaust emissions in grams 
per mile of fuel during combined phases 1 and 2 or phrases 3 and 4 
of the FTP test conducted at an ambient temperature of 75 [deg]F.

(B) RunningCREE =

0.82 x [(0.90 x Bag3/475CREE) + (0.10 x US06CityCREE)] + 
(0.18 x [(0.5 x Bag220 CREE) + (0.5 x Bag320 
CREE)] + 0.144 x [(SC03CREE - ((Bag\3/4\75 CREE)]

Where:

US06 City CREE = carbon-related exhaust emissions in grams per mile 
over the city portion of the US06 test, and
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test, and
Bag X/Y FE75 = carbon-related exhaust emissions in grams 
per mile of fuel during combined phases 1 and 2 or phrases 3 and 4 
of the FTP test conducted at an ambient temperature of 75 [deg]F.

    (ii) Highway carbon-related exhaust emissions.

HighwayCREE = 0.905 x (StartCREE + RunningCREE)

Where:

(A) StartCREE =
[GRAPHIC] [TIFF OMITTED] TP28SE09.065

Where:

StartCREE75 = 7.5 x (Bag\1/2\CREE75 - Bag\3/
4\CREE75)
and
StartCREE20 = 3.6 x (Bag1CREE20 - 
Bag3CREE20)

(B) RunningCREE =
1.007 x [(0.79 x US06 HighwayCREE) + (0.21 x HFET CREE)] + 0.045 x 
[SC03CREE - Bag3/475CREE)
Where:

US06 City CREE = carbon-related exhaust emissions in grams per mile 
over the city portion of the US06 test, and
SC03 CREE = carbon-related exhaust emissions in grams per mile over 
the SC03 test, and
Bag Y FE20 = the carbon-related exhaust emissions in 
grams per mile of fuel during Bag 1 or 3 of the 20 [deg]F FTP test, 
and
    Bag X/Y FE75 = carbon-related exhaust emissions in 
grams per mile of fuel during phases 1 and 2 or phases 3 and 4 of 
the FTP test conducted at an ambient temperature of 75 [deg]F.

    40. Section 600.115-08 is amended by revising the introductory text 
to read as follows:


Sec.  600.115-08  Criteria for determining the fuel economy label 
calculation method for 2011 and later model year vehicles.

    This section provides the criteria to determine if the derived 5-
cycle method for determining fuel economy label values, as specified in 
Sec.  600.210-08 (a)(2) or (b)(2), as applicable, may be used to 
determine label values for 2011 and later model year vehicles. Separate 
criteria apply to city and highway fuel economy for each test group. 
The provisions of this section are optional. If this option is not 
chosen, or if the criteria provided in this section are not met, fuel 
economy label values for 2011 and later model year vehicles must be 
determined according to the vehicle-specific 5-cycle method specified 
in Sec.  600.210-08(a)(1) or (b)(1), as applicable. However, dedicated 
alternative-fuel vehicles, dual fuel vehicles when operating on 
alternative fuel, and MDPVs may use the derived 5-cycle method for 
determining fuel economy labels for 2011 and later model years whether 
or not the criteria provided in this section are met.
* * * * *

Subpart C--Procedures for Calculating Fuel Economy and Carbon-
related Exhaust Emission Values for 1977 and Later Model Year 
Automobiles

    41. The heading for subpart C is revised as set forth above.
    42. A new Sec.  600.201-12 is added to subpart C to read as 
follows:


Sec.  600.201-12  General applicability.

    The provisions of this subpart are applicable to 2012 and later 
model year automobiles and to the manufacturers of 2012 and later model 
year automobiles.
    43. A new Sec.  600.206-12 is added to subpart C to read as 
follows:


Sec.  600.206-12  Calculation and use of FTP-based and HFET-based fuel 
economy and carbon-related exhaust emission values for vehicle 
configurations.

    (a) Fuel economy and carbon-related exhaust emissions values 
determined for each vehicle under Sec.  600.113(a) and (b) and as 
approved in Sec.  600.008-08 (c), are used to determine FTP-based city, 
HFET-based highway, and combined FTP/Highway-based fuel economy and 
carbon-related exhaust emission values

[[Page 49777]]

for each vehicle configuration for which data are available.
    (1) If only one set of FTP-based city and HFET-based highway fuel 
economy values is accepted for a vehicle configuration, these values, 
rounded to the nearest tenth of a mile per gallon, comprise the city 
and highway fuel economy values for that configuration. If only one set 
of FTP-based city and HFET-based highway carbon-related exhaust 
emission values is accepted for a vehicle configuration, these values, 
rounded to the nearest gram per mile, comprise the city and highway 
carbon-related exhaust emission values for that configuration.
    (2) If more than one set of FTP-based city and HFET-based highway 
fuel economy and/or carbon-related exhaust emission values are accepted 
for a vehicle configuration:
    (i) All data shall be grouped according to the subconfiguration for 
which the data were generated using sales projections supplied in 
accordance with Sec.  600.208(a)(3).
    (ii) Within each group of data, all fuel economy values are 
harmonically averaged and rounded to the nearest 0.0001 of a mile per 
gallon and all carbon-related exhaust emission values are 
arithmetically averaged and rounded to the nearest tenth of a gram per 
mile in order to determine FTP-based city and HFET-based highway fuel 
economy and carbon-related exhaust emission values for each 
subconfiguration at which the vehicle configuration was tested.
    (iii) All FTP-based city fuel economy and carbon-related exhaust 
emission values and all HFET-based highway fuel economy and carbon-
related exhaust emission values calculated in paragraph (a)(2)(ii) of 
this section are (separately for city and highway) averaged in 
proportion to the sales fraction (rounded to the nearest 0.0001) within 
the vehicle configuration (as provided to the Administrator by the 
manufacturer) of vehicles of each tested subconfiguration. Fuel economy 
values shall be harmonically averaged and carbon-related exhaust 
emission values shall be arithmetically averaged. The resultant fuel 
economy values, rounded to the nearest 0.0001 mile per gallon, are the 
FTP-based city and HFET-based highway fuel economy values for the 
vehicle configuration. The resultant carbon-related exhaust emission 
values, rounded to the nearest tenth of a gram per mile, are the FTP-
based city and HFET-based highway carbon-related exhaust emission 
values for the vehicle configuration.
    (3)(i) For the purpose of determining average fuel economy under 
Sec.  600.510-08, the combined fuel economy value for a vehicle 
configuration is calculated by harmonically averaging the FTP-based 
city and HFET-based highway fuel economy values, as determined in Sec.  
600.206(a)(1) or (2) of this section, weighted 0.55 and 0.45 
respectively, and rounded to the nearest 0.0001 mile per gallon. A 
sample of this calculation appears in Appendix II of this part.
    (ii) For the purpose of determining average carbon-related exhaust 
emissions under Sec.  600.510-08, the combined carbon-related exhaust 
emission value for a vehicle configuration is calculated by 
arithmetically averaging the FTP-based city and HFET-based highway 
carbon-related exhaust emission values, as determined in Sec.  
600.206(a)(1) or (2) of this section, weighted 0.55 and 0.45 
respectively, and rounded to the nearest tenth of gram per mile.
    (4) For alcohol dual fuel automobiles and natural gas dual fuel 
automobiles the procedures of paragraphs (a)(1) or (2) of this section, 
as applicable, shall be used to calculate two separate sets of FTP-
based city, HFET-based highway, and combined fuel economy and carbon-
related exhaust emission values for each configuration.
    (i) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
gasoline or diesel test fuel.
    (ii) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
alcohol or natural gas test fuel.
    (b) If only one equivalent petroleum-based fuel economy value 
exists for an electric vehicle configuration, that value, rounded to 
the nearest tenth of a mile per gallon, will comprise the petroleum-
based fuel economy for that configuration. The carbon-related exhaust 
emission value for that configuration shall be 0 grams per mile.
    (c) If more than one equivalent petroleum-based fuel economy value 
exists for an electric vehicle configuration, all values for that 
vehicle configuration are harmonically averaged and rounded to the 
nearest 0.0001 mile per gallon for that configuration. The carbon-
related exhaust emission value for that configuration shall be 0 grams 
per mile.
    44. A new Sec.  600.208-12 is added to subpart C to read as 
follows:


Sec.  600.208-12  Calculation of FTP-based and HFET-based fuel economy 
and carbon-related exhaust emission values for a model type.

    (a) Fuel economy and carbon-related exhaust emission values for a 
base level are calculated from vehicle configuration fuel economy and 
carbon-related exhaust emission values as determined in Sec.  600.206-
08(a), (b), or (c) as applicable, for low-altitude tests.
    (1) If the Administrator determines that automobiles intended for 
sale in the State of California are likely to exhibit significant 
differences in fuel economy and carbon-related exhaust emission values 
from those intended for sale in other states, she will calculate fuel 
economy and carbon-related exhaust emission values for each base level 
for vehicles intended for sale in California and for each base level 
for vehicles intended for sale in the rest of the States.
    (2) In order to highlight the fuel efficiency and carbon-related 
exhaust emission values of certain designs otherwise included within a 
model type, a manufacturer may wish to subdivide a model type into one 
or more additional model types. This is accomplished by separating 
subconfigurations from an existing base level and placing them into a 
new base level. The new base level is identical to the existing base 
level except that it shall be considered, for the purposes of this 
paragraph, as containing a new basic engine. The manufacturer will be 
permitted to designate such new basic engines and base level(s) if:
    (i) Each additional model type resulting from division of another 
model type has a unique car line name and that name appears on the 
label and on the vehicle bearing that label;
    (ii) The subconfigurations included in the new base levels are not 
included in any other base level which differs only by basic engine 
(i.e., they are not included in the calculation of the original base 
level fuel economy values); and
    (iii) All subconfigurations within the new base level are 
represented by test data in accordance with Sec.  600.010-08(c)(1)(ii).
    (3) The manufacturer shall supply total model year sales 
projections for each car line/vehicle subconfiguration combination.
    (i) Sales projections must be supplied separately for each car 
line-vehicle subconfiguration intended for sale in California and each 
car line/vehicle subconfiguration intended for sale in the rest of the 
States if required by the Administrator under paragraph (a)(1) of this 
section.

[[Page 49778]]

    (ii) Manufacturers shall update sales projections at the time any 
model type value is calculated for a label value.
    (iii) The provisions of paragraph (a)(3) of this section may be 
satisfied by providing an amended application for certification, as 
described in Sec.  86.1844-01.
    (4) Vehicle configuration fuel economy and carbon-related exhaust 
emission values, as determined in Sec.  600.206-08 (a), (b) or (c), as 
applicable, are grouped according to base level.
    (i) If only one vehicle configuration within a base level has been 
tested, the fuel economy and carbon-related exhaust emission values 
from that vehicle configuration will constitute the fuel economy and 
carbon-related exhaust emission values for that base level.
    (ii) If more than one vehicle configuration within a base level has 
been tested, the vehicle configuration fuel economy values are 
harmonically averaged in proportion to the respective sales fraction 
(rounded to the nearest 0.0001) of each vehicle configuration and the 
resultant fuel economy value rounded to the nearest 0.0001 mile per 
gallon; and the vehicle configuration carbon-related exhaust emission 
values are arithmetically averaged in proportion to the respective 
sales fraction (rounded to the nearest 0.0001) of each vehicle 
configuration and the resultant carbon-related exhaust emission value 
rounded to the nearest gram per mile.
    (5) The procedure specified in paragraph (a)(1) through (4) of this 
section will be repeated for each base level, thus establishing city, 
highway, and combined fuel economy and carbon-related exhaust emission 
values for each base level.
    (6) For the purposes of calculating a base level fuel economy or 
carbon-related exhaust emission value, if the only vehicle 
configuration(s) within the base level are vehicle configuration(s) 
which are intended for sale at high altitude, the Administrator may use 
fuel economy and carbon-related exhaust emission data from tests 
conducted on these vehicle configuration(s) at high altitude to 
calculate the fuel economy or carbon-related exhaust emission value for 
the base level.
    (7) For alcohol dual fuel automobiles and natural gas dual fuel 
automobiles, the procedures of paragraphs (a)(1) through (6) of this 
section shall be used to calculate two separate sets of city, highway, 
and combined fuel economy and carbon-related exhaust emission values 
for each base level.
    (i) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
gasoline or diesel test fuel.
    (ii) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
alcohol or natural gas test fuel.
    (b) For each model type, as determined by the Administrator, a 
city, highway, and combined fuel economy value and a carbon-related 
exhaust emission value will be calculated by using the projected sales 
and fuel economy and carbon-related exhaust emission values for each 
base level within the model type. Separate model type calculations will 
be done based on the vehicle configuration fuel economy and carbon-
related exhaust emission values as determined in Sec.  600.206-08 (a), 
(b) or (c), as applicable.
    (1) If the Administrator determines that automobiles intended for 
sale in the State of California are likely to exhibit significant 
differences in fuel economy and carbon-related exhaust emission values 
from those intended for sale in other States, she will calculate fuel 
economy and carbon-related exhaust emission values for each model type 
for vehicles intended for sale in California and for each model type 
for vehicles intended for sale in the rest of the States.
    (2) The sales fraction for each base level is calculated by 
dividing the projected sales of the base level within the model type by 
the projected sales of the model type and rounding the quotient to the 
nearest 0.0001.
    (3)(i) The FTP-based city fuel economy values of the model type 
(calculated to the nearest 0.0001 mpg) are determined by dividing one 
by a sum of terms, each of which corresponds to a base level and which 
is a fraction determined by dividing:
    (A) The sales fraction of a base level; by
    (B) The FTP-based city fuel economy value for the respective base 
level.
    (ii) The FTP-based city carbon-related exhaust emission value of 
the model type (calculated to the nearest gram per mile) are determined 
by a sum of terms, each of which corresponds to a base level and which 
is a product determined by multiplying:
    (A) The sales fraction of a base level; by
    (B) The FTP-based city carbon-related exhaust emission value for 
the respective base level.
    (4) The procedure specified in paragraph (b)(3) of this section is 
repeated in an analogous manner to determine the highway and combined 
fuel economy and carbon-related exhaust emission values for the model 
type.
    (5) For alcohol dual fuel automobiles and natural gas dual fuel 
automobiles, the procedures of paragraphs (b)(1) through (4) of this 
section shall be used to calculate two separate sets of city, highway, 
and combined fuel economy values and two separate sets of city, 
highway, and combined carbon-related exhaust emission values for each 
model type.
    (i) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
gasoline or diesel test fuel.
    (ii) Calculate the city, highway, and combined fuel economy and 
carbon-related exhaust emission values from the tests performed using 
alcohol or natural gas test fuel.

Subpart D--Fuel Economy Regulations for 1977 and Later Model Year 
Automobiles--Labeling

    45. A new Sec.  600.301-12 is added to subpart D to read as 
follows:


Sec.  600.301-12  General applicability.

    (a) Unless otherwise specified, the provisions of this subpart are 
applicable to 2012 and later model year automobiles.
    (b) [Reserved]

Subpart F--Fuel Economy Regulations for Model Year 1978 Passenger 
Automobiles and for 1979 and Later Model Year Automobiles (Light 
Trucks and Passenger Automobiles)--Procedures for Determining 
Manufacturer's Average Fuel Economy and Manufacturer's Average 
Carbon-related Exhaust Emissions

    46. The heading for subpart F is revised as set forth above.
    47. A new Sec.  600.501-12 is added to subpart F to read as 
follows:


Sec.  600.501-12  General applicability.

    The provisions of this subpart are applicable to 2012 and later 
model year passenger automobiles and light trucks and to the 
manufacturers of 2012 and later model year passenger automobiles and 
light trucks.
    48. A new Sec.  600.507-12 is added to subpart F to read as 
follows:


Sec.  600.507-12  Running change data requirements.

    (a) Except as specified in paragraph (d) of this section, the 
manufacturer shall submit additional running change fuel economy and 
carbon-related exhaust emissions data as specified in

[[Page 49779]]

paragraph (b) of this section for any running change approved or 
implemented under Sec. Sec.  86.079-32, 86.079-33, or 86.082-34 or 
86.1842-01 as applicable, which:
    (1) Creates a new base level or,
    (2) Affects an existing base level by:
    (i) Adding an axle ratio which is at least 10 percent larger (or, 
optionally, 10 percent smaller) than the largest axle ratio tested.
    (ii) Increasing (or, optionally, decreasing) the road-load 
horsepower for a subconfiguration by 10 percent or more for the 
individual running change or, when considered cumulatively, since 
original certification (for each cumulative 10 percent increase using 
the originally certified road-load horsepower as a base).
    (iii) Adding a new subconfiguration by increasing (or, optionally, 
decreasing) the equivalent test weight for any previously tested 
subconfiguration in the base level.
    (iv) Revising the calibration of an electric vehicle, fuel cell 
electric vehicle, hybrid electric vehicle, plug-in hybrid electric 
vehicle or other advanced technology vehicle in such a way that the 
city or highway fuel economy of the vehicle (or the energy consumption 
of the vehicle, as may be applicable) is expected to become less fuel 
efficient (or optionally, more fuel efficient) by 4.0 percent or more 
as compared to the original fuel economy label values for fuel economy 
and/or energy consumption, as applicable.
    (b)(1) The additional running change fuel economy and carbon-
related exhaust emissions data requirement in paragraph (a) of this 
section will be determined based on the sales of the vehicle 
configurations in the created or affected base level(s) as updated at 
the time of running change approval.
    (2) Within each newly created base level as specified in paragraph 
(a)(1) of this section, the manufacturer shall submit data from the 
highest projected total model year sales subconfiguration within the 
highest projected total model year sales configuration in the base 
level.
    (3) Within each base level affected by a running change as 
specified in paragraph (a)(2) of this section, fuel economy and carbon-
related exhaust emissions data shall be submitted for the vehicle 
configuration created or affected by the running change which has the 
highest total model year projected sales. The test vehicle shall be of 
the subconfiguration created by the running change which has the 
highest projected total model year sales within the applicable vehicle 
configuration.
    (c) The manufacturer shall submit the fuel economy data required by 
this section to the Administrator in accordance with Sec.  600.314(b).
    (d) For those model types created under Sec.  600.208-08(a)(2), the 
manufacturer shall submit fuel economy and carbon-related exhaust 
emissions data for each subconfiguration added by a running change.
    49. A new Sec.  600.509-12 is added to subpart F to read as 
follows:


Sec.  600.509-12  Voluntary submission of additional data.

    (a) The manufacturer may optionally submit data in addition to the 
data required by the Administrator.
    (b) Additional fuel economy and carbon-related exhaust emissions 
data may be submitted by the manufacturer for any vehicle configuration 
which is to be tested as required in Sec.  600.507 or for which fuel 
economy and carbon-related exhaust emissions data were previously 
submitted under paragraph (c) of this section.
    (c) Within a base level, additional fuel economy and carbon-related 
exhaust emissions data may be submitted by the manufacturer for any 
vehicle configuration which is not required to be tested by Sec.  
600.507.
    50. A new Sec.  600.510-12 is added to subpart F to read as 
follows:


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

    (a)(1) Average fuel economy will be calculated to the nearest 0.1 
mpg for the classes of automobiles identified in this section, and the 
results of such calculations will be reported to the Secretary of 
Transportation for use in determining compliance with the applicable 
fuel economy standards.
    (i) An average fuel economy calculation will be made for the 
category of passenger automobiles that is domestically manufactured as 
defined in Sec.  600.511(d)(1).
    (ii) An average fuel economy calculation will be made for the 
category of passenger automobiles that is not domestically manufactured 
as defined in Sec.  600.511(d)(2).
    (iii) An average fuel economy calculation will be made for the 
category of light trucks that is domestically manufactured as defined 
in Sec.  600.511(e)(1).
    (iv) An average fuel economy calculation will be made for the 
category of light trucks that is not domestically manufactured as 
defined in Sec.  600.511(e)(2).
    (2) Average carbon-related exhaust emissions will be calculated to 
the nearest one gram per mile for the classes of automobiles identified 
in this section, and the results of such calculations will be reported 
to the Administrator for use in determining compliance with the 
applicable CO2 emission standards.
    (i) An average carbon-related exhaust emissions calculation will be 
made for passenger automobiles.
    (ii) An average carbon-related exhaust emissions calculation will 
be made for light trucks.
    (b) For the purpose of calculating average fuel economy under 
paragraph (c) of this section and for the purpose of calculating 
average carbon-related exhaust emissions under paragraph (j) of this 
section:
    (1) All fuel economy and carbon-related exhaust emissions data 
submitted in accordance with Sec.  600.006(e) or Sec.  600.512(c) shall 
be used.
    (2) The combined city/highway fuel economy and carbon-related 
exhaust emission values will be calculated for each model type in 
accordance with Sec.  600.208-08 of this section except that:
    (i) Separate fuel economy values will be calculated for model types 
and base levels associated with car lines that are:
    (A) Domestically produced; and
    (B) Nondomestically produced and imported;
    (ii) Total model year production data, as required by this subpart, 
will be used instead of sales projections;
    (iii) [Reserved]
    (iv) The fuel economy value will be rounded to the nearest 0.1 mpg;
    (v) The carbon-related exhaust emission value will be rounded to 
the nearest gram per mile; and
    (vi) At the manufacturer's option, those vehicle configurations 
that are self-compensating to altitude changes may be separated by 
sales into high-altitude sales categories and low-altitude sales 
categories. These separate sales categories may then be treated (only 
for the purpose of this section) as separate configurations in 
accordance with the procedure of Sec.  600.208-08(a)(4)(ii).
    (3) The fuel economy and carbon-related exhaust emission values for 
each vehicle configuration are the combined fuel economy and carbon-
related exhaust emissions calculated according to Sec.  600.206-
08(a)(3) except that:
    (i) Separate fuel economy values will be calculated for vehicle 
configurations associated with car lines that are:
    (A) Domestically produced; and
    (B) Nondomestically produced and imported;
    (ii) Total model year production data, as required by this subpart 
will be used instead of sales projections; and

[[Page 49780]]

    (iii) The fuel economy value of diesel-powered model types will be 
multiplied by the factor 1.0 to convert gallons of diesel fuel to 
equivalent gallons of gasoline.
    (c) Except as permitted in paragraph (d) of this section, the 
average fuel economy will be calculated individually for each category 
identified in paragraph (a) of this section as follows:
    (1) Divide the total production volume of that category of 
automobiles; by
    (2) A sum of terms, each of which corresponds to a model type 
within that category of automobiles and is a fraction determined by 
dividing the number of automobiles of that model type produced by the 
manufacturer in the model year; by
    (i) For gasoline-fueled and diesel-fueled model types, the fuel 
economy calculated for that model type in accordance with paragraph 
(b)(2) of this section; or
    (ii) For alcohol-fueled model types, the fuel economy value 
calculated for that model type in accordance with paragraph (b)(2) of 
this section divided by 0.15 and rounded to the nearest 0.1 mpg; or
    (iii) For natural gas-fueled model types, the fuel economy value 
calculated for that model type in accordance with paragraph (b)(2) of 
this section divided by 0.15 and rounded to the nearest 0.1 mpg; or
    (iv) For alcohol dual fuel model types, for model years 1993 
through 2019, the harmonic average of the following two terms; the 
result rounded to the nearest 0.1 mpg:
    (A) The combined model type fuel economy value for operation on 
gasoline or diesel fuel as determined in Sec.  600.208(b)(5)(i); and
    (B) The combined model type fuel economy value for operation on 
alcohol fuel as determined in Sec.  600.208(b)(5)(ii) divided by 0.15 
provided the requirements of Sec.  600.510(g) are met; or
    (v) For natural gas dual fuel model types, for model years 1993 
through 2019, the harmonic average of the following two terms; the 
result rounded to the nearest 0.1 mpg:
    (A) The combined model type fuel economy value for operation on 
gasoline or diesel as determined in Sec.  600.208(b)(5)(i); and
    (B) The combined model type fuel economy value for operation on 
natural gas as determined in Sec.  600.208(b)(5)(ii) divided by 0.15 
provided the requirements of paragraph (g) of this section are met.
    (d) The Administrator may approve alternative calculation methods 
if they are part of an approved credit plan under the provisions of 15 
U.S.C. 2003.
    (e) For passenger categories identified in paragraphs (a)(1) and 
(2) of this section, the average fuel economy calculated in accordance 
with paragraph (c) of this section shall be adjusted using the 
following equation:

AFEadj = AFE[((0.55 x a x c) + (0.45 x c) + (0.5556 x a) + 
0.4487)/((0.55 x a) + 0.45)] + IW

Where:

AFEadj = Adjusted average combined fuel economy, rounded 
to the nearest 0.1 mpg;
AFE = Average combined fuel economy as calculated in paragraph (c) 
of this section, rounded to the nearest 0.0001 mpg;
a = Sales-weight average (rounded to the nearest 0.0001 mpg) of all 
model type highway fuel economy values (rounded to the nearest 0.1 
mpg) divided by the sales-weighted average (rounded to the nearest 
0.0001 mpg) of all model type city fuel economy values (rounded to 
the nearest 0.1 mpg). The quotient shall be rounded to 4 decimal 
places. These average fuel economies shall be determined using the 
methodology of paragraph (c) of this section.
c = 0.0014;
IW = (9.2917 x 10 -3 x SF3IWC x 
FE3IWC) - (3.5123 x 10 -3 x SF4ETW 
x FE4IWC).
Note: Any calculated value of IW less than zero shall be set equal 
to zero.
SF3IWC = The 3000 lb. inertia weight class sales divided 
by total sales. The quotient shall be rounded to 4 decimal places.
SF4ETW = The 4000 lb. equivalent test weight category 
sales divided by total sales. The quotient shall be rounded to 4 
decimal places.
FE4IWC = The sales-weighted average combined fuel economy 
of all 3000 lb. inertia weight class base levels in the compliance 
category. Round the result to the nearest 0.0001 mpg.
FE4IWC = The sales-weighted average combined fuel economy 
of all 4000 lb. inertia weight class base levels in the compliance 
category. Round the result to the nearest 0.0001 mpg.

    (f) The Administrator shall calculate and apply additional average 
fuel economy adjustments if, after notice and opportunity for comment, 
the Administrator determines that, as a result of test procedure 
changes not previously considered, such correction is necessary to 
yield fuel economy test results that are comparable to those obtained 
under the 1975 test procedures. In making such determinations, the 
Administrator must find that:
    (1) A directional change in measured fuel economy of an average 
vehicle can be predicted from a revision to the test procedures;
    (2) The magnitude of the change in measured fuel economy for any 
vehicle or fleet of vehicles caused by a revision to the test 
procedures is quantifiable from theoretical calculations or best 
available test data;
    (3) The impact of a change on average fuel economy is not due to 
eliminating the ability of manufacturers to take advantage of 
flexibility within the existing test procedures to gain measured 
improvements in fuel economy which are not the result of actual 
improvements in the fuel economy of production vehicles;
    (4) The impact of a change on average fuel economy is not solely 
due to a greater ability of manufacturers to reflect in average fuel 
economy those design changes expected to have comparable effects on in-
use fuel economy;
    (5) The test procedure change is required by EPA or is a change 
initiated by EPA in its laboratory and is not a change implemented 
solely by a manufacturer in its own laboratory.
    (g)(1) Alcohol dual fuel automobiles and natural gas dual fuel 
automobiles must provide equal or greater energy efficiency while 
operating on alcohol or natural gas as while operating on gasoline or 
diesel fuel to obtain the CAFE credit determined in paragraphs 
(c)(2)(iv) and (v) of this section or to obtain the carbon-related 
exhaust emissions credit determined in paragraphs (j)(2)(ii) and (iii). 
The following equation must hold true:
Ealt/Epet> or = 1

Where:

Ealt = [FEalt/(NHValt x 
Dalt)] x 10\6\ = energy efficiency while operating on 
alternative fuel rounded to the nearest 0.01 miles/million BTU.
Epet = [FEpet/(NHVpet x 
Dpet)] x 10\6\ = energy efficiency while operating on 
gasoline or diesel (petroleum) fuel rounded to the nearest 0.01 
miles/million BTU.
FEalt is the fuel economy [miles/gallon for liquid fuels 
or miles/100 standard cubic feet for gaseous fuels] while operated 
on the alternative fuel as determined in Sec.  600.113-08(a) and 
(b);
FEpet is the fuel economy [miles/gallon] while operated 
on petroleum fuel (gasoline or diesel) as determined in Sec.  
600.113(a) and (b);
NHValt is the net (lower) heating value [BTU/lb] of the 
alternative fuel;
NHVpet is the net (lower) heating value [BTU/lb] of the 
petroleum fuel;
Dalt is the density [lb/gallon for liquid fuels or lb/100 
standard cubic feet for gaseous fuels] of the alternative fuel;
Dpet is the density [lb/gallon] of the petroleum fuel.

    (i) The equation must hold true for both the FTP city and HFET 
highway fuel economy values for each test of each test vehicle.
    (ii)(A) The net heating value for alcohol fuels shall be determined 
per

[[Page 49781]]

ASTM D 240-92 ``Standard Test Method for Heat of Combustion of Liquid 
Hydrocarbon Fuels by Bomb Calorimeter.'' This incorporation by 
reference was approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be 
obtained from the American Society for Testing and Materials, 100 Barr 
Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428-2959. Copies 
may be inspected at U.S. EPA Headquarters Library, EPA West Building, 
Constitution Avenue and 14th Street, NW., Room 3340, Washington, DC, or 
at the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    (B) The density for alcohol fuels shall be determined per ASTM D 
1298-85 (Reapproved 1990) ``Standard Practice for Density, Relative 
Density (Specific Gravity), or API Gravity of Crude Petroleum and 
Liquid Petroleum Products by Hydrometer Method.'' This incorporation by 
reference was approved by the Director of the Federal Register in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies may be 
obtained from the American Society for Testing and Materials, 100 Barr 
Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428-2959. Copies 
may be inspected at U.S. EPA Headquarters Library, EPA West Building, 
Constitution Avenue and 14th Street, NW., Room 3340, Washington, DC, or 
at the National Archives and Records Administration (NARA). For 
information on the availability of this material at NARA, call 202-741-
6030, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.
    (iii) The net heating value and density of gasoline are to be 
determined by the manufacturer in accordance with Sec.  600.113(f).
    (2) [Reserved]
    (3) Alcohol dual fuel passenger automobiles and natural gas dual 
fuel passenger automobiles manufactured during model years 1993 through 
2019 must meet the minimum driving range requirements established by 
the Secretary of Transportation (49 CFR part 538) to obtain the CAFE 
credit determined in paragraphs (c)(2)(iv) and (v) of this section.
    (h) [Reserved]
    (i) For model years 2012 through 2015, and for each category of 
automobile identified in paragraph (a)(2) of this section, the maximum 
decrease in average carbon-related exhaust emissions determined in 
paragraph (c) of this section attributable to alcohol dual fuel 
automobiles and natural gas dual fuel automobiles shall be as follows:

------------------------------------------------------------------------
                                     Maximum decrease--      Maximum
            Model year                   passenger       decrease--light
                                    automobiles  (g/mi)   trucks  (g/mi)
------------------------------------------------------------------------
2012..............................                9.8               17.9
2013..............................                9.3               17.1
2014..............................                8.9               16.3
2015..............................                6.9               12.6
------------------------------------------------------------------------

     (1) The Administrator shall calculate the decrease in average 
carbon-related exhaust emissions to determine if the maximum decrease 
provided in paragraph (i) of this section has been reached. The 
Administrator shall calculate the average carbon-related exhaust 
emissions for each category of automobiles specified in paragraph 
(a)(2) of this section by subtracting the average carbon-related 
exhaust emission values determined in paragraphs (b)(2)(vi), 
(b)(2)(vii), and (c) of this section from the average carbon-related 
exhaust emission values calculated in accordance with this section by 
assuming all alcohol dual fuel and natural gas dual fuel automobiles 
are operated exclusively on gasoline (or diesel) fuel. The difference 
is limited to the maximum decrease specified in paragraph (i) of this 
section.
    (2) [Reserved]
    (j) The average carbon-related exhaust emissions will be calculated 
individually for each category identified in paragraph (a)(2) of this 
section as follows:
    (1) Divide the total production volume of that category of 
automobiles into:
    (2) A sum of terms, each of which corresponds to a model type 
within that category of automobiles and is a product determined by 
multiplying the number of automobiles of that model type produced by 
the manufacturer in the model year by:
    (i) For gasoline-fueled and diesel-fueled model types, the carbon-
related exhaust emissions value calculated for that model type in 
accordance with paragraph (b)(2) of this section; or
    (ii)(A) For alcohol-fueled model types, for model years 2012 
through 2015, the carbon-related exhaust emissions value calculated for 
that model type in accordance with paragraph (b)(2) of this section 
multiplied by 0.15 and rounded to the nearest gram per mile; or
    (B) For alcohol-fueled model types, for model years 2016 and later, 
the carbon-related exhaust emissions value calculated for that model 
type in accordance with paragraph (b)(2) of this section; or
    (iii)(A) For natural gas-fueled model types, for model years 2012 
through 2015, the carbon-related exhaust emissions value calculated for 
that model type in accordance with paragraph (b)(2) of this section 
multiplied by 0.15 and rounded to the nearest gram per mile; or
    (B) For natural gas-fueled model types, for model years 2016 and 
later, the carbon-related exhaust emissions value calculated for that 
model type in accordance with paragraph (b)(2) of this section; or
    (iv) For alcohol dual fuel model types, for model years 2012 
through 2015, the arithmetic average of the following two terms, the 
result rounded to the nearest gram per mile:
    (A) The combined model type carbon-related exhaust emissions value 
for operation on gasoline or diesel fuel as determined in Sec.  
600.208(b)(5)(i); and
    (B) The combined model type carbon-related exhaust emissions value 
for operation on alcohol fuel as determined in Sec.  600.208(b)(5)(ii) 
multiplied by 0.15 provided the requirements of Sec.  600.510(g) are 
met; or
    (v) For natural gas dual fuel model types, for model years 2012 
through 2015, the arithmetic average of the following two terms; the 
result rounded to the nearest gram per mile:
    (A) The combined model type carbon-related exhaust emissions value 
for

[[Page 49782]]

operation on gasoline or diesel as determined in Sec.  
600.208(b)(5)(i); and
    (B) The combined model type carbon-related exhaust emissions value 
for operation on natural gas as determined in Sec.  600.208(b)(5)(ii) 
multiplied by 0.15 provided the requirements of paragraph (g) of this 
section are met.
    (vi) For alcohol dual fuel model types, for model years 2016 and 
later, the combined model type carbon-related exhaust emissions value 
determined according to the following formula and rounded to the 
nearest gram per mile:

CREE = (F x CREEalt) + ((1-F) x CREEgas)

Where:

F = 0.00 unless otherwise approved by the Administrator according to 
the provisions of paragraph (k) of this section;
CREEalt = The combined model type carbon-related exhaust 
emissions value for operation on alcohol fuel as determined in Sec.  
600.208(b)(5)(ii); and
CREEgas = The combined model type carbon-related exhaust 
emissions value for operation on gasoline or diesel fuel as 
determined in Sec.  600.208(b)(5)(i).

    (vii) For natural gas dual fuel model types, for model years 2016 
and later, the combined model type carbon-related exhaust emissions 
value determined according to the following formula and rounded to the 
nearest gram per mile:
CREE = (F x CREEalt) + ((1-F) x CREEgas)

Where:
F = 0.00 unless otherwise approved by the Administrator according to 
the provisions of paragraph (k) of this section;
CREEalt = The combined model type carbon-related exhaust 
emissions value for operation on natural gas as determined in Sec.  
600.208(b)(5)(ii); and
CREEgas = The combined model type carbon-related exhaust 
emissions value for operation on gasoline or diesel fuel as 
determined in Sec.  600.208(b)(5)(i).

    (3) The production volume of electric, fuel cell electric and plug-
in hybrid electric model types for model years 2012 through 2016 may be 
adjusted by the multiplier specified in 40 CFR 86.1866-12(a) and in 
accordance with the provisions of 40 CFR 86.1866-12(a). The adjusted 
production volumes shall be accounted for both in the total production 
volume specified in paragraph (j)(1) of this section and in the model 
type production volume specified in paragraph (j)(2) of this section.
    (k) Alternative in-use weighting factors for dual fuel model types. 
Using one of the methods in either paragraph (k)(1) or (2) of this 
section, manufacturers may request the use of alternative values for 
the weighting factor F in the equations in paragraphs (j)(2)(vi) and 
(vii) of this section. Unless otherwise approved by the Administrator, 
the manufacturer must use the value of F that is in effect in 
paragraphs (j)(2)(vi) and (vii) of this section.
    (1) Upon written request from a manufacturer, the Administrator 
will determine and publish by written guidance an appropriate value of 
F for each requested alternative fuel based on the Administrator's 
assessment of real-world use of the alternative fuel. Such published 
values would be available for any manufacturer to use. The 
Administrator will periodically update these values upon written 
request from a manufacturer.
    (2) The manufacturer may optionally submit to the Administrator its 
own demonstration regarding the real-world use of the alternative fuel 
in their vehicles and its own estimate of the appropriate value of F in 
the equations in paragraphs (j)(2)(vi) and (vii) of this section. 
Depending on the nature of the analytical approach, the manufacturer 
could provide estimates of F that are model type specific or that are 
generally applicable to the manufacturer's dual fuel fleet. The 
manufacturer's analysis could include use of data gathered from on-
board sensors and computers, from dual fuel vehicles in fleets that are 
centrally fueled, or from other sources. The analysis must be based on 
sound statistical methodology and must account for analytical 
uncertainty. Any approval by the Administrator will pertain to the use 
of values of F for the model types specified by the manufacturer.
    51. A new Sec.  600.512-12 is added to subpart F to read as 
follows:


Sec.  600.512-12  Model year report.

    (a) For each model year, the manufacturer shall submit to the 
Administrator a report, known as the model year report, containing all 
information necessary for the calculation of the manufacturer's average 
fuel economy and all information necessary for the calculation of the 
manufacturer's average carbon-related exhaust emissions.
    (1) The results of the manufacturer calculations and summary 
information of model type fuel economy values which are contained in 
the average fuel economy calculation shall also be submitted to the 
Secretary of the Department of Transportation, National Highway and 
Traffic Safety Administration.
    (2) The results of the manufacturer calculations and summary 
information of model type carbon-related exhaust emission values which 
are contained in the average calculation shall be submitted to the 
Administrator.
    (b)(1) The model year report shall be in writing, signed by the 
authorized representative of the manufacturer and shall be submitted no 
later than 90 days after the end of the model year.
    (2) The Administrator may waive the requirement that the model year 
report be submitted no later than 90 days after the end of the model 
year. Based upon a request by the manufacturer, if the Administrator 
determines that 90 days is insufficient time for the manufacturer to 
provide all additional data required as determined in Sec.  600.507, 
the Administrator shall establish an alternative date by which the 
model year report must be submitted.
    (3) Separate reports shall be submitted for passenger automobiles 
and light trucks (as identified in Sec.  600.510).
    (c) The model year report must include the following information:
    (1)(i) All fuel economy data used in the FTP/HFET-based model type 
calculations under Sec.  600.208-12, and subsequently required by the 
Administrator in accordance with Sec.  600.507;
    (ii) All carbon-related exhaust emission data used in the FTP/HFET-
based model type calculations under Sec.  600.208-12, and subsequently 
required by the Administrator in accordance with Sec.  600.507;
    (2)(i) All fuel economy data for certification vehicles and for 
vehicles tested for running changes approved under Sec.  86.1842-01 of 
this chapter;
    (ii) All carbon-related exhaust emission data for certification 
vehicles and for vehicles tested for running changes approved under 
Sec.  86.1842-01 of this chapter;
    (3) Any additional fuel economy and carbon-related exhaust emission 
data submitted by the manufacturer under Sec.  600.509;
    (4)(i) A fuel economy value for each model type of the 
manufacturer's product line calculated according to Sec.  
600.510(b)(2);
    (ii) A carbon-related exhaust emission value for each model type of 
the manufacturer's product line calculated according to Sec.  
600.510(b)(2);
    (5)(i) The manufacturer's average fuel economy value calculated 
according to Sec.  600.510(c);
    (ii) The manufacturer's average carbon-related exhaust emission 
value calculated according to Sec.  600.510(j);
    (6) A listing of both domestically and nondomestically produced car 
lines as

[[Page 49783]]

determined in Sec.  600.511 and the cost information upon which the 
determination was made; and
    (7) The authenticity and accuracy of production data must be 
attested to by the corporation, and shall bear the signature of an 
officer (a corporate executive of at least the rank of vice-president) 
designated by the corporation. Such attestation shall constitute a 
representation by the manufacturer that the manufacturer has 
established reasonable, prudent procedures to ascertain and provide 
production data that are accurate and authentic in all material 
respects and that these procedures have been followed by employees of 
the manufacturer involved in the reporting process. The signature of 
the designated officer shall constitute a representation by the 
required attestation.
    52. A new Sec.  600.514-12 is added to subpart F to read as 
follows:


Sec.  600.514-12  Reports to the Environmental Protection Agency.

    This section establishes requirements for automobile manufacturers 
to submit reports to the Environmental Protection Agency regarding 
their efforts to reduce automotive greenhouse gas emissions.
    (a) General Requirements. (1) For each current model year, each 
manufacturer shall submit a pre-model year report, and, as required by 
paragraph (d) of this section, supplementary reports.
    (2)(i) The pre-model year report required by this section for each 
model year must be submitted during the month of December (e.g., the 
pre-model year report for the 2012 model year must be submitted during 
December, 2011).
    (ii) Each supplementary report must be submitted in accordance with 
paragraph (e)(3) of this section.
    (3) Each report required by this section must:
    (i) Identify the report as a pre-model year report or supplementary 
report as appropriate;
    (ii) Identify the manufacturer submitting the report;
    (iii) State the full name, title, and address of the official 
responsible for preparing the report;
    (iv) Be submitted to: Director, Compliance and Innovative 
Strategies Division, U.S. Environmental Protection Agency, 2000 
Traverwood, Ann Arbor, Michigan 48105;
    (v) Identify the current model year;
    (vi) Be written in the English language; and
    (vii)(A) Specify any part of the information or data in the report 
that the manufacturer believes should be withheld from public 
disclosure as trade secret or other confidential business information.
    (B) With respect to each item of information or data requested by 
the manufacturer to be withheld, the manufacturer shall:
    (1) Show that disclosure of the item would result in significant 
competitive damage;
    (2) Specify the period during which the item must be withheld to 
avoid that damage; and
    (3) Show that earlier disclosure would result in that damage.
    (4) Each report required by this section must be based upon all 
information and data available to the manufacturer 30 days before the 
report is submitted to the Administrator.
    (b) General content of reports. (1) Pre-model year report. Except 
as provided in paragraph (b)(3) of this section, each pre-model year 
report for each model year must contain the information required by 
paragraph (c)(1) of this section.
    (2) Supplementary report. Each supplementary report must contain 
the information required by paragraph (e)(2)(i), (ii), or (iii), as 
appropriate.
    (3) Exceptions. (i) The pre-model year report is not required to 
contain the information specified in paragraphs (c)(2), (c)(3)(i) and 
(i), or (c)(3)(iv)(N) and (S) of this section if that report is 
required to be submitted before the fifth day after the date by which 
the manufacturer must submit the preliminary determination of its 
average fuel economy for the current model year to the Environmental 
Protection Agency under 40 CFR 600.506, when such determination is 
required. Each manufacturer that does not include information under the 
exception in the immediately preceding sentence shall indicate in its 
report the date by which it must submit that preliminary determination.
    (ii) The pre-model year report submitted by an incomplete 
automobile manufacturer for any model year is not required to contain 
the information specified in paragraphs (c)(3)(iv)(O) through (Q) and 
(c)(3)(v) of this section. The information provided by the incomplete 
automobile manufacturer under (c)(3) shall be according to base level 
instead of model type or carline.
    (c) Pre-model year reports. (1) Provide the information required by 
paragraphs (c)(2) and (3) of this section for the manufacturer's 
passenger automobiles and light trucks for the current model year.
    (2) Projected average and required carbon-related exhaust 
emissions. (i) State the projected average carbon-related exhaust 
emissions for the manufacturer's automobiles determined in accordance 
with Sec.  600.510-12 and based upon the carbon-related exhaust 
emission values and projected sales figures provided under paragraph 
(c)(3)(ii) of this section.
    (ii) State the projected final average carbon-related exhaust 
emissions value that the manufacturer anticipates having if changes 
implemented during the model year will cause that average to be 
different from the average carbon-related exhaust emissions projected 
under paragraph (c)(2)(i) of this section.
    (iii) State the projected required carbon-related exhaust emissions 
value for the manufacturer's passenger automobiles and light trucks 
determined in accordance with 40 CFR 86.1818-12 and based upon the 
projected sales figures provided under paragraph (c)(3)(ii) of this 
section.
    (iv) State the projected final required carbon-related exhaust 
emissions value that the manufacturer anticipates having if changes 
implemented during the model year will cause the targets to be 
different from the target carbon-related exhaust emissions projected 
under paragraph (c)(2)(iii) of this section.
    (v) State whether the manufacturer believes that the projections it 
provides under paragraphs (c)(2)(ii) and (c)(2)(iv) of this section, or 
if it does not provide an average or target under those paragraphs, the 
projections it provides under paragraphs (c)(2)(i) and (c)(2)(iii) of 
this section, sufficiently represent the manufacturer's average and 
target carbon-related exhaust emissions for the current model year. In 
the case of a manufacturer that believes that the projections are not 
sufficiently representative for those purposes, state the specific 
nature of any reason for the insufficiency and the specific additional 
testing or derivation of carbon-related exhaust emission values by 
analytical methods believed by the manufacturer necessary to eliminate 
the insufficiency and any plans of the manufacturer to undertake that 
testing or derivation voluntarily and submit the resulting data to the 
Environmental Protection Agency under 40 CFR 600.509.
    (vi) State the number of credits, if any, projected to be earned 
under the provisions of Sec.  86.1866-12 and the sources and 
calculations of such credits.
    (3) Model type and configuration fuel economy and technical 
information. (i) For each model type of the manufacturer's passenger 
cars and light trucks, provide the information specified in paragraph 
(c)(3)(ii) of this section in tabular form. List the model types in 
order of increasing average inertia weight from top to bottom down the 
left side of the table and list the

[[Page 49784]]

information categories in the order specified in paragraph (c)(3)(ii) 
of this section from left to right across the top of the table.
    (ii)(A) Combined carbon-related exhaust emissions value; and
    (B) Projected sales for the current model year and total sales of 
all model types.
    (iii) For each vehicle configuration whose carbon-related exhaust 
emission value was used to calculate the carbon-related exhaust 
emission values for a model type under paragraph (c)(3)(ii) of this 
section, provide the information specified in paragraph (c)(3)(iv) of 
this section in tabular form. If a tabular form is used then list the 
vehicle configurations, by model type in the order listed under 
paragraph (c)(3)(ii) of this section, from top to bottom down the left 
of the table and list the information categories across the top of the 
table from left to right in the order specified in paragraph (c)(3)(iv) 
of this section. Other formats (such as copies of EPA reports) which 
contain all the required information in a readily identifiable form are 
also acceptable.
    (iv)(A) Loaded vehicle weight;
    (B) Equivalent test weight;
    (C) Engine displacement, liters;
    (D) SAE net rated power, kilowatts;
    (E) SAE net horsepower;
    (F) Engine code;
    (G) Fuel system (number of carburetor barrels or, if fuel injection 
is used, so indicate);
    (H) Emission control system;
    (I) Transmission class;
    (J) Number of forward speeds;
    (K) Existence of overdrive (indicate yes or no);
    (L) Total drive ratio (N/V);
    (M) Axle ratio;
    (N) Combined fuel economy;
    (O) Projected sales for the current model year;
    (P) In the case of passenger automobiles:
    (1) Interior volume index, determined in accordance with subpart D 
of 40 CFR part 600,
    (2) Body style,
    (3) Beginning model year 2012, base tire as defined in Sec.  
600.002-08,
    (4) Beginning model year 2012, track width as defined in Sec.  600. 
002-08,
    (5) Beginning model year 2012, wheelbase as defined in Sec.  600. 
002-08, and
    (6) Beginning model year 2012, footprint as defined in Sec.  600. 
002-08.
    (Q) In the case of light trucks:
    (1) Passenger-carrying volume,
    (2) Cargo-carrying volume,
    (3) Beginning model year 2012, base tire as defined in Sec.  
600.002-08,
    (4) Beginning model year 2012, track width as defined in Sec.  
600.002-08,
    (5) Beginning model year 2012, wheelbase as defined in Sec.  
600.002-08, and
    (6) Beginning model year 2012, footprint as defined in Sec.  
600.002-08.
    (R) Frontal area;
    (S) 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);
    (T) 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 and 
CO2 emission testing purposes.
    (v) For each model type of automobile which is classified as an 
automobile capable of off-highway operation under 49 CFR 523, provide 
the following data:
    (A) Approach angle;
    (B) Departure angle;
    (C) Breakover angle;
    (D) Axle clearance;
    (E) Minimum running clearance; and
    (F) Existence of 4-wheel drive (indicate yes or no).
    (vi) The CO2 emission values provided under paragraphs 
(c)(3)(ii) and (iv) of this section shall be determined in accordance 
with Sec.  600.208-12.
    (d) Supplementary reports. (1)(i) Except as provided in paragraph 
(d)(4) of this section, each manufacturer whose most recently submitted 
report contained an average carbon-related exhaust emissions projection 
under (c)(2)(ii) of this section, or, if no average carbon-related 
exhaust emission value was projected under that paragraph, under 
paragraph (c)(2)(i), that was not greater than the applicable average 
CO2 emissions standard and who now projects an average 
carbon-related exhaust emissions value which is greater than the 
applicable standard shall file a supplementary report containing the 
information specified in paragraph (d)(2)(i) of this section.
    (ii) Except as provided in paragraph (d)(4) of this section, each 
manufacturer that determines that its average carbon-related exhaust 
emissions for the current model year as projected under paragraph 
(c)(2)(ii) of this section or, if no average carbon-related exhaust 
emissions value was projected under that paragraph, as projected under 
paragraph (c)(2)(i) of this section, is less representative than the 
manufacturer previously reported it to be under paragraph (c)(2)(iii) 
of this section, this paragraph (d), or both, shall file a 
supplementary report containing the information specified in paragraph 
(d)(2)(ii) of this section.
    (iii) Each manufacturer whose pre-model year report omits any of 
the information specified in (c)(2), (c)(3)(i) and (ii), or 
(c)(3)(iv)(P) and (Q) shall file a supplementary report containing the 
information specified in paragraph (d)(2)(iii) of this section.
    (2)(i) The supplementary report required by paragraph (d)(1)(i) of 
this section must contain:
    (A) Such revisions of and additions to the information previously 
submitted by the manufacturer under this part regarding the automobiles 
whose projected average carbon-related exhaust emissions value has 
increased as specified in paragraph (d)(1)(i) of this section as are 
necessary--
    (1) To reflect the increase and its cause;
    (2) To indicate a new projected average carbon-related exhaust 
emissions value based upon these additional measures.
    (B) An explanation of the cause of the increase in average carbon-
related exhaust emissions that led to the manufacturer's having to 
submit the supplementary report required by paragraph (d)(1)(i) of this 
section.
    (ii) The supplementary report required by paragraph (d)(1)(ii) of 
this section must contain:
    (A) A statement of the specific nature of and reason for the 
insufficiency in the representativeness of the projected average 
carbon-related exhaust emissions;
    (B) A statement of specific additional testing or derivation of 
carbon-related exhaust emissions values by analytical methods believed 
by the manufacturer necessary to eliminate the insufficiency; and
    (C) A description of any plans of the manufacturer to undertake 
that testing or derivation voluntarily and submit the resulting data to 
the Environmental Protection Agency under 40 CFR 600.509.
    (iii) The supplementary report required by paragraph (d)(1)(iii) of 
this section must contain:
    (A) All of the information omitted from the pre-model year report 
under paragraph (b)(3)(ii); and
    (B) Such revisions of and additions to the information submitted by 
the manufacturer in its pre-model year report regarding the automobiles 
produced during the current model year as are necessary to reflect the 
information provided under paragraph (b)(3)(i) of this section.
    (3)(i) Each report required by paragraph (d)(1)(i) or (ii) of this 
section must be submitted in accordance with

[[Page 49785]]

paragraph (a)(3) not more than 45 days after the date on which the 
manufacturer determined, or could have, with reasonable diligence, 
determined that a report is required under paragraph (d)(1)(i) or (ii) 
of this section.
    (ii) Each report required by paragraph (d)(1)(iii) of this section 
must be submitted in accordance with paragraph (a)(3) of this section 
not later than five days after the day by which the manufacturer is 
required to submit a preliminary calculation of its average fuel 
economy for the current model year to the Environmental Protection 
Agency under 40 CFR 600.506.
    (4) A supplementary report is not required to be submitted by the 
manufacturer under paragraph (d)(1)(i) or (ii) of this section:
    (i) With respect to information submitted under this part before 
the most recent report submitted by the manufacturer under this part, 
or
    (ii) When the date specified in paragraph (d)(3) of this section 
occurs after the day by which the pre-model year report for the model 
year immediately following the current model year must be submitted by 
the manufacturer under this part.
    (e) Determination of carbon-related exhaust emission values and 
average carbon-related exhaust emissions.
    (1) Vehicle configuration carbon-related exhaust emission values. 
(i) For each vehicle configuration for which a carbon-related exhaust 
emission value is required under paragraph (e)(3) of this section and 
has been determined and approved under 40 CFR part 600, the 
manufacturer shall submit that carbon-related exhaust emission value.
    (ii) For each vehicle configuration specified in paragraph 
(e)(1)(i) of this section for which a carbon-related exhaust emissions 
value approved under 40 CFR part 600, does not exist, but for which a 
carbon-related exhaust emissions value determined under that part 
exists, the manufacturer shall submit that carbon-related exhaust 
emissions value.
    (iii) For each vehicle configuration specified in paragraph 
(e)(1)(i) of this section for which a carbon-related exhaust emissions 
value has been neither determined nor approved under 40 CFR part 600, 
the manufacturer shall submit a carbon-related exhaust emissions value 
based on tests or analyses comparable to those prescribed or permitted 
under 40 CFR part 600 and a description of the test procedures or 
analytical methods used.
    (2) Base level and model type carbon-related exhaust emission 
values. For each base level and model type, the manufacturer shall 
submit a carbon-related exhaust emission value based on the values 
submitted under paragraph (e)(1) of this section and calculated in the 
same manner as base level and model type carbon-related exhaust 
emission values are calculated for use under subpart F of 40 CFR part 
600.
    (3) Average carbon-related exhaust emissions. Average carbon-
related exhaust emissions must be based upon carbon-related exhaust 
emission values calculated under paragraph (e)(2) of this section for 
each model type and must be calculated in accordance with 40 CFR 
600.506, using the configurations specified in 40 CFR 600.506(a)(2), 
except that carbon-related exhaust emission values for running changes 
and for new base levels are required only for those changes made or 
base levels added before the average carbon-related exhaust emission 
value is required to be submitted under this section.
    In consideration of the foregoing, under the authority of 49 U.S.C. 
32901, 32902, 32903, and 32907, and delegation of authority at 49 CFR 
1.50, NHTSA proposes to amend 49 CFR Chapter V as follows:

PART 531--PASSENGER AUTOMOBILE AVERAGE FUEL ECONOMY STANDARDS

    1. The authority citation for part 531 continues to read as 
follows:

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

    2. Amend Sec.  531.5 by redesignating paragraph (d) as paragraph 
(e), revising the introductory text of paragraph (a), revising 
paragraph (c), and adding a new paragraph (d) to read as follows:


Sec.  531.5  Fuel economy standards.

    (a) Except as provided in paragraph (e) of this section, each 
manufacturer of passenger automobiles shall comply with the average 
fuel economy standards in Table I, expressed in miles per gallon, in 
the model year specified as applicable:
* * * * *
    (c) For model years 2012-2016, a manufacturer's passenger 
automobile fleet shall comply with the fuel economy level calculated 
for that model year according to Figure 2 and the appropriate values in 
Table III.
[GRAPHIC] [TIFF OMITTED] TP28SE09.066

Where:

CAFErequired is the required level for a given fleet,
SALESi is the number of units of model i produced for sale in the 
United States,
TARGETi is the fuel economy target applicable to model i (according 
to the equation shown in Figure 3 and based on the footprint of 
model i),
and the summations in the numerator and denominator are both 
performed over all models in the fleet in question.
[GRAPHIC] [TIFF OMITTED] TP28SE09.067

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet),
Parameters a, b, c, and d are defined in Table III, and
The MIN and MAX functions take the minimum and maximum, respectively 
of the included values.

[[Page 49786]]



                     Table III--Parameters for the Passenger Automobile Fuel Economy Targets
----------------------------------------------------------------------------------------------------------------
                                                                            Parameters
                   Model year                    ---------------------------------------------------------------
                                                         a               b               c               d
----------------------------------------------------------------------------------------------------------------
2012............................................           36.23           28.12       0.0005308        0.005842
2013............................................           37.15           28.67       0.0005308        0.005153
2014............................................           38.08           29.22       0.0005308        0.004498
2015............................................           39.55           30.08       0.0005308        0.003520
2016............................................           41.38           31.12       0.0005308        0.002406
----------------------------------------------------------------------------------------------------------------

    (d) In addition to the requirement of paragraphs (b) and (c) of 
this section, each manufacturer shall also meet the minimum standard 
for domestically manufactured passenger automobiles expressed in Table 
IV:

                                Table IV
------------------------------------------------------------------------
                Model year                        Minimum  standard
------------------------------------------------------------------------
2011......................................  28.0
2012......................................  30.9
2013......................................  31.6
2014......................................  32.4
2015......................................  33.5
2016......................................  34.9
------------------------------------------------------------------------

* * * * *
    3. Add Appendix A to Part 531 to read as follows:

Appendix A to Part 531--Example of Calculating Compliance Under Sec.  
531.5 Paragraph (b)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of passenger automobiles in MY 2011 as follows:

Appendix A, Table 1

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Production       Footprint
            Model                   Carline              Desc            Eng/Trans        Drive system     Fuel econ mpg      volume          (ft\2\)
--------------------------------------------------------------------------------------------------------------------------------------------------------
A............................  PC A.............  2DS..............  1.8L, A5.........  FWD.............            32.5           1,500            39.2
B............................  PC B.............  2DS..............  1.8L, M6.........  FWD.............            33.1           2,000            39.2
C............................  PC C.............  2DCv.............  1.8L, A5.........  FWD.............            32.3           2,000            39.1
D............................  PC D.............  2DCv.............  1.8L, M6.........  FWD.............            32.9           1,000            39.1
E1...........................  PC E.............  4DS..............  2.5L, A6.........  FWD.............            31.5           3,000            47.1
E2...........................  .................  SUV..............  .................  ................            30.4           1,000
F............................  PC F.............  4DW..............  2.5L, A6.........  AWD.............            30.2           8,000            47.1
G1...........................  PC G.............  4DS..............  2.5L, A7.........  FWD.............            31.7           2,000            48.4
G2...........................  .................  SUV..............  .................  ................            30.6           5,000
H............................  PC H.............  4DS..............  3.2L, A7.........  RWD.............            29.3           5,000            48.4
                                                                                                                                  30,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abbreviations: 2DS = two door sedan, 2DCv = two door convertible, SUV = sport utility vehicle, 4DW = four door station wagon, 1.8L = 1.8 liter
  displacement engine, A5 = five speed automatic transmission, M6 = six speed manual transmission, FWD = front wheel drive, AWD = all wheel drive, and
  RWD = rear wheel drive.


    Note to Appendix A Table 1.  Manufacturer X's required corporate 
average fuel economy level under section 531.5(b) would first be 
calculated by determining the fuel economy targets applicable to 
each model type (A through H) as illustrated in Appendix A, Table 2.

Appendix A, Table 2

    Manufacturer X calculates target fuel economy values for each 
model.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Track width
                                                                               Wheel   ---------------------------------    Foot                 Target
              Model                      Carline             Base tire       base (in)    Front                            print     Prod vol  fuel econ
                                                                                           (in)    Rear (in)   Avg (in)   (ft\2\)                (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
A...............................  PC A................  205/75R14..........       96.0       58.8       58.8       58.8       39.2      1,500      31.19
B...............................  PC B................  215/70R15..........       96.0       58.8       58.8       58.8       39.2      2,000      31.19
C...............................  PC C................  215/70R15..........       96.1       58.5       58.7       58.6       39.1      2,000      31.19
D...............................  PC D................  235/60R15..........       96.1       58.5       58.7       58.6       39.1      1,000      31.19
E1..............................  PC E................  225/65R16..........      105.0       64.7       64.5       64.6       47.1      3,000      30.52
E2..............................  ....................  ...................  .........  .........  .........  .........  .........      1,000
F...............................  PC F................  235/65R16..........      105.0       64.6       64.6       64.6       47.1      8,000      30.52
G1..............................  PC G................  235/65R17..........      107.0       65.1       65.3       65.2       48.4      2,000      29.34
G2..............................  ....................  ...................  .........  .........  .........  .........  .........      5,000
H...............................  PC H................  265/55R18..........      107.0       65.2       65.2       65.2       48.4      5,000      29.34
                                                                                                                                       30,500
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Note to Appendix A Table 2.  Accordingly, vehicle models A, B, 
C, D, E, F, G and H would be compared to fuel economy values of 
31.19, 31.19, 31.19, 31.19, 30.52, 30.52, 29.34 and 29.34 mpg, 
respectively. With the appropriate fuel economy targets calculated, 
Manufacturer X's required fuel economy would be calculated as 
illustrated in ``Appendix A Figure 1.''

Appendix A, Figure 1

    Calculation of Manufacturer X's target fuel economy standard.

[[Page 49787]]

[GRAPHIC] [TIFF OMITTED] TP28SE09.068

    Manufacturer X's passenger car fleet target fuel economy 
standard = 30.2 mpg

Appendix A, Figure 2

    Calculation of Manufacturer X's actual fuel economy.
    [GRAPHIC] [TIFF OMITTED] TP28SE09.069
    
    Manufacturer X's passenger car fleet actual fuel economy 
performance = 31.2 mpg

    Note to Appendix A Figure 2.  Since the actual average fuel 
economy of Manufacturer X's fleet is 31.2 mpg, as compared to its 
required fuel economy level of 30.2 mpg, Manufacturer X complied 
with the CAFE standard for MY 2011 as set forth in section 531.5(b).

PART 533--LIGHT TRUCK FUEL ECONOMY STANDARDS

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

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

    5. Amend Sec.  533.5 by adding Figures 2 and 3 and Table VI at the 
end of paragraph (a), and adding paragraph (i), to read as follows:


Sec.  533.5  Requirements.

    (a) * * *
* * * * *
[GRAPHIC] [TIFF OMITTED] TP28SE09.070

Where:

CAFErequired is the required level for a given fleet,
SALESi is the number of units of model i produced for sale in the 
United States,
TARGETi is the fuel economy target applicable to model i (according 
to the equation shown in Figure 3 and based on the footprint of 
model i), and the summations in the numerator and denominator are 
both performed over all models in the fleet in question.
[GRAPHIC] [TIFF OMITTED] TP28SE09.071

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet),
Parameters a, b, c, and d are defined in Table VI, and
The MIN and MAX functions take the minimum and maximum, respectively 
of the included values.

                          Table VI--Parameters for the Light Truck Fuel Economy Targets
----------------------------------------------------------------------------------------------------------------
                                                                            Parameters
                   Model year                    ---------------------------------------------------------------
                                                         A               b               c               d
----------------------------------------------------------------------------------------------------------------
2012............................................           29.44           22.06       0.0004546         0.01533

[[Page 49788]]

 
2013............................................           30.32           22.55       0.0004546         0.01434
2014............................................           31.30           23.09       0.0004546         0.01331
2015............................................           32.70           23.84       0.0004546         0.01194
2016............................................           34.38           24.72       0.0004546         0.01045
----------------------------------------------------------------------------------------------------------------

* * * * *
    (i) For model years 2012-2016, a manufacturer's light truck fleet 
shall comply with the fuel economy level calculated for that model year 
according to Figures 2 and 3 and the appropriate values in Table VI.
    6. Revise Appendix A to Part 533 to read as follows:

Appendix A to Part 533--Example of Calculating Compliance Under Sec.  
533.5 Paragraph (h)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of light trucks in MY 2011 as follows:

Appendix A, Table 1

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Production       Footprint
            Model                   Carline              Desc            Eng/Trans        Drive system     Fuel econ mpg      volume          (ft\2\)
--------------------------------------------------------------------------------------------------------------------------------------------------------
A............................  PU A.............  RC, MB...........  4.0L, A5.........  2WD.............            27.1             800            47.8
B............................  PU B.............  RC, MB...........  4.0L, M5.........  2WD.............            27.6             200            47.8
C1...........................  PU C.............  RC, LB...........  4.5L, A5.........  2WD.............            23.9             300            59.7
C2...........................                     EC,MB............                                                 23.7             400
C3...........................                     CC, SB...........                                                 23.5             400
D............................  PU D.............  CC, SB...........  4.5L, A6.........  2WD.............            23.6             400            59.7
E1...........................  PU E.............  EC, LB...........  5.0L, A6.........  2WD.............            22.7             500            71.8
E2...........................                     CC, MB...........                                                 22.5             500
F1...........................  PU F.............  RC, LB...........  4.5L, A5.........  4WD.............            22.5           1,600            59.8
F2...........................                     EC, MB...........                                                 22.3             800
F3...........................                     CC, SB...........                                                 22.2             800
G............................  PU G.............  CC, SB...........  5.0L, A6.........  4WD.............            22.3             800            59.8
H1...........................  PU H.............  EC, LB...........  5.0L, A6.........  4WD.............            22.2           1,000            71.9
H2...........................                     CC, MB...........                                                 22.1           1,000
                                                                                                          ..............           9,500  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abbreviations: PU = pickup truck, RC = regular cab, EC = extended cab, CC = crew cab, SB = short cargo bed, MB = medium cargo bed, LB = long cargo bed,
  4.0L = 4.0 liter engine, A5 = five speed automatic transmission, M5 = five speed manual transmission, 2WD = two wheel drive, 4WD = four wheel drive.

Appendix A, Table 2

    Manufacturer X calculates target fuel economy values for each 
model.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Track width
                                                                               Wheel   ---------------------------------    Foot                 Target
              Model                      Carline             Base tire       base (in)    Front                            print     Prod vol  fuel econ
                                                                                           (in)    Rear (in)   Avg (in)   (ft\2\)                (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
A...............................  PU A................  235/75R15..........      100.0       68.6       69.0       68.8       47.8        800      30.26
B...............................  PU B................  235/75R15..........      100.0       68.6       69.0       68.8       47.8        200      30.26
C1..............................  ....................  ...................  .........  .........  .........  .........  .........        300  .........
C2..............................  PU C................  255/70R17..........      125.0       68.7       68.9       68.8       59.7        400      24.09
C3..............................  ....................  ...................  .........  .........  .........  .........  .........        400  .........
D...............................  PU D................  255/70R17..........      125.0       68.7       68.9       68.8       59.7        400      24.09
E1..............................  PU E................  275/70R17..........      150.0       68.9       68.9       68.9       71.8        500      24.00
E2..............................  ....................  ...................  .........  .........  .........  .........  .........        500  .........
F1..............................  ....................  ...................  .........  .........  .........  .........  .........      1,600  .........
F2..............................  PU F................  255/70R17..........      125.0       69.0       68.8       68.9       59.8        800      24.09
F3..............................  ....................  ...................  .........  .........  .........  .........  .........        800  .........
G...............................  PU G................  255/70R17..........      125.0       69.0       68.8       68.9       59.8        800      24.09
H1..............................  PU H................  275/70R17..........      150.0       68.9       69.1       69.0       71.9      1,000      24.00
H2..............................                                                                                                        1,000
                                                                             .........  .........  .........  .........  .........      9,500  .........
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Note to Appendix A Table 2.  Accordingly, vehicle models A, B, 
C, D, E, F, G and H would be compared to fuel economy values of 
30.26, 30.26, 24.09, 24.09, 24.00, 24.09, 24.09 and 24.00 mpg, 
respectively. With the appropriate fuel economy targets calculated, 
Manufacturer X's required fuel economy would be calculated as 
illustrated in ``Appendix A Figure 1.''


[[Page 49789]]



Appendix A, Figure 1

    Calculation of Manufacturer X's target fuel economy standard.
    [GRAPHIC] [TIFF OMITTED] TP28SE09.072
    
    Manufacturer X's light truck fleet target fuel economy standard 
= 24.6 mpg

Appendix A, Figure 2

    Calculation of Manufacturer X's actual fuel economy.
    [GRAPHIC] [TIFF OMITTED] TP28SE09.073
    
    Manufacturer X's light truck fleet actual fuel economy 
performance = 23.0 mpg

    Note to Appendix A Figure 2.  Since the actual average fuel 
economy of Manufacturer X's fleet is 23.0 mpg, as compared to its 
required fuel economy level of 24.6 mpg, Manufacturer X did not 
comply with the CAFE standard for MY 2011 as set forth in section 
533.5(h).

PART 537--AUTOMOTIVE FUEL ECONOMY REPORTS

    7. The authority citation for part 537 continues to read as 
follows:

    Authority:  49 U.S.C. 32907, delegation of authority at 49 CFR 
1.50.

    8. Amend Sec.  537.5 by revising paragraph (c)(4) to read as 
follows:


Sec.  537.5  General requirements for reports.

* * * * *
    (c) * * *
    (4) Be submitted in 5 copies to: Administrator, National Highway 
Traffic Safety Administration, 1200 New Jersey Avenue, SE., Washington, 
DC 20590, or submitted electronically to the following secure e-mail 
address: [email protected]. Electronic submissions should be provided in a 
pdf format.
* * * * *
    9. Amend Sec.  537.7 by revising paragraphs (c)(4)(xvi)(A)(4) and 
(c)(4)(xvi)(B)(4) to read as follows:


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

* * * * *
    (c) * * *
    (4) * * *
    (xvi)(A) * * *
    (4) Beginning model year 2010, front axle, rear axle and average 
track width as defined in 49 CFR 523.2,
* * * * *
    (B) * * *
    (4) Beginning model year 2010, front axle, rear axle and average 
track width as defined in 49 CFR 523.2,
* * * * *

PART 538--MANUFACTURING INCENTIVES FOR ALTERNATIVE FUEL VEHICLES

    10. The authority citation for part 538 continues to read as 
follows:

    Authority: 49 U.S.C. 32901, 32905, and 32906; delegation of 
authority at 49 CFR 1.50.

    11. Revise Sec.  538.1 to read as follows:


Sec.  538.1  Scope.

    This part establishes minimum driving range criteria to aid in 
identifying passenger automobiles that are dual-fueled automobiles. It 
also establishes gallon equivalent measurements for gaseous fuels other 
than natural gas.
    12. Revise Sec.  538.2 to read as follows:


Sec.  538.2  Purpose.

    The purpose of this part is to specify one of the criteria in 49 
U.S.C. chapter 329 ``Automobile Fuel Economy'' for identifying dual-
fueled passenger automobiles that are manufactured in model years 1993 
through 2019. The fuel economy of a qualifying vehicle is calculated in 
a special manner so as to encourage its production as a way of 
facilitating a manufacturer's compliance with the Corporate Average 
Fuel Economy standards set forth in part 531 of this chapter. The 
purpose is also to establish gallon equivalent measurements for gaseous 
fuels other than nautral gas.
    13. Revise Sec.  538.7(b)(1) to read as follows:


Sec.  538.7  Petitions for reduction of minimum driving range.

* * * * *
    (b) * * *
    (1) Be addressed to: Administrator, National Highway Traffic Safety 
Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590.
* * * * *

    Dated: September 15, 2009.
Ray LaHood,
Secretary, Department of Transportation.
    Dated: September 15, 2009.
Lisa P. Jackson,
Administrator, Environmental Protection Agency.
[FR Doc. E9-22516 Filed 9-17-09; 4:15 pm]
BILLING CODE 4910-59-P; 6560-50-P