[Federal Register Volume 83, Number 63 (Monday, April 2, 2018)]
[Proposed Rules]
[Pages 13904-13919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06550]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 578

[Docket No. NHTSA-2018-0017]
RIN 2127-AL94


Civil Penalties

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes a civil penalty rate applicable to 
automobile manufacturers that fail to meet applicable corporate average 
fuel economy (CAFE) standards and are unable to offset such a deficit 
with compliance credits. The agency is proposing this civil penalty 
rate based on a tentative determination regarding the applicability of 
the Federal Civil Penalties Inflation Adjustment Act Improvements Act 
of 2015, and in accordance with the Energy Policy and Conservation Act 
of 1975 (EPCA) and the Energy Independence and Security Act of 2007 
(EISA).

DATES: Comments: Comments must be received by May 2, 2018.

ADDRESSES: You may submit comments to the docket number identified in 
the heading of this document by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
     Mail: Docket Management Facility, M-30, U.S. Department of 
Transportation, West Building, Ground Floor, Room W12-140, 1200 New 
Jersey Avenue SE, Washington, DC 20590.
     Hand Delivery or Courier: U.S. Department of 
Transportation, West Building, Ground Floor, Room W12-140, 1200 New 
Jersey Avenue SE, Washington, DC, between 9 a.m. and 5 p.m. Eastern 
time, Monday through Friday, except Federal holidays.
     Fax: 202-493-2251

FOR FURTHER INFORMATION CONTACT: Kerry Kolodziej, Office of Chief 
Counsel, NHTSA, telephone (202) 366-2992, facsimile (202) 366-3820, 
1200 New Jersey Ave, SE, Washington, DC 20590.

SUPPLEMENTARY INFORMATION: 

Table of Contents

A. Executive Summary
B. Statutory and Regulatory Background
C. Civil Penalties Inflationary Adjustment Act Improvements Act of 
2015
D. NHTSA's Actions to Date Regarding CAFE Civil Penalties
    1. Interim Final Rule
    2. Final Rule
    3. Reconsideration and Request for Comments
E. Proposed Revisions to the CAFE Civil Penalty Rate
    1. NHTSA is Proposing to Retain the $5.50 CAFE Civil Penalty 
Rate Because the 2015 Act is Inapplicable
    2. The Agency Proposes a Finding That Increasing the CAFE Civil 
Penalty Rate Will Result in Negative Economic Impact
    3. Increasing the CAFE Civil Penalty Rate to $14 Would Have a 
``Negative Economic Impact,'' Even If The EPCA Factors Were Not 
Mandatory
    4. The CAFE Civil Penalty Rate is Capped At $10
F. Rulemaking Analyses and Notices
    1. Executive Order 12866, Executive Order 13563, and DOT 
Regulatory Policies and Procedures
    2. Regulatory Flexibility Act
    3. Executive Order 13132 (Federalism)
    4. Unfunded Mandates Reform Act of 1995
    5. National Environmental Policy Act
    6. Executive Order 12778 (Civil Justice Reform)
    7. Paperwork Reduction Act
    8. Privacy Act
    9. Executive Order 13771

A. Executive Summary

    NHTSA has almost forty years of experience in implementing the 
corporate average fuel economy (CAFE) program and its civil penalty 
component. This includes oversight and administration of the program's 
operation, how the automobile manufacturers respond to CAFE standards 
and increases, and the role of civil penalties in achieving the CAFE 
program's objectives. NHTSA has carefully considered these objectives 
in reconsidering the Federal Civil Penalties Inflation Adjustment Act 
Improvements Act of 2015 (Inflation Adjustment Act or 2015 Act) and its 
application to the CAFE civil penalty statute NHTSA administers.
    As a result of this review, NHTSA is proposing to retain the 
current civil penalty rate in 49 U.S.C. 32912(b) of $5.50 per tenth of 
a mile per gallon for automobile manufacturers that do not meet 
applicable CAFE standards and are unable to offset such a deficit with 
compliance credits. NHTSA's proposal is based on its tentative 
determination that the CAFE civil penalty rate is not a ``civil 
monetary penalty,'' as defined by the 2015 Act, that must be adjusted 
for inflation. NHTSA's previous Federal Register notices on its 
inflation adjustments under the 2015 Act did not consider whether the 
CAFE civil penalty rate fit the definition of a ``civil monetary 
penalty'' subject to adjustment under the 2015 Act, instead

[[Page 13905]]

proceeding--without analysis--as if the 2015 Act applied to the CAFE 
civil penalty rate. After taking the opportunity to fully analyze the 
issue, NHTSA tentatively concludes that the CAFE civil penalty rate is 
not covered by the 2015 Act and seeks comment on four ways that the 
provisions of the 2015 Act could be best approached.
    First, civil penalties assessed for CAFE violations under Section 
32912(b) are not a ``penalty, fine, or other sanction that'' is either 
``a maximum amount'' or ``a specific monetary amount.'' Rather, the 
civil penalties under consideration here are part of a complicated 
market-based enforcement mechanism. Any potential civil penalties for 
failing to satisfy fuel economy requirements, unlike other civil 
penalties, are not determined until the conclusion of a complex 
formula, credit-earning arrangement, and credit transfer and trading 
program. In fact, the ultimate penalty assessed is based on the 
noncompliant manufacturer's decision, not NHTSA's, on whether and how 
to acquire and apply any credits that may be available to the 
manufacturer, and on the decisions of other manufacturers to earn and 
sell credits to a potentially liable manufacturer. In other words, what 
the noncompliant manufacturer pays is as much a function of market 
forces as it is the CAFE penalty rate.
    Moreover, NHTSA tentatively concludes that Congress did not intend 
for the 2015 Act to apply to this specialized civil penalty rate, which 
has longstanding, strict procedures previously enacted by Congress that 
limit NHTSA's ability to increase the rate. Congress specifically 
contemplated that increases to the CAFE civil penalty rate for 
manufacturer non-compliance with CAFE standards may be appropriate and 
necessary and included a mechanism in the statute for such increases. 
Critically, this mechanism requires the Secretary of Transportation to 
determine specifically that any such increase will not lead to certain 
specific negative economic effects. In addition, Congress explicitly 
limited any such increase to $10 per tenth of a mile per gallon.\1\ 
These restrictions have been in place since the statute was amended in 
1978. Though Congress later amended the CAFE civil penalty provision in 
2007, Congress did not amend either the mechanism for increases or the 
upper limit of an increased civil penalty under the statute. NHTSA 
seeks comment on this analysis.
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    \1\ NHTSA tentatively concludes the 2015 Act also does not apply 
to the $10 cap.
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    Second, in the alternative, NHTSA is proposing to keep the civil 
penalty rate the same in order to comply with EPCA, which must be read 
harmoniously with the 2015 Act. The 2015 Act confers discretion to the 
head of each agency to adjust the amount of a civil monetary penalty by 
less than the amount otherwise required for the initial adjustment, 
with the concurrence with the Director of the Office of Management and 
Budget, upon determining that doing so would have a ``negative economic 
impact'' In EPCA, Congress previously identified specific factors that 
NHTSA is required to consider before making a determination about the 
``impact on the economy'' as a prerequisite to increasing the 
applicable civil penalty rate. NHTSA believes that these statutory 
criteria are appropriate for determining whether an increase in the 
CAFE civil penalty rate would have a ``negative economic impact'' for 
purposes of the 2015 Act. Under EPCA, NHTSA faces a heavy burden to 
demonstrate that increasing the civil penalty rate ``will not have a 
substantial deleterious impact on the economy of the United States, a 
State, or a region of a State.'' Specifically, in order to establish 
that the increase would not have that ``substantial deleterious 
impact,'' NHTSA would need to affirmatively determine that it is likely 
that the increase would not cause a significant increase in 
unemployment in a State or a region of a State; adversely affect 
competition; or cause a significant increase in automobile imports. In 
light of those statutory factors--and the absence of evidence to the 
contrary--NHTSA tentatively concludes it is likely that increasing the 
CAFE civil penalty rate would have a negative economic impact and thus 
is proposing not to adjust the rate under the 2015 Act. NHTSA is 
soliciting comments on this proposal, including whether the inflation 
adjustment would have a ``negative economic impact,'' and if so, how 
much less than the amount otherwise required should the penalty level 
be adjusted.
    Third, even if EPCA's statutory factors for increasing civil 
penalties are not applied, NHTSA has tentatively determined that the 
$14 penalty will lead to a negative economic impact that merits leaving 
the CAFE civil penalty rate at $5.50. Based on available information, 
including information provided by commenters, the effect of applying 
the 2015 Act to the CAFE civil penalty could potentially drastically 
increase manufacturers' costs of compliance beyond those contemplated 
when NHTSA established the current CAFE standards in 2012. NHTSA is 
soliciting comments on this tentative conclusion, including the level 
at which the CAFE civil penalty rate should be set.
    Fourth, even if the CAFE civil penalty rate is a ``civil monetary 
penalty'' under the 2015 Act and regardless of whether increasing it 
would have a ``negative economic impact,'' the increase is capped by 
statute at $10 by EPCA. NHTSA seeks comment on this alternative, 
including whether the $10 cap is itself a ``civil monetary penalty'' 
that is required to be adjusted under the 2015 Act.
    NHTSA is also proposing an inflationary adjustment to the general 
penalty for other violations of EPCA, as amended.

B. Statutory and Regulatory Background

    NHTSA sets \2\ and enforces \3\ corporate average fuel economy 
(CAFE) standards for the United States light-duty vehicle fleet, and in 
doing so, assesses civil penalties against vehicle manufacturers that 
fall short of their compliance obligations and are unable to make up 
the shortfall with credits.\4\ The civil penalty amount for CAFE non-
compliance was originally set by statute in 1975, and since 1997, has 
included a rate of $5.50 per each tenth of a mile per gallon (0.1) that 
a manufacturer's fleet average CAFE level falls short of its compliance 
obligation. This shortfall amount is then multiplied by the number of 
vehicles in that manufacturer's fleet.\5\ The basic equation for 
calculating a manufacturer's civil penalty amount before accounting for 
credits, is as follows:
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    \2\ 49 U.S.C. 32902.
    \3\ 49 U.S.C. 32911, 32912.
    \4\ Credits may be either earned (for over-compliance by a given 
manufacturer's fleet, in a given model year), transferred (from one 
fleet to another), or purchased (in which case, another manufacturer 
earned the credits by over-complying and chose to sell that 
surplus). 49 U.S.C. 32903.
    \5\ A manufacturer may have up to three fleets of vehicles, for 
CAFE compliance purposes, in any given model year--a domestic 
passenger car fleet, an imported passenger car fleet, and a light 
truck fleet. Each fleet belonging to each manufacturer has its own 
compliance obligation, with the potential for either over-compliance 
or under-compliance. There is no overarching CAFE requirement for a 
manufacturer's total production.
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    (penalty rate, in $ per 0.1 mpg per vehicle) x (amount of 
shortfall, in tenths of an mpg) x (# of vehicles in manufacturer's non-
compliant fleet).
    Without even accounting for costs of generating or purchasing 
credits, automakers have paid more than $890 million in CAFE civil 
penalties, up to and including model year (MY) 2014

[[Page 13906]]

vehicles.\6\ Starting with the model year 2011, provisions in the CAFE 
program provided for credit transfers among a manufacturer's various 
fleets. Starting with that model year, the law also provided for 
trading between vehicle manufacturers, which has allowed vehicle 
manufacturers the opportunity to acquire credits from competitors 
rather than paying civil penalties for non-compliance. Manufacturers 
are required to notify NHTSA of the volumes of credits traded or sold, 
but the agency does not receive any information regarding total cost 
paid or cost per credit. NHTSA believes it is likely that credit 
purchases involve significant expenditures and that an increase in the 
penalty rate would correlate with an increase in such expenditures. The 
agency currently anticipates many manufacturers will face the 
possibility of paying larger CAFE penalties or incurring increased 
costs to acquire credits over the next several years than at 
present.\7\
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    \6\ Fine reporting for MY15 and newer vehicles was not reported 
at the time of this proposal. The highest CAFE penalty paid to date 
for a shortfall in a single fleet was $30,257,920, paid by 
DaimlerChrysler for its imported passenger car fleet in MY 2006. 
Since MY 2012, only Jaguar Land Rover and Volvo have paid civil 
penalties. See https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Fines_LIVE.html.
    \7\ NHTSA's Projected Fuel Economy Performance Report7 indicates 
that many manufacturers are falling behind the standards for model 
year 2016 and increasingly so for model year 2017.
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    NHTSA has long had authority under the Energy Policy and 
Conservation Act (EPCA) of 1975, Public Law 94-163, 508, 89 Stat. 912 
(1975), to raise the amount of the penalty for CAFE shortfalls if it 
can make certain findings,\8\ as well as the authority to compromise 
and remit such penalties under certain circumstances.\9\ If NHTSA were 
to raise the penalty rate for CAFE shortfalls, the higher amount would 
apply to any manufacturer that owed them; the authority to compromise 
and remit penalties, however, is extremely limited and on a case-by-
case basis. To date, NHTSA has never utilized its ability to compromise 
or remit a CAFE civil penalty.
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    \8\ 49 U.S.C. 32912.
    \9\ 49 U.S.C. 32913.
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    Recognizing the economic harm that CAFE civil penalties could have 
on the automobile industry and the economy as a whole, Congress capped 
any increase in the original statutory penalty rate at $10 per tenth of 
a mile per gallon. Further--and significantly--it provided that NHTSA 
may only raise CAFE penalties under EPCA if it concludes through 
rulemaking that the increase in the penalty rate both (1) will result 
in, or substantially further, substantial energy conservation for 
automobiles in model years in which the increased penalty may be 
imposed, and (2) will not have a substantial deleterious impact on the 
economy of the United States, a State, or a region of the State. A 
finding of ``no substantial deleterious impact'' may only be made if 
NHTSA determines that it is likely that the increase in the penalty (A) 
will not cause a significant increase in unemployment in a State or a 
region of a State, (B) adversely affect competition, or (C) cause a 
significant increase in automobile imports. Nowhere does EPCA define 
``substantial'' or ``significant'' in the context of this provision.
    If NHTSA seeks to compromise or remit penalties for a given 
manufacturer, a rulemaking is not necessary, but the amount of a 
penalty may be compromised or remitted only to the extent (1) necessary 
to prevent a manufacturer's insolvency or bankruptcy, (2) the 
manufacturer shows that the violation was caused by an act of God, a 
strike, or a fire, or (3) the Federal Trade Commission certifies that a 
reduction in the penalty is necessary to prevent a substantial 
lessening of competition. NHTSA has never previously attempted to 
undertake this process.

C. Civil Penalties Inflation Adjustment Act Improvements Act of 2015

    On November 2, 2015, the Federal Civil Penalties Inflation 
Adjustment Act Improvements Act (Inflation Adjustment Act or 2015 Act), 
Public Law 114-74, Section 701, was signed into law. The 2015 Act 
required federal agencies to make an initial ``catch-up'' adjustment to 
the ``civil monetary penalties,'' as defined, they administer through 
an interim final rule and then to make subsequent annual adjustments 
for inflation. The amount of increase for any ``catch-up'' adjustment 
to a civil monetary penalty pursuant to the 2015 Act was limited to 150 
percent of the then-current penalty. Agencies were required to issue an 
interim final rule, without providing the opportunity for public 
comment ordinarily required under the Administrative Procedure Act, for 
the initial ``catch-up'' adjustment by July 1, 2016.
    The method of calculating inflationary adjustments in the 2015 Act 
differs substantially from the methods used in past inflationary 
adjustment rulemakings conducted pursuant to the Federal Civil 
Penalties Inflation Adjustment Act of 1990 (the 1990 Inflation 
Adjustment Act), Public Law 101-410. Civil penalty adjustments under 
the 1990 Inflation Adjustment Act were conducted under rules that 
sometimes required significant rounding of figures.
    The 2015 Act altered these rounding rules. Now, penalties are 
simply rounded to the nearest $1. Furthermore, the 2015 Act ``resets'' 
the inflation calculations by excluding prior inflationary adjustments 
under the 1990 Inflation Adjustment Act. To do this, the 2015 Act 
requires agencies to identify, for each civil monetary penalty, the 
year and corresponding amount(s) for which the maximum penalty level or 
range of minimum and maximum penalties was established (i.e., 
originally enacted by Congress) or last adjusted other than pursuant to 
the 1990 Inflation Adjustment Act.
    The Director of the Office of Management and Budget (OMB) provided 
guidance to agencies in a February 24, 2016 memorandum.\10\ For those 
penalties an agency determined to be ``civil monetary penalties,'' the 
memorandum provided guidance on how to calculate the initial adjustment 
required by the 2015 Act. The initial catch up adjustment is based on 
the change between the Consumer Price Index for all Urban Consumers 
(CPI-U) for the month of October in the year the penalty amount was 
established or last adjusted by Congress and the October 2015 CPI-U. 
The February 24, 2016 memorandum contains a table with a multiplier for 
the change in CPI-U from the year the penalty was established or last 
adjusted to 2015. To arrive at the adjusted penalty, the agency must 
multiply the penalty amount when it was established or last adjusted by 
Congress, excluding adjustments under the 1990 Inflation Adjustment 
Act, by the multiplier for the increase in CPI-U from the year the 
penalty was established or adjusted as provided in the February 24, 
2016 memorandum. The 2015 Act limits the initial inflationary increase 
to 150 percent of the current penalty. To determine whether the 
increase in the adjusted penalty is less than 150 percent, the agency 
must multiply the current penalty by 250 percent. The adjusted penalty 
is the lesser of either the adjusted penalty based on the multiplier 
for CPI-U in Table A of the February 24,

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2016 memorandum or an amount equal to 250% of the current penalty.
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    \10\ Memorandum from the Director of OMB to Heads of Executive 
Departments and Agencies, Implementation of the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act of 2015 (Feb. 
24, 2016), available online at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf (last accessed 
December 14, 2017).
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    Additionally, the 2015 Act gives agencies discretion to adjust the 
amount of a civil monetary penalty by less than otherwise required if 
the agency determines that increasing the civil monetary penalty by the 
otherwise required amount will have either a negative economic impact 
or if the social costs of the increased civil monetary penalty will 
outweigh the benefits.\11\ In either instance, the agency must publish 
a notice, take and consider comments on this finding, and receive 
concurrence on this determination from the Director of OMB prior to 
finalizing a lower civil penalty amount.
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    \11\ Public Law 114-74, Sec. 701(c).
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D. NHTSA's Actions to Date Regarding CAFE Civil Penalties

1. Interim Final Rule
    On July 5, 2016, NHTSA published an interim final rule, adopting 
inflation adjustments for civil penalties under its administration, 
following the procedure and the formula in the 2015 Act. NHTSA did not 
analyze at that time whether the 2015 Act applied to all of its civil 
penalties. One of the adjustments NHTSA made at the time was raising 
the civil penalty rate for CAFE non-compliance from $5.50 to $14.\12\ 
NHTSA also indicated in that notice that the maximum penalty rate that 
the Secretary is permitted to establish for such violations would 
increase from $10 to $25, although this was not codified in the 
regulatory text.\13\ NHTSA also raised the maximum civil penalty for 
other violations of EPCA, as amended, to $40,000.\14\
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    \12\ 81 FR 43524 (July 5, 2016). This interim final rule also 
updated the maximum civil penalty amounts for violations of all 
statutes and regulations administered by NHTSA, and was not limited 
solely to penalties administered for CAFE violations.
    \13\ For the reasons described in Section E.1, NHTSA is 
proposing to leave the maximum penalty rate that the Secretary is 
permitted to establish for such violations at $10.
    \14\ 81 FR 43524 (July 5, 2016).
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    In response to the changes to the CAFE penalty provisions issued in 
the interim final rule, the Alliance of Automobile Manufacturers 
(Alliance) and the Association of Global Automakers (Global) jointly 
petitioned NHTSA for reconsideration (the Industry Petition).\15\ The 
Industry Petition raised concerns with the significant impact, which 
they estimated to be at least $1 billion annually, that the increased 
penalty rate would have on CAFE compliance costs. Specifically, the 
Industry Petition raised: The issue of retroactivity (applying the 
penalty increase associated with model years that have already been 
completed or for which a company's compliance plan had already been 
``set''); which ``base year'' (i.e., the year the penalty was 
established or last adjusted) NHTSA should use for calculating the 
adjusted penalty rate; and whether an increase in the penalty rate to 
$14 would cause a ``negative economic impact.''
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    \15\ Jaguar Land Rover North America, LLC also filed a petition 
for reconsideration in response to the July 5, 2016 interim final 
rule raising the same concerns as those raised in the Industry 
Petition. Both petitions, along with a supplement to the Industry 
Petition, can be found in Docket ID NHTSA-2016-0075 at 
www.regulations.gov.
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2. Final Rule
    In response to the Industry Petition, NHTSA issued a final rule on 
December 28, 2016.\16\ In that rule, NHTSA agreed that raising the 
penalty rate for model years already fully complete would be 
inappropriate, given how courts generally disfavor the retroactive 
application of statutes. NHTSA also agreed that raising the rate for 
model years for which product changes were infeasible due to lack of 
lead time, did not seem consistent with Congress' intent that the CAFE 
program be responsive to consumer demand. NHTSA therefore stated that 
it would not apply the inflation-adjusted penalty rate of $14 until 
model year 2019, as the agency believed that would be the first year in 
which product changes could be made in response to the higher penalty 
rate.
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    \16\ 81 FR 95489 (December 28, 2016).
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3. Reconsideration and Request for Comments
    Before NHTSA's December 2016 final rule became effective, in 
January 2017, NHTSA took action to delay the effective date of the 
December 2016 CAFE civil penalties rule.\17\ As part of that action, 
and in light of CAFE compliance data submitted by manufacturers to 
NHTSA showing that many automakers would begin to fall behind in 
meeting their applicable CAFE standards beginning in model years 2016 
and 2017,\18\ the agency requested public comment on the civil 
penalties--the first opportunity the public had to do so.\19\ The 
comment period closed on October 10, 2017. NHTSA received thirteen 
comments from various interested parties.
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    \17\ 82 FR 8694 (January 30, 2017); 82 FR 15302 (March 28, 
2017); 82 FR 29009 (June 27, 2017); 82 FR 32139 (July 12, 2017). The 
portions of the July 5, 2016 interim final rule not dealing with 
CAFE remain in effect and are expected to be finalized as part of 
NHTSA's 2018 inflationary adjustments.
    \18\ ``MYs 2016 and 2017 Projected Fuel Economy Performance 
Report,'' February 14, 2017, available at https://one.nhtsa.gov/cafe_pic/AdditionalInfo.htm
    \19\ 82 FR 32140 (July 12, 2017).
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    Commenters included industry stakeholders and citizens. The array 
of commenters also included representatives from environmental groups, 
academia, and state governments such as attorneys general and 
environmental quality divisions. Industry stakeholders included 
comments from trade organizations and vehicle manufacturers.\20\
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    \20\ Comments on this notice of proposed rulemaking can be found 
at: https://www.regulations.gov/docket?D=NHTSA-2017-0059.
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    Generally, commenters from environmental organizations, attorneys 
general of 10 states, and academia expressed support for upholding the 
December 2016 final rule. In addition, those supporting the $14 civil 
penalty generally asserted reconsidering the 2016 final rule was 
outside of NHTSA's authority. None of the comments received from 
commenters specifically addressed whether the CAFE civil penalty rate 
was a ``civil monetary penalty'' as defined by the 2015 Act.
    Vehicle manufacturers, either directly or via their respective 
representing organizations, also expressed support for the 
reconsideration of the 2016 final rule. These commenters provided an 
analysis of how increased CAFE civil penalties could potentially impact 
their efforts to develop and sell vehicles in the marketplace when 
faced with anticipated increases in CAFE stringencies. These commenters 
expressed support for using 2007 as the base year for calculating 
inflation adjusted increases in CAFE civil penalty amounts.
    Additionally, some commenters suggested civil penalty amounts of 47 
dollars per 0.1 mpg and $8.47 per 0.1 mpg, the latter a 54% increase 
over the $5.50 per 0.1 mpg value.
    The California Air Resources Board (CARB) commented that NHTSA's 
considerations when adjusting a civil penalty rate under EPCA do not 
matter for purposes of making an adjustment under the 2015 Act. CARB 
also stated that in past joint documents, NHTSA did not indicate that 
the $5.50 civil penalty rate would have a negative economic impact.
    The Alliance and Global suggested that NHTSA's considerations when 
adjusting a civil penalty rate under EPCA are informative for purposes 
of making a determination of negative economic impact under the 2015 
Act.
    The December 28, 2016 final rule is not yet effective, and during 
reconsideration, the applicable civil penalty rate was $5.50 per tenth 
of a

[[Page 13908]]

mile per gallon, which was the civil penalty rate prior to NHTSA's 
inflationary adjustment.\21\ NHTSA's delay of the final rule pending 
reconsideration did not affect the amount of any CAFE penalties that 
would have otherwise applied prior to Model Year 2019.
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    \21\ 82 FR 32140 (July 12, 2017). If the December 28, 2016 final 
rule had gone into effect, the penalty rate would have remained 
$5.50 until MY 2019.
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E. Proposed Revisions to the CAFE Civil Penalty Rate

    In this notice of proposed rulemaking (NPRM), NHTSA is announcing 
that it has tentatively determined, upon reconsideration, that the 2015 
Act should not be applied to the CAFE civil penalty formula provision 
found in 49 U.S.C. 32912 and is proposing to retain the current civil 
penalty rate of $5.50 per .1 of a mile per gallon.\22\ The agency is 
proposing this based on a legal determination that the CAFE civil 
penalty rate is not a ``civil monetary penalty'' as contemplated by the 
2015 Act and that therefore the 2015 Act should not be applied to the 
NHTSA CAFE civil penalty formula. Additionally, in the alternative, 
NHTSA is proposing to maintain the current civil penalty rate based on 
a tentative finding that--in light of the factors Congress requires 
NHTSA to analyze in determining whether an increase in the civil 
penalty rate will have ``a substantial deleterious impact on the 
economy''--increasing the CAFE civil penalty rate would result in 
negative economic impact. Pursuant to OMB's guidance, NHTSA has 
consulted with OMB before proposing this reduced catch-up adjustment 
determination and submitted this notice of proposed rulemaking (NPRM) 
to the Office of Information and Regulatory Affairs (OIRA) for review. 
. In addition, if NHTSA determines that a reduced catch-up adjustment 
is appropriate in its final rule, it will seek OMB's concurrence before 
promulgating the rule, as required by the 2015 Act and confirmed by 
OMB's guidance. Finally, in this NPRM NHTSA has provided a series of 
tentative interpretations of the 2015 Act. In light of OMB's role in 
providing agencies guidance about the 2015 Act, NHTSA has requested 
OMB's views about the 2015 Act.
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    \22\ NHTSA chose to reconsider its prior determination 
consistent with its statutory authority to administer the CAFE 
standards program and its inherent authority to do so efficiently 
and in the public interest. See, e.g., Tokyo Kikai Seisakusho, Ltd. 
v. United States, 529 F.3d 1352, 1360-61 (Fed. Cir. 2008) 
(``[A]dministrative agencies possess inherent authority to 
reconsider their decisions, subject to certain limitations, 
regardless of whether they possess explicit statutory authority to 
do so.''). OMB's February 2016 guidance confirms that each agency is 
``responsible for identifying the civil monetary penalties that fall 
under the statutes and regulations [it] enforce[s].'' And, as 
repeatedly confirmed by courts, an agency may reconsider how it 
previously interpreted a statute, particularly when its updated 
interpretation ``closely fits the design of the statute as a whole 
and its object and policy.'' Good Samaritan Hosp. v. Shalala, 508 
U.S. 402, 417-18 (1993) (cleaned up); see also Nat'l Classification 
Comm. v. United States, 22 F.3d 1174, 1177 (D.C. Cir. 1994) (``[A]n 
agency may depart from its past interpretation [of a statute] so 
long as it provides a reasoned basis for the change.'') (citing 
Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 
U.S. 29, 42 (1983)); Torrington Extend-A-Care Employee Ass'n v. 
N.L.R.B., 17 F.3d 580, 589 (2d Cir. 1994) (similar). In the 2015 Act 
specifically, Congress did not prohibit or otherwise restrict 
agencies from reconsidering whether an initial catch-up adjustment 
is required or, if so, the magnitude of such an adjustment. 
Moreover, NHTSA's regulations provide broadly that ``[t]he 
Administrator may initiate any further rulemaking proceedings that 
he finds necessary or desirable.'' 49 CFR 553.25.
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    NHTSA is also proposing to finalize the 2017 and 2018 inflationary 
adjustments for the maximum penalty for general CAFE violations in 49 
U.S.C. 32912(a).
1. NHTSA Is Proposing To Retain the $5.50 CAFE Civil Penalty Rate 
Because the 2015 Act Is Inapplicable
    Upon reconsideration, NHTSA has tentatively determined that the 
2015 Act is not applicable to the CAFE civil penalty formula. The 
penalty in 49 U.S.C. 32912(b) for a manufacturer that violates fuel 
economy standards is not a ``civil monetary penalty'' subject to 
inflationary adjustment under the 2015 Act. This reflects a change in 
NHTSA's position on this issue from when NHTSA previously adjusted the 
CAFE civil penalty rate from $5 to $5.50.\23\ Given that the current 
penalty figure has been in effect since it was set twenty years ago, 
NHTSA proposes to apply its new position on a prospective basis only 
from the effective date of the final rule of this rulemaking. As a 
result of this change, NHTSA is proposing to retain the $5.50 
multiplier in the CAFE civil penalty formula. NHTSA requests comment on 
this issue.
---------------------------------------------------------------------------

    \23\ NHTSA may consider a separate rulemaking to consider 
whether the CAFE civil penalty rate should be $5.
---------------------------------------------------------------------------

    The 2015 Act requires agencies to adjust ``civil monetary 
penalties'' for inflation.\24\ A ```civil monetary penalty' means any 
penalty, fine, or other sanction'' that meets three requirements.\25\ 
First, the ``penalty, fine, or other sanction'' must be ``for a 
specific monetary amount as provided by Federal law'' or have ``a 
maximum amount provided for by Federal law.'' \26\ Second, the 
``penalty, fine, or other sanction'' must be ``assessed or enforced by 
an agency pursuant to Federal law.'' \27\ Third, the ``penalty, fine, 
or other sanction'' must be ``assessed or enforced pursuant to an 
administrative proceeding or a civil action in the Federal courts.'' 
\28\
---------------------------------------------------------------------------

    \24\ EPCA's use of the terminology ``civil penalty'' in 49 
U.S.C. 32912(b) is not dispositive. The 2015 Act does not apply to 
all civil penalties, but rather ``civil monetary penalties,'' a 
defined term.
    \25\ 28 U.S.C. 2461 note, Federal Civil Penalties Inflation 
Adjustment Sec.  3(2).
    \26\ Id.
    \27\ Id.
    \28\ Id.
---------------------------------------------------------------------------

    The 2015 Act required the Office of Management and Budget (OMB) to 
``issue guidance to agencies on implementing the inflation 
adjustments'' under the Act.\29\ OMB issued guidance on February 24, 
2016 that stated: ``Agencies are responsible for identifying the civil 
monetary penalties that fall under the statutes and regulations they 
enforce'' and for determining the ``applicability of the inflation 
adjustment requirement to an individual penalty . . . .'' \30\ In none 
of NHTSA's July 2016 interim final rule, its December final rule, its 
July 2017 request for comments, nor its earlier adjustment from $5 to 
$5.50 did NHTSA specifically address whether the penalty for 
manufacturer violations of fuel economy standards in 49 U.S.C. 32912(b) 
is a ``civil monetary penalty'' subject to inflationary adjustment 
under the 2015 Act, or more generally, whether the 2015 Act should be 
made applicable to the penalty in Section 32912(b). Instead, it applied 
the 2015 Act without specific analysis of these issues.
---------------------------------------------------------------------------

    \29\ Id. Sec.  7(a).
    \30\ OMB Guidance at 2. OMB's guidance included the definition 
of ``civil monetary penalty'' applicable to the 2015 Act and 
explained: ``Agencies with questions on the applicability of the 
inflation adjustment requirement to an individual penalty, should 
first consult with the Office of General Counsel of the agency for 
the applicable statute, and then seek clarifying guidance from OMB 
if necessary.''
---------------------------------------------------------------------------

    Upon evaluation, NHTSA has tentatively concluded the penalty for 
manufacturer violations of fuel economy standards in 49 U.S.C. 32912(b) 
is not a ``civil monetary penalty'' subject to adjustment under the 
2015 Act. Upon similar evaluation, NHTSA also has tentatively concluded 
the $10 limit for such violations in 49 U.S.C. 32912(c)(1)(B) is not a 
``civil monetary penalty'' subject to adjustment under the 2015 Act 
either. To be a ``civil monetary penalty,'' a penalty must meet all 
three criteria in the statutory definition.\31\ The penalty for 
manufacturer violations of fuel economy

[[Page 13909]]

standards, which includes a rate of $5.50 per .1 mile in its formula, 
does not meet the first set of criteria in the definition. It is not a 
``penalty, fine, or other sanction'' that is either ``a specific 
monetary amount'' or ``a maximum amount.'' Instead, the statute 
outlines a process that NHTSA uses to determine a proposed penalty and 
that manufacturers use to assess their specific penalty. In particular, 
the $5.50 per .1 mile is merely a rate that goes into a complex, 
statutory formula used to calculate a variable penalty. Other factors, 
such as the manufacturer's credit earning arrangement and its 
participation in the credit trading program, are also integral parts of 
the multifaceted formula used to calculate a manufacturer's penalty for 
violations of the fuel economy standards in 49 U.S.C. 32912(b). 
Moreover, the decisions of other manufacturers to generate or not 
generate and sell or not sell credits will also influence the amount 
that a potentially liable manufacturer pays. NHTSA does not believe 
this complex formula and credit trading program generates the kind of 
simple civil penalty that lends itself to rote application of the 2015 
Act.
---------------------------------------------------------------------------

    \31\ The three criteria in the definition are joined by the 
conjunctive ``and.''
---------------------------------------------------------------------------

    Unlike other civil penalties under NHTSA's jurisdiction, the 
penalty for manufacturer violations of fuel economy standards is not 
for ``a maximum amount.'' One example of a penalty that is for ``a 
maximum amount'' is the ``general penalty'' in EPCA for violations of 
49 U.S.C. 32911(a). That ``general penalty'' is ``a civil penalty of 
not more than $10,000 for each violation.'' \32\ This sets ``a maximum 
amount'' of $10,000 per violation. In other words, EPCA set ``a maximum 
amount'' of $10,000 per violation of requirements such as the 
requirement for manufacturers to submit pre-model year and mid-model 
year reports to NHTSA on whether they will comply with the average fuel 
economy standards.\33\ Accordingly, this civil penalty level was 
properly adjusted to $40,000 in NHTSA's interim final rule and is 
further adjusted here for 2017 and 2018.\34\ Violations of the Safety 
Act are also generally subject to ``a maximum amount'' of $21,000 per 
violation and $105 million for a related series of violations.\35\ The 
agency determines the appropriate amount of such penalties, up to the 
statutory maximum. On the other hand, the penalty for manufacturer 
violations of fuel economy standards in 49 U.S.C. 32912(b) does not 
provide ``a maximum amount'' of a penalty and instead contains only a 
complex process for determining a penalty. Setting aside any credits 
available to the manufacturer, the greater shortfall there is in a 
manufacturer's corporate average fuel economy, the greater the 
potential exists for the eventual application of a civil penalty for 
that shortfall.
---------------------------------------------------------------------------

    \32\ 49 U.S.C. 32912(a). Since the penalty in 49 U.S.C. 32912(a) 
is for a maximum amount, it is subject to inflationary adjustment 
under the 2015 Act. NHTSA's inflationary adjustment of that civil 
penalty in the July 2016 IFR to a maximum penalty of $40,000 was 
therefore appropriate. The penalty in 49 U.S.C. 32912(a) is subject 
to additional inflationary adjustment for 2017 and 2018. Applying 
the multiplier for 2017 of 1.01636, as specified in OMB's December 
16, 2016 guidance, results in an adjusted maximum penalty of 
$40,654. Applying the multiplier for 2018 of 1.02041, as specified 
in OMB's December 15, 2017, results in an adjusted maximum penalty 
of $41,484. NHTSA is proposing to finalize that inflationary 
adjustment.
    \33\ See id.; 49 U.S.C. 32907(a).
    \34\ 81 FR 43524, 43526 (July 5, 2016).
    \35\ 49 U.S.C. 30165(a)(1). These civil penalty amounts were 
established by Section 24110 of the Fixing America's Surface 
Transportation Act (FAST Act), Public Law 114-94, after the 2015 Act 
was enacted, and thus were not adjusted in the interim final rule.
---------------------------------------------------------------------------

    The penalty for manufacturer violations of fuel economy standards 
also does not meet the definition of a ``civil monetary penalty'' 
because the fuel economy standards statute does not provide a 
``specific monetary amount'' for manufacturer violations of fuel 
economy standards. In contrast to other provisions of the statute that 
provide for a specific amount on a per violation basis, often in the 
tens of thousands of dollars, section 32912(b) provides no specific 
amount. It only provides a $5.50 rate, which is one input in a market-
based enforcement mechanism involving the calculation established in 49 
U.S.C. 32912(b), the ultimate result of which--the penalty owed--is 
determined by how a manufacturer decides to use any available credits 
it has, or can acquire, to make up for the initial shortfall identified 
by NHTSA which in turn is based on the market price for credits which 
is dependent on the actions of other manufacturers.
    For a manufacturer that does not meet an applicable fuel economy 
standard, NHTSA sends what is known as a ``shortfall letter'' to the 
manufacturer. NHTSA can only do so after it knows the average fuel 
economy ``calculated under section 32904(a)(1)(A) or (B) of this title 
for automobiles to which the standard applies manufactured by the 
manufacturer during the model year.'' \36\ The fuel economy calculation 
is conducted by the Environmental Protection Agency (EPA). Following 
the end of a model year, manufacturers submit final model year reports 
to EPA. EPA reviews and verifies the information and values 
manufacturers provide before providing the reports to NHTSA, generally 
more than six months after the end of a model year.
---------------------------------------------------------------------------

    \36\ 49 U.S.C. 32912(b)(1).
---------------------------------------------------------------------------

    Once NHTSA receives the average fuel economy calculation from EPA, 
NHTSA must then determine whether the manufacturer's average fuel 
economy fails to meet the applicable average fuel economy standard.\37\ 
If so, the manufacturer has a shortfall. NHTSA then prepares a 
preliminary calculation of the manufacturer's potential civil penalty, 
which, as described above, varies depending on the relationship between 
the manufacturer's average fuel economy and the average fuel economy 
standards. NHTSA sends the manufacturer a shortfall letter with the 
preliminary calculation, which requires the manufacturer to respond by 
either submitting a plan on how it intends to make up the shortfall or 
by paying a penalty.
---------------------------------------------------------------------------

    \37\ 49 U.S.C. 32912(b)(1).
---------------------------------------------------------------------------

    NHTSA's preliminary calculation is determined by multiplying three 
numbers: (1) $5.50, (2) each tenth of a mile per gallon by which the 
average fuel economy falls short of the applicable average fuel economy 
standard, and (3) the number of automobiles manufactured by the 
manufacturer during the model year.\38\ That calculation does not yield 
a final civil penalty amount because the statute requires that 
calculation to include a reduction ``by the credits available to the 
manufacturer under section 32903 of this title for the model year.'' 
\39\
---------------------------------------------------------------------------

    \38\ 49 U.S.C. 32912(b)(2).
    \39\ 49 U.S.C. 32912(b)(3).
---------------------------------------------------------------------------

    However, applying the reduction for the number of available credits 
is not a matter of simple mathematics because manufacturers have 
control over both the amount of credits available to them and the use 
of their credits. If a manufacturer's performance for a given fleet 
does not meet the applicable standard, then the manufacturer must elect 
how to satisfy its shortfall.
    Whether and to what extent the penalty calculation is reduced ``by 
the credits available to the manufacturer under section 32903 of this 
title for the model year'' (i.e., how to deal with a non-compliance) is 
ultimately determined by the manufacturer. Only after this step in the 
process outlined in section 32912 occurs is the penalty calculation 
complete. Each manufacturer controls the allocation of its own credits, 
if credits are available.\40\ A manufacturer that earned credits in a 
compliance category before MY 2008

[[Page 13910]]

may apply those credits to that same compliance category for the three 
model years prior to, and three model years after, the year in which 
the credits were earned.\41\ A manufacturer that earned credits in a 
compliance category during and after MY 2008 may apply those credits to 
the same compliance category for three model years prior to, and five 
model years after, the year in which the credits were earned.\42\ 
Manufacturers instruct NHTSA on how they wish to allocate their 
credits, or account for shortfalls.\43\
---------------------------------------------------------------------------

    \40\ See 49 CFR 536.5(c), (d)(2), (6).
    \41\ Id. 536.6(a).
    \42\ Id. 536.6(b).
    \43\ See 49 CFR 536.5(d)(2), (6).
---------------------------------------------------------------------------

    Only once NHTSA hears back from the manufacturer on how it wishes 
to satisfy its shortfall does NHTSA know the specific civil penalty 
that the manufacturer owes for falling short of the applicable average 
fuel economy standard. In other words, the manufacturer's decision 
regarding use of credits is one of the several inputs in the complex 
formula set forth in the fuel economy standards statute, which 
ultimately produces the civil penalty for a manufacturer's violation of 
fuel economy standards. In sum, the statute describes a process to 
determine a penalty amount, but does not itself provide for a penalty, 
fine or sanction that is ``for a specific amount.'' Instead,, due to 
additional flexibilities of credit transfers and trades, a manufacturer 
determines the amount of the civil penalty that is actually owed.\44\ 
Considering this framework, the formula established under 49 U.S.C. 
32912(b) and the variable amounts that result from application of the 
formula, are not a ``specific monetary amount'' of a penalty for 
manufacturer violations of fuel economy standards subject to adjustment 
pursuant to the 2015 Act.
---------------------------------------------------------------------------

    \44\ Public Law 110-140, Title I, 104(a), 121 Stat. 1501 (2007).
---------------------------------------------------------------------------

    NHTSA must conduct a preliminary calculation for each of the 
manufacturer's fleets. CAFE standards are fleet-wide standards that 
apply to the vehicles a manufacturer produced for sale in each of three 
compliance categories: passenger cars manufactured domestically, 
imported passenger cars, and light trucks.\45\ Within specified limits, 
EISA permitted manufacturers to transfer credits across fleets. For 
example, credits earned for a manufacturer's domestic passenger fleet 
may be transferred to its domestic light-truck fleet. Likewise, EISA 
permitted manufacturers to sell (i.e., trade) their credits to other 
manufacturers. The ability to trade credits with another manufacturer, 
authorized for the first time by EISA in 2007, introduced a new level 
of complexity that further differentiated civil penalties for 
violations of fuel economy requirements from other types of civil 
penalties. This added wrinkle further supports NHTSA's current 
understanding that the statutory CAFE civil penalty process is not 
included within the scope of the 2015 Act.
---------------------------------------------------------------------------

    \45\ Id. 32902-04.
---------------------------------------------------------------------------

    Since manufacturers control the use of their available credits, 
NHTSA has no way of determining on its own the amount of a penalty that 
a manufacturer must pay, or even if a manufacturer must pay any penalty 
at all.\46\ The options are plentiful.\47\ A manufacturer can choose to 
use no credits and pay a penalty. A manufacturer can choose to use 
credits from the same compliance category and pay no penalty. A 
manufacturer can choose to use some credits from the same compliance 
category and pay a smaller penalty. A manufacturer can choose to 
transfer credits from another compliance category and pay no penalty. A 
manufacturer can choose to transfer some credits from another 
compliance category and pay a smaller penalty. A manufacturer can 
choose to purchase credits from another manufacturer and pay no 
penalty. A manufacturer can choose to purchase some credits from 
another manufacturer and pay a smaller penalty. A manufacturer can 
combine credits from the same compliance category and/or transfer 
credits from another compliance category and/or purchase credits from 
another manufacturer and pay no penalty or a smaller penalty.
---------------------------------------------------------------------------

    \46\ NHTSA is able to request supplemental reports and audit a 
manufacturer's compliance plan, see, e.g., 49 CFR 537.8, but 
ultimately, it is the manufacturer's decision on how to use the 
credits available to it.
    \47\ See 49 U.S.C. 32903.
---------------------------------------------------------------------------

    Those are just the options for credits already earned. A 
manufacturer can also elect not to pay a penalty or pay a smaller 
penalty by using a ``carryback'' plan, in which the manufacturer 
applies credits it expects to earn in future model years.\48\
---------------------------------------------------------------------------

    \48\ See 49 CFR 536.5(d).
---------------------------------------------------------------------------

    There are additional considerations that strongly supports NHTSA's 
conclusion that the 2015 Act should not be applied to the CAFE civil 
penalty. Congress already adopted a specific scheme for increasing the 
civil penalty in 49 U.S.C. 32912(b) that requires a far more intensive 
and restrictive process than the summary approach in the 2015 Act. 
First, EPCA placed an absolute limit on such an increase to ``not more 
than $10 for each .1 of a mile a gallon.'' \49\ Moreover, Congress set 
a high bar for adopting an increase. Specifically:
---------------------------------------------------------------------------

    \49\ 49 U.S.C. 32912(c).

    The Secretary of Transportation shall prescribe by regulation a 
higher amount for each .1 of a mile a gallon to be used in 
calculating a civil penalty under subsection (b) of this section, if 
the Secretary decides that the increase in the penalty--(i) will 
result in, or substantially further, substantial energy conservation 
for automobiles in model years in which the increased penalty may be 
imposed; and (ii) will not have a substantial deleterious impact on 
the economy of the United States, a State, or a region of a 
State.\50\
---------------------------------------------------------------------------

    \50\ 49 U.S.C. 32912(c)(1)(A).

Further, the Secretary must decide that an increase will not have a 
substantial deleterious impact ``only when the Secretary decides that 
it is likely that the increase in the penalty will not--(i) cause a 
significant increase in unemployment in a State or a region of a State; 
(ii) adversely affect competition; or (iii) cause a significant 
increase in automobile imports.'' \51\ These factors, which appear to 
demonstrate Congress' concern that the CAFE civil penalties program 
could damage the economy, are far more specific and tailored to the 
CAFE program than any provisions in the 2015 Act. Although it is not 
specifically identified in the statute, the legislative history 
indicates that the ``impact'' of concern relates to ``the automobile 
industry.'' \52\ In its report on EPCA's original fuel economy 
provisions in 1975, the House Commerce Committee recognized:
---------------------------------------------------------------------------

    \51\ Id. 32912(c)(1)(C).
    \52\ ``Energy Initiatives of the 95th Congress,'' S. Rep. No. 
96-10, at 175-76 (1979) (``Representative Dingell (D-Mich.), 
concerned that increasing the penalties could lead to layoffs in the 
automobile industry, insisted that raising the penalties be 
contingent upon findings by the Secretary of Transportation that 
increasing the penalties would achieve energy savings and would not 
be harmful to the economy.'').

The automobile industry has a central role in our national economy 
and that any regulatory program must be carefully drafted so as to 
require of the industry what is attainable without either imposing 
impossible burdens on it or unduly limiting consumer choice as to 
capacity and performance of motor vehicles.\53\
---------------------------------------------------------------------------

    \53\ H.R. Rep. No. 94-340, at 87 (1975). See also 121 Cong. Rec. 
18675 (June 12, 1975) (statement of Rep. Sharp) (``[W]e recognize 
that we have serious unemployment in the American auto industry and 
we want to preserve this important segment of the economy.'').

    Notably, Congress was aware that inflation would effectively reduce 
the real value of the civil penalty rate over time--the CBO Director 
and NHTSA Administrator recognized that the civil penalty structure 
under 1975 EPCA

[[Page 13911]]

``actually become less stringent over time . . . as inflation erodes 
[the penalties'] effect''--yet chose to require this strict procedure 
to increase the rate without allowing for inflationary adjustments to 
the multiplier in the formula. In contrast, Congress expressly purposes 
of the 2015 Act (and its predecessor) ``to establish a mechanism that 
shall . . . maintain the deterrent effect of civil monetary penalties . 
. . .'' The omission of any inflation adjustment procedure makes sense 
in light of Congress' requirement for NHTSA to continually increase 
fuel economy standards to maximum feasible levels.\54\ Rather than 
increase the penalty each year, Congress directed NHTSA to determine 
whether fuel economy standards should be increased, because the goal of 
the CAFE standards is to increase fuel economy not punish 
manufacturers, as with other penalties subject to the 2015 Act. 
Requiring mandatory penalty inflation adjustments and continuous fuel 
standard increases would multiply the amount assessed against 
manufacturers in a way that does not occur with other types of 
penalties.
---------------------------------------------------------------------------

    \54\ 49 U.S.C. 32902(a).
---------------------------------------------------------------------------

    Congress also recognized the need for lead time in increasing the 
civil penalty for violations of fuel economy standards by specifying 
that an increase ``is effective for the model year beginning at least 
18 months after the regulation stating the higher amount becomes 
final.'' \55\
---------------------------------------------------------------------------

    \55\ Id. 32912(c)(1)(D).
---------------------------------------------------------------------------

    Congress additionally recognized the need for extensive input from 
the public and other parts of the Government before any such increase. 
It required that:

The Secretary shall publish in the Federal Register a proposed 
regulation under this subsection and a statement of the basis for 
the regulation and provide each manufacturer of automobiles a copy 
of the proposed regulation and the statement. The Secretary shall 
provide a period of at least 45 days for written public comments on 
the proposed regulation. The Secretary shall submit a copy of the 
proposed regulation to the Federal Trade Commission and request the 
Commission to comment on the proposed regulation within that period. 
After that period, the Secretary shall give interested persons and 
the Commission an opportunity at a public hearing to present oral 
information, views, and arguments and to direct questions about 
disputed issues of material fact to--(A) other interested persons 
making oral presentations; (B) employees and contractors of the 
Government that made written comments or an oral presentation or 
participated in the development or consideration of the proposed 
regulation; and (C) experts and consultants that provided 
information to a person that the person includes, or refers to, in 
an oral presentation.\56\
---------------------------------------------------------------------------

    \56\ Id. 32912(c)(2).

    These extensive, statutorily-mandated procedures specifically 
applicable to increases in the penalty rate in 49 U.S.C. 32912(b) are 
in stark contrast to the procedures applicable to the 2015 Act. For the 
initial catch-up adjustment, the 2015 Act specified that agencies 
should use an interim final rule.\57\ For subsequent annual 
adjustments, the 2015 Act specified that agencies ``shall make the 
adjustment notwithstanding section 553 of title 5, United States 
Code,'' which contain the Administrative Procedure Act's requirements 
for rulemaking.\58\
---------------------------------------------------------------------------

    \57\ 28 U.S.C. 2461 note, Federal Civil Penalties Inflation 
Adjustment Sec.  4(b)(1)(A).
    \58\ Id. Sec.  4(b)(2).
---------------------------------------------------------------------------

    Finally, before Congress passed the 2015 Act, the CBO provided an 
assessment of the revenue that inflation adjustments pursuant to the 
2015 Act would provide the Federal government. CBO determined that all 
inflation adjustments pursuant to the 2015 Act (across every Federal 
agency) would provide in total $1.3 billion of revenue across ten 
years.\59\ Commenters indicate that adjusting the civil penalty rate to 
$14 could cost up to $1 billion annually in penalty payments.\60\ 
Across ten years, the penalty payments under this provision of the 
statute alone could dwarf CBO's contemporaneous estimate of the 2015 
Act's effect on revenues from all civil monetary penalties across all 
statutes. The drastic difference between CBO's estimate of revenue from 
all inflation adjustments across ten years and the potential revenue 
from this adjustment alone further suggests Congress had not considered 
the civil penalty rate subject to the 2015 Act's inflation adjustment. 
This is bolstered by the rounding rule adopted by Congress. The 2015 
Act states, ``[a]ny increase determined under this subsection shall be 
rounded to the nearest multiple of $1.'' \61\ This rounding rule 
suggests the Act was not intended to apply to the small dollar value 
CAFE civil penalty rate, since it would not serve a de minimis rounding 
function. As a practical matter, if the rounding rule applied to a 
small dollar penalty rate, it would prevent any annual inflationary 
increases (absent extraordinary inflation).
---------------------------------------------------------------------------

    \59\ See ``Estimate of the Budgetary Effects of H.R. 1314, the 
Bipartisan Budget Act of 2015, as reported by the House Committee on 
Rules on October 27, 2015,'' at 4, available at https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/costestimate/hr1314.pdf. Title VII of the Bipartisan Budget Act of 2015 includes 
three sections and the revenue estimate was for title VII in its 
entirety. Section 701 is the 2015 Act. The other two sections are 
the rescission of money deposited or available in two funds which 
CBO recognized would decrease direct government spending. Therefore, 
the 2015 Act is likely the only portion of title VII to provide 
revenue, and the CBO's revenue estimate for title VII can be 
understood as a revenue estimate for the 2015 Act.
    \60\ See, e.g., Comment ID NHTSA-2017-0059-0019, available at 
https://www.regulations.gov/.
    \61\ 28 U.S.C. 2461 note, Federal Civil Penalties Inflation 
Adjustment Sec.  5(a).
---------------------------------------------------------------------------

    NHTSA believes that applying the 2015 Act to the penalty in 49 
U.S.C. 32912(b) would evade the statutory safeguards and limitations 
directly applicable to that penalty, in contrast to Congress's original 
awareness of penalty rate adjustments, and could result in the 
imposition of a potentially massive increase in civil penalties, in 
contrast to contemporaneous, pre-enactment evidence about the effect of 
the 2015 Act.
    NHTSA has previously sought comment on related issues, but NHTSA 
believes it is important to provide the public with an opportunity to 
provide additional comments in light of NHTSA's analysis. Accordingly, 
NHTSA requests comments on this analysis. For these reasons, NHTSA 
tentatively concludes that it is not appropriate to apply the 2015 Act 
and is proposing to retain the $5.50 rate in the CAFE civil penalty.
2. The Agency Tentatively Finds That Increasing the CAFE Civil Penalty 
Rate Will Result in Negative Economic Impact
    NHTSA is proposing to retain the CAFE civil penalty rate of $5.50 
per tenth of a mile per gallon, even if one were to assume that the 
penalties are subject to the 2015 Act, because NHTSA tentatively 
concludes that, in light of the statutory requirements in EPCA for 
raising the penalty rate, applying the increase would lead to a 
``negative economic impact'' under the 2015 Act.
    The 2015 Act states, ``[a]ny increase determined under this 
subsection shall be rounded to the nearest multiple of $1.'' \62\ NHTSA 
requests comment on whether, and if so, how, this rounding rule should 
apply if NHTSA ultimately concludes that adjusting the $5.50 CAFE civil 
penalty rate upwards would have a ``negative economic impact.'' 
Specifically, does the 2015 Act rule require a $5.50 civil penalty 
rate, if finalized, to be rounded to $6? Commenters should consider the 
potential application of the rounding rule to the initial catch-up 
adjustment,

[[Page 13912]]

as well as the 2017 and 2018 adjustments and future annual adjustments. 
Commenters should also consider the relationship, if any, between the 
rounding rule and the criteria required to be met to raise the civil 
penalty under EPCA.
---------------------------------------------------------------------------

    \62\ 28 U.S.C. 2461 note, Federal Civil Penalties Inflation 
Adjustment Sec.  5(a).
---------------------------------------------------------------------------

a. Negative Economic Impact
i. ``Negative Economic Impact'' Is Not Defined
    Under the 2015 Inflation Adjustment Act, NHTSA, under authority 
delegated by the Secretary, may adjust the amount of a civil monetary 
penalty by the less than the amount otherwise required for the ``catch-
up adjustment'' upon determining in a final rule, after notice-and 
comment, that increasing the civil monetary penalty by the otherwise 
required amount will have a ``negative economic impact,'' or the social 
costs of increasing the civil monetary penalty by the otherwise 
required amount outweigh the benefits.\63\ In either case, the Director 
of the Office of Management and Budget must concur with the agency's 
determination.
---------------------------------------------------------------------------

    \63\ 28 U.S.C. 2461 note, Federal Civil Penalties Inflation 
Adjustment Sec.  4(c)(1).
---------------------------------------------------------------------------

    To determine whether increasing the CAFE civil penalty rate by the 
amount calculated under the inflation adjustment formula would have a 
``negative economic impact,'' NHTSA must first establish the meaning of 
``negative economic impact.'' The statute does not define ``negative 
economic impact.'' OMB issued a memorandum providing guidance to the 
heads of executive departments and agencies on how to implement the 
Inflation Adjustment Act, but the guidance does not define ``negative 
economic impact'' either.\64\
---------------------------------------------------------------------------

    \64\ Memorandum from the Director of OMB to Heads of Executive 
Departments and Agencies, Implementation of the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act of 2015 (Feb. 
24, 2016), available at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf.
---------------------------------------------------------------------------

ii. How To Interpret ``Negative Economic Impact''
    In interpreting ``negative economic impact,'' NHTSA cannot just 
consider the Inflation Adjustment Act in isolation: statutory 
interpretation is not conducted in a vacuum.\65\ ``It is a fundamental 
canon of statutory construction that the words of a statute must be 
read in their context and with a view to their place in the overall 
statutory scheme.'' \66\
---------------------------------------------------------------------------

    \65\ Davis v. Michigan Dep't of Treasury, 489 U.S. 803, 809 
(1989).
    \66\ Id. (citing United States v. Morton, 467 U.S. 822, 828 
(1984)).
---------------------------------------------------------------------------

    Accordingly, NHTSA must interpret Congress' Inflation Adjustment 
Act in light of the longstanding CAFE civil penalty structure 
previously enacted by Congress. Interpreting the Inflation Adjustment 
Act in context is particularly important in determining the appropriate 
adjustment to make to the CAFE civil penalty rate given the unique 
nature of the CAFE civil penalties program. For example, in contrast to 
other federal civil penalty programs, the CAFE statute requires a 
minimum of eighteen months' lead time in advance of a model year before 
a higher civil penalty amount can become effective.\67\ Congress 
mandated this interval because ``manufacturers' product and compliance 
plans are difficult to alter significantly for years ahead of a given 
model year.'' \68\ Indeed, ``NHTSA believes that this approach 
facilitates continued fuel economy improvements over the longer term by 
accounting for the fact that manufacturers will seek to make 
improvements when and where they are most cost-effective.'' \69\ For 
similar reasons, when DOT amends a fuel economy standard to make it 
more stringent, that new standard must be promulgated ``at least 18 
months before the beginning of the model year to which the amendment 
applies.'' \70\
---------------------------------------------------------------------------

    \67\ 49 U.S.C. 32912(c)(1)(D).
    \68\ 81 FR 95491 (December 28, 2016).
    \69\ Id.
    \70\ 49 U.S.C. 32902(a)(2).
---------------------------------------------------------------------------

    CAFE civil penalties are also atypical in that they follow a 
prescribed formula that can only be compromised or remitted by NHTSA in 
exceptionally limited circumstances.\71\ In practice, therefore, any 
increase in the CAFE civil penalty rate would apply to all non-
compliant manufacturers, regardless of the circumstances, and in turn, 
would likely increase the price of credits.\72\ Contrast this 
constrained structure with NHTSA's general civil penalty authority, 
which allows the Secretary to determine or compromise the amount of a 
civil penalty and delineates multiple factors for the Secretary to 
consider in making such a determination, including the nature, 
circumstances, extent, and gravity of the violation.\73\
---------------------------------------------------------------------------

    \71\ 49 U.S.C. 32913 (authorizing the Secretary to ``compromise 
or remit the amount of civil penalty imposed'' under CAFE ``only to 
the extent'' (1) necessary to prevent a manufacturer's insolvency or 
bankruptcy; (2) the manufacturer shows that the violation was caused 
by an act of God, a strike, or a fire; or (3) the Federal Trade 
Commission certifies that a reduction is necessary to prevent a 
substantial lessening of competition). NHTSA has never attempted to 
utilize this provision to compromise or remit a CAFE civil penalty.
    \72\ See H.R. Rep. No. 95-1751, at 112 (1978) (Conf. Rep.) 
(``[T]he higher penalty . . . will be the same for all manufacturers 
when adopted. . ..'').
    \73\ 49 U.S.C. 30165(b)-(c).
---------------------------------------------------------------------------

    The principles underlying other traditional canons of statutory 
interpretation further support NHTSA's proposed approach. For example, 
statutes that relate to the same or to similar subjects are in pari 
materia. Such statutes should be construed together, even if they do 
not expressly reference each other or were passed at different times, 
unless a contrary intent is clearly expressed by Congress. Here, both 
the inflationary adjustment statute and the relevant provisions of the 
CAFE statute involve civil penalties and must be read in pari 
materia.\74\ And when one of the statutes is generalized and passed 
later--like the Inflation Adjustment Act--it cannot be read to 
implicitly repeal an earlier, more specific statute--like EPCA's 
establishment of the CAFE civil penalties structure.\75\ This approach 
to statutory interpretation is consistent with NHTSA's past 
practice.\76\
---------------------------------------------------------------------------

    \74\ See Wisconsin Cent. Ltd. v. United States, 194 F. Supp. 3d 
728, 738 (N.D. Ill. 2016), aff'd, 856 F.3d 490 (7th Cir. 2017) 
(```[C]onceptual similarity' . . . is precisely the point of the in 
pari materia canon: `statutes addressing the same subject matter 
generally should be read as if they were one law,' with the 
traditional tools of statutory interpretation applied accordingly. . 
. . [A]lthough FICA does not by completely define the RRTA's various 
contours, examining the former to elucidate related provisions of 
the latter is an acceptable mode of statutory interpretation given 
the close linkages between the statutes.'') (internal citation 
omitted) (emphasis in original); cf. Pound v. Airosol Co., 498 F.3d 
1089, 1094 n.2 (10th Cir. 2007) (``The penalty provisions of the CAA 
and the Clean Water Act (CWA) are virtually identical; thus, CWA 
cases are instructive in analyzing issues arising from the CAA''); 
United States v. Dell'Aquilla, 150 F.3d 329, 338 n.9 (3d Cir. 1998) 
(``[T]he Clean Water Act and the Clean Air Act are in pari materia, 
and courts often rely upon interpretations of the Clean Water Act to 
assist with an analysis under the Clean Air Act.'') (citations 
omitted).
    \75\ See Crawford Fitting Co. v. J. T. Gibbons, Inc., 482 U.S. 
437, 445 (1987) (``Where there is no clear intention otherwise, a 
specific statute will not be controlled or nullified by a general 
one, regardless of the priority of enactment.'') (cleaned up); 
Radzanower v. Touche Ross & Co., 426 U.S. 148, 153 (1976) (``It is a 
basic principle of statutory construction that a statute dealing 
with a narrow, precise, and specific subject is not submerged by a 
later enacted statute covering a more generalized spectrum.'').
    \76\ See, e.g., 80 FR 40137, 40171 (Aug. 12, 2015) (interpreting 
a term in EISA by looking to how the term is defined in the Motor 
Vehicle Safety Act, ``[g]iven the absence of any apparent contrary 
intent on the part of Congress in EISA'').
---------------------------------------------------------------------------

    The principles underlying the rule of lenity also substantiate 
interpreting the Inflation Adjustment Act narrowly in light of EPCA. 
This canon instructs that statutes imposing penalties should be 
construed narrowly in favor of those against whom the penalties will be 
imposed. Although the rule of lenity is

[[Page 13913]]

traditionally applied in criminal contexts,\77\ the principles 
underlying the rule are worth considering when there are severe 
punitive implications of a broad interpretation, as is the case here. 
Construing the statute strictly is particularly important here because 
the inflation adjustment essentially acts as a ``one-way ratchet,'' 
where all subsequent annual adjustments will be based off this ``catch-
up'' adjustment with no ensuing opportunity to invoke the ``negative 
economic impact'' exception.\78\
---------------------------------------------------------------------------

    \77\ Some courts have applied the rule of lenity in civil and 
administrative contexts as well. See, e.g., United States v. 
Thompson/Ctr. Arms Co., 504 U.S. 505, 518 (1992); Rand v. C.I.R., 
141 T.C. 376, 393 (2013), overturned on other grounds due to 
legislative action.
    \78\ This ``one-way ratchet'' constraint is also imposed by 
EPCA. H.R. Rep. No. 95-1751, at 113 (1978) (Conf. Rep.) (``No 
provision [in EPCA] is made for lowering the penalty.'').
---------------------------------------------------------------------------

iii. Reading Section 32912 With the Inflationary Adjustment Act
    Under 49 U.S.C. 32912(b), a manufacturer that violates a fuel 
economy standard is potentially subject to a civil penalty rate for 
each tenth of a mile per gallon that the manufacturer misses the 
applicable average fuel economy standard for the number of automobiles 
manufactured by the manufacturer during the model year, unless the 
manufacturer is able and willing to apply credits or establish a plan 
to generate and apply credits in subsequent years, as discussed above. 
NHTSA has exceptionally limited discretion in whether to impose the 
penalty or the amount of the preliminary calculation of the penalty 
when it does indeed apply.
    The Secretary is required to increase the applicable civil penalty 
rate up to $10 per each tenth of a mile per gallon if she decides that 
the increase in the penalty:
    (i) will result in, or substantially further, substantial energy 
conservation for automobiles in model years in which the increased 
penalty may be imposed; and
    (ii) will not have a substantial deleterious impact on the economy 
of the United States, a State, or a region of a State.\79\
---------------------------------------------------------------------------

    \79\ 49 U.S.C. 32912(c)(1)(A)-(B).
---------------------------------------------------------------------------

    The Secretary can only decide that the increase ``will not have a 
substantial deleterious impact on the economy'' if she decides that it 
is likely that the increase in the penalty will not:
    (i) Cause a significant increase in unemployment in a State or a 
region of a State;
    (ii) adversely affect competition; or
    (iii) cause a significant increase in automobile imports.\80\
---------------------------------------------------------------------------

    \80\ 49 U.S.C. 32912(c)(1)(C).
---------------------------------------------------------------------------

    Thus, to increase the civil penalty rate for CAFE violations, the 
Secretary must affirmatively determine that doing so ``will not have a 
substantial deleterious impact on the economy of the United States, a 
State, or a region of a State.'' Critically, if she is unable to make 
such a determination or, put another way, if she determines that 
increasing the civil penalty may have ``a substantial deleterious 
impact on the economy of the United States, a State, or a region of a 
State,'' she is prohibited by statute from increasing the applicable 
civil penalty rate.\81\ Therefore, in determining whether adjusting the 
CAFE civil penalty rate for inflation will have a ``negative economic 
impact,'' it is appropriate to consider the potential negative economic 
impact the adjustment would have not just on the United States in 
general, but also, at a minimum, on whether such impact could occur in 
any particular State or region of a State.
---------------------------------------------------------------------------

    \81\ In addition to the substantive findings that must be made 
before the civil penalty rate can be increased, Section 32912 also 
imposes procedural requirements. For instance, the Secretary must 
hold a public hearing during which interested persons and the 
Federal Trade Commission be allowed to make presentations. 49 U.S.C. 
32912(c)(2).
---------------------------------------------------------------------------

    NHTSA also believes it is appropriate to consider the impact 
raising the CAFE civil penalty rate would have on individual 
manufacturers who fall short of fuel economy standards, and those 
affected, such as dealers. Such a broad interpretation is consistent 
with how other statutory provisions permitting or requiring agencies to 
consider economic impacts have been interpreted. For example, under the 
Safety Act, a discretionary factor in determining the amount of a 
penalty is ``the appropriateness of such penalty in relation to the 
size of the business of the person charged, including the potential for 
undue adverse economic impacts.'' \82\ NHTSA interpreted that factor in 
its regulation to include consideration of ``financial factors such as 
liquidity, solvency, and profitability.'' \83\ Other federal statutes 
likewise contemplate consideration of negative economic impacts on 
individual actors in determining an appropriate civil penalty.\84\ 
NHTSA's proposal, which includes consideration of the ``negative 
economic impact'' the level would have on individual noncompliant 
actors, represents a uniform approach with how it determines the 
appropriate civil penalty level in these other, non-CAFE cases. 
Moreover, the Senate Conference report on the 1975 version of EPCA 
directed ``the Secretary [to] weigh the benefits to the nation of a 
higher average fuel economy standard against the difficulties of 
individual automobile manufacturers.'' \85\
---------------------------------------------------------------------------

    \82\ 49 U.S.C. 30165(c)(7) (emphasis added).
    \83\ 49 CFR 578.8.
    \84\ See 15 U.S.C. 2069(b), (c) (Consumer Product Safety 
Commission); 33 U.S.C. 1232(a)(1) (Coast Guard); 33 U.S.C. 1319(d), 
1321(b)(8) (Environmental Protection Agency).
    \85\ S. Rep. No. 94-516, at 155 (1975) (Conf. Rep.).
---------------------------------------------------------------------------

    Note also that ``negative economic impact,'' as used in the 
Inflation Adjustment Act, need not mean ``net negative economic 
impact.'' Congress expressly utilized the ``net'' concept in the very 
next provision of the statute, authorizing a lesser increase to a civil 
penalty if the agency determines that ``the social costs of increasing 
the civil monetary penalty by the otherwise required amount outweigh 
the benefits.'' \86\ The absence of comparable phrasing for the 
``negative economic impact'' provision immediately prior implies either 
that term is ambiguous or that Congress intentionally omitted the word 
``net.'' Either way, without any express indications that Congress 
meant ``net negative economic impact,'' NHTSA proposes that the 
provision should be interpreted without reference to any potential 
benefits of increasing the penalty.
---------------------------------------------------------------------------

    \86\ 28 U.S.C. 2461 note, Federal Civil Penalties Inflation 
Adjustment Sec.  4(c)(1)(B) (emphasis added).
---------------------------------------------------------------------------

a. NHTSA has not Determined That an Increase in the CAFE Civil Penalty 
Rate Will Not Have a Substantial Deleterious Impact on the Economy
    To summarize: The 2015 Act allows an agency to set a lower penalty 
amount than would otherwise be required if it can show that raising the 
penalty in accordance with the 2015 Act will lead to a ``negative 
economic impact,'' which is not defined either in the 2015 Act or OMB's 
implementing guidance. However, the statute specifically related to 
penalties for violations of NHTSA's fuel economy standards has a 
provision allowing for an increase in the penalty rate only if the 
agency can determine that increasing the rate will not have a 
``substantial deleterious impact on the economy.'' To read these two 
provisions together harmoniously, NHTSA interprets the statutes to mean 
that the agency must be able to affirmatively show that increasing the 
penalty as would be required by the 2015 Act will not have the adverse 
economic effects identified in the definition of ``substantial 
deleterious impact.'' Since the agency cannot make those affirmative 
findings, discussed further

[[Page 13914]]

below, it is therefore prohibited from raising the penalty rate because 
doing so would have a ``negative economic impact.''
    Since NHTSA does not have sufficient evidence to make the requisite 
finding under EPCA that an increase in the CAFE penalty rate will not 
have a substantial deleterious impact on the economy, NHTSA is 
proposing to retain the $5.50 penalty rate pursuant to the negative 
economic impact exception to inflationary adjustments. NHTSA invites 
comments on whether this is the appropriate penalty level, and if not, 
requests data or other evidence that would support the findings 
necessary under EPCA that would allow for such an increase.
    The comments should take into account that the factors are 
probabilistic and prospective, that is, to increase the penalty rate, 
the Secretary must determine that doing so likely would not have the 
statutorily-enumerated effects in the future.
    The comments should also reflect the considerable burdens that must 
be overcome to make the findings needed to increase the civil penalty 
under EPCA, in part reflected in the statute's repeated use of 
``substantial'' and ``significant.'' Indeed, the burden is so great 
that NHTSA has been unable to make all of the determinations necessary 
since the provisions were added in 1978.
    The comments should also address the impact of increasingly 
stringent fuel economy standards established in existing statute and 
NHTSA regulation, and whether this increasing stringency has a 
relationship to a ``negative economic impact'' or ``substantial 
deleterious impact determination.''
b. NHTSA has not Determined That an Increase in the CAFE Civil Penalty 
Rate Will Not Cause a Significant Increase in Unemployment in a State 
or Region of a State
    NHTSA tentatively concludes that an increase in the CAFE penalty 
rate could plausibly cause a significant increase in unemployment in a 
State or a region of a State. For instance, vehicle price increases--
resulting from increased penalty payments or compliance costs passed 
through to customers--could result in customers keeping their current 
vehicles longer or shifting purchases towards less expensive new 
vehicles or toward the used vehicle market. Either outcome could lead 
to fewer jobs with vehicle manufacturers. Losses may be concentrated in 
particular States and regions within those States where automobile 
manufacturing plants are located. Some manufacturers who have 
historically paid civil penalties in lieu of compliance have automobile 
assembly and parts manufacturing plants located in the Midwest and 
Southeastern U.S. These plants employing thousands of people could be 
most adversely impacted by a civil penalty increase resulting in 
employment losses. In response to substantial increases in potential 
penalties, some manufacturers could plausibly lose sales due to 
resulting higher prices, which may result in reduced employment at 
facilities currently producing vehicles and engines.
    Fewer new vehicle sales attributable to price increases resulting 
from increased penalty payments and/or compliance costs could also 
plausibly result in fewer jobs within new motor vehicle dealerships 
franchised to sell vehicles manufactured or distributed by 
manufacturers subject to penalties and/or increased compliance costs. A 
manufacturer's decision to change allocation of vehicles distributed to 
dealers to address increased penalties and/or compliance costs could 
also result in job losses within the franchised dealer network. For 
example, one might expect that increased CAFE penalties could lead to a 
decrease in the number of vehicles with powerful engines being produced 
or sold. Dealers in States or intra-State regions where these types of 
vehicles are more popular would be affected disproportionately.
c. NHTSA Has Not Determined That an Increase in the CAFE Civil Penalty 
Rate Will Not Adversely Affect Competition
    Notably, unlike the other two factors, this factor does not require 
a finding of a ``significant'' effect. The absence of this modifier 
implies that even a modest adverse effect on competition would suffice 
to block a civil penalty increase. This phrasing similarly contrasts 
with the provision in the next section of the Code, describing the 
compromising or remitting the amount of a CAFE civil penalty. That 
provision requires the Federal Trade Commission to certify that a 
reduction in the penalty is ``necessary to prevent a substantial 
lessening of competition.'' \87\
---------------------------------------------------------------------------

    \87\ 49 U.S.C. 32913(a)(3).
---------------------------------------------------------------------------

    In establishing CAFE stringency requirements, NHTSA has 
consistently evaluated risks to competition, including the potential 
effects on individual automakers. For instance, in the 1985 rulemaking, 
NHTSA analyzed the potential effect of a 1.5 mpg fuel economy 
improvement on the domestic auto industry, stating:

It is always possible that higher levels of fuel economy could be 
achieved by the domestic manufacturers if they were to restrict 
severely their product offerings. For example, sales of particular 
larger light truck models and larger displacement engines could be 
limited or eliminated entirely. As discussed by the October 1984 
notice, Ford submitted an analysis of the potential effects of 
restricting product offerings in this manner. This analysis showed 
that to achieve a 1.5 mpg average fuel economy benefit through such 
restrictions, sales reductions of 100,000 to 180,000 units at Ford 
could occur, with resulting employment losses of 12,000 to 23,000 
positions at Ford, its dealers and suppliers. The agency believes 
this analysis to be a reasonable projection of the impacts of 
restricting the availability of larger light trucks in the current 
market.
Impacts of this magnitude go beyond the realm of ``economic 
practicability'' as contemplated in the Act. This is particularly 
true since it is likely that a standard set at a level resulting in 
impacts of this magnitude would result in little or no net fuel 
economy benefit. This is because consumers could meet their demand 
for larger light trucks by merely shifting their purchases to other 
manufacturers which continue to offer such trucks. The other 
manufacturers could increase sales of these vehicles without risking 
noncompliance with the standards. An additional possible negative 
economic consequence would be reduced competition in the market for 
larger light trucks. Given the small number of manufacturers 
producing larger light trucks, a decision by Ford (or GM or 
[Chrysler]) to significantly reduce its role in this market could 
have serious consequences for competition.\88\
---------------------------------------------------------------------------

    \88\ 50 FR 40398, 40400-40401 (Oct. 3, 1985).

NHTSA continues to believe that, in the context of CAFE rulemakings, an 
analysis of the effects of a regulation on competition should be 
undertaken in a broad manner, similar to the analysis traditionally 
used in establishing CAFE stringency requirements, and seeks comments 
on this approach.
    NHTSA tentatively concludes that it is reasonable to believe that 
an increase in the CAFE penalty rate could distort the normal market 
competition that would be expected in a free market by favoring one 
group of manufacturers over another. This could adversely impact the 
affected manufacturers through higher prices for their products 
(without corresponding benefits to consumers), restricted product 
offerings, and reduced profitability. An increased CAFE penalty 
benefits fleets of already-compliant fuel efficient vehicles over 
fleets of less fuel-efficient vehicles. A manufacturer who is already 
generating or possesses over-compliance credits will find itself with 
much more valuable credits to sell and may use this additional capital 
to invest more heavily in research and development, marketing, add 
other features to its

[[Page 13915]]

vehicles which make them more desirable to consumers, or reduce the 
price of its vehicles. Through model year 2015, manufacturers with 
positive credit balances had credits in varying amounts up to nearly 
396 million credits.\89\ A hypothetical manufacturer with 10 million 
credits could see the potential value of its credits increase from $55 
million to $140 million, while a hypothetical manufacturer with 100 
million credits could see the potential value even more dramatically 
increase from $550 million to $1.4 billion. Meanwhile, a manufacturer 
who is not compliant and facing increased difficulties in meeting 
future stringency requirements may be forced to purchase credits at an 
increased price, invest more heavily in fuel economy improvements, 
discontinue less fuel-efficient models or configurations, increase 
vehicle prices, or some combination of these options--instead of 
investing in other areas to address consumer demands that would have 
been satisfied if the manufacturer was able to pay a lower penalty. 
While this result may be beneficial for purposes of fuel savings, it 
would further diminish the competitiveness of those manufacturers who 
are least able to comply with CAFE standards.
---------------------------------------------------------------------------

    \89\ See ``CAFE Public Information Center,'' available at 
https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Credit_LIVE.html.
---------------------------------------------------------------------------

    In addition to the impact on competition an increase in penalties 
might have on market participants, it could also have an impact on the 
market itself by limiting consumer choice involving vehicles and 
vehicle configurations that would otherwise be produced with penalties 
at their current values. For instance, faced with the prospect of 
having to pay larger penalties in the future, a manufacturer could 
decide that it makes financial sense to shift resources from its 
planned investments in capital towards payment of possible future 
penalties. If the possibility of paying penalties looms too large, a 
manufacturer could go out of business, reducing competition even 
further.
d. NHTSA has not Determined That an Increase in the CAFE Civil Penalty 
Rate will not Cause a Significant Increase in Automobile Imports
    Final model year fuel economy performance reports published by 
NHTSA indicate import passenger car fleets are performing better than 
domestic passenger car fleets. The model year 2015 fleet performance 
report \90\, the latest available, indicates the performance of the 
imported passenger car fleet has a one-tenth of one mpg advantage. 
While this slight advantage could be viewed as negligible, performance 
has varied significantly in recent years--the most significant being 
model year 2010 where the import fleet outpaced the domestic fleet by 
more than two mpg.
---------------------------------------------------------------------------

    \90\ Available at https://one.nhtsa.gov/cafe_pic/CAFE_PIC_fleet_LIVE.html (last accessed December 15, 2017)
---------------------------------------------------------------------------

    In light of this historical variation, it is unclear whether 
increasing the civil penalty fine amount would have a significant 
effect on either the domestic or import passenger cars fleets, and 
NHTSA seeks comment on potential positive or negative impacts civil 
penalties may have on the domestic and import passenger car fleets, 
along with any potential positive or negative impacts to the light 
truck fleet. Please provide supporting information for your position.
iv. Analysis of Comments Received on ``Negative Economic Impact'' and 
EPCA Considerations
    NHTSA has reviewed the comments it received on the July 2017 notice 
regarding ``negative economic impact,'' and--from previous requests for 
comment--on the EPCA considerations. NHTSA did not identify anything 
persuasive in the submissions that would undermine NHTSA's proposed 
interpretation of ``negative economic impact.''
    In its July 2017 request for comments, NHTSA specifically sought 
comments on:
     Whether the EPCA considerations for ``substantial 
deleterious impact'' are relevant to a determination of ``negative 
economic impact''?
     And if so, whether those considerations must be accounted 
for in determining negative economic impact, or simply that they are 
informational, and what is the legal basis for that belief?
    Only two commenters submitted comments touching on these questions. 
But none of the comments addressed whether the EPCA criteria for 
``substantial deleterious impact on the economy'' should guide NHTSA's 
consideration of whether the inflation adjustment would have a 
``negative economic impact,'' and if so, how much less than the 
otherwise required amount should the penalty level be adjusted after 
analyzing data relevant to the EPCA factors.
    CARB observed that the 2016 joint Technical Assessment Report 
stated that manufacturers ``who have consistently chosen to pay CAFE 
fines in the past may continue to do so,'' even if the civil penalty 
rate changes. CARB concluded from that NHTSA saw no reason at the time 
to think its fines would have a negative economic impact. However, this 
conclusion does not necessarily follow, as the greatly increased civil 
penalty rate, in light of longstanding expectations about the 
steadiness of that rate, could significantly upset manufacturers' 
expectations about compliance and thus cause operational or other 
challenges given the lead time necessary to make significant fuel 
economy improvements in subsequent model years.
    The Alliance and Global jointly submitted comments that also relate 
to these issues. These associations contended that although the EPCA 
factors ``do not override'' the Inflation Adjustment Act and ``are not 
binding'' in the inflation adjustment, they provide ``helpful support'' 
and ``useful guidance'' in deciding whether there would be a ``negative 
economic impact'' and, if so, how much to adjust the civil penalty 
amount. In their view, the ``stringent'' factors required by EPCA 
demonstrate that the CAFE civil penalty amount should not be increased 
without evidence of ``substantial net benefits'' and evidence that 
there would be ``no substantial harm to the economy.'' \91\
---------------------------------------------------------------------------

    \91\ The groups go on to claim that the evidence shows that 
adjusting the penalty to $14 ``will cost society $3.5 billion and 
will not produce commensurate benefits.''
---------------------------------------------------------------------------

    NHTSA has previously sought comment on the EPCA civil penalty 
criteria in other rulemaking proceedings. In 2009, NHTSA sought comment 
on whether it should initiate a proceeding to consider raising the CAFE 
civil penalty under EPCA. Most of the comments on this issue focused on 
the energy conservation factor, rather than the impact on the economy. 
But no commenter argued that raising the penalty would have a positive 
or neutral impact on the economy.\92\
---------------------------------------------------------------------------

    \92\ 74 FR 14195, 14427 (Mar. 30, 2009).
---------------------------------------------------------------------------

    In 2010, NHTSA specifically solicited comments on how raising or 
not raising the penalty amount under EPCA would impact the economy. 
Only Ferrari and Daimler commented on this issue. Both manufacturers 
argued that raising the penalty would have no impact on fuel savings 
and would simply hurt the manufacturers forced to pay it. Daimler 
stated further that manufacturers pay fines because they cannot 
increase energy savings any further. No commenter argued or provided 
any information supporting the opposing

[[Page 13916]]

position that raising the penalty amount would have a positive or 
neutral impact on the economy. Ultimately, NHTSA ``defer[red] 
consideration of this issue for purposes of this rulemaking.'' \93\
---------------------------------------------------------------------------

    \93\ 75 FR 25323, 25666-67 (May 7, 2010).
---------------------------------------------------------------------------

    In 2012, NHTSA again solicited comments on how raising or not 
raising the penalty amount under EPCA would impact the economy. This 
time, ``no comments specific to this issue were received,'' so NHTSA 
declared it would ``continue to attempt to evaluate this issue on its 
own.'' \94\
---------------------------------------------------------------------------

    \94\ 77 FR 62623, 63131 (Oct. 15, 2012).
---------------------------------------------------------------------------

    The public has had multiple opportunities to comment on the EPCA 
civil penalty provisions and now the Inflation Adjustment Act. NHTSA 
has considered all the comments it received in generating this proposed 
rule.
    Based on the findings discussed above, NHTSA has tentatively made a 
determination that negative economic impact will result if the CAFE 
civil penalty rate is increased. For this reason, NHTSA is proposing to 
retain the existing CAFE civil penalty rate of $5.50 per .1 of a mile 
per gallon. NHTSA also seeks comment on whether a modest increase in 
the CAFE civil penalty rate, less than the amount that would otherwise 
be required if the 2015 Act applies, would ``result in, or 
substantially further, substantial energy conservation for automobiles 
in model years in which the increased penalty may be imposed,'' as 
expected by EPCA.
3. Increasing the CAFE Civil Penalty Rate to $14 Would Have a 
``Negative Economic Impact,'' Even If The EPCA Factors Were Not 
Mandatory
    Even if NHTSA was not required to apply the EPCA factors, NHTSA has 
tentatively determined that raising the CAFE civil penalty rate to $14 
would have a ``negative economic impact.'' NHTSA believes that the 
economic consequences described above are a reasonable estimate of what 
would occur if the CAFE civil penalty rate was increased 150 percent, 
regardless of any effect from EPCA. That is, increasing the penalty 
rate to $14 would lead to significantly greater costs than the agency 
had anticipated when it set the CAFE standards because manufacturers 
who had planned to use penalties as one way to make up their shortfall 
would now need to pay increased penalty amounts, purchase additional 
credits at likely higher prices, or make modifications to their 
vehicles outside of their ordinary redesign cycles. NHTSA believes all 
of these options would increase manufacturers' compliance costs, many 
of which would be passed along to consumers. Considering the agency's 
past analyses of CAFE's impact on vehicle costs, NHTSA tentatively 
concludes that the estimate provided by industry showing annual costs 
of at least one billion dollars is a reasonable estimate of this 
impact. NHTSA requests comments, including any substantive analysis, on 
this issue. The agency further believes that an increase in costs of 
this significant magnitude exceeds the range of adjustments Congress 
intended to cover when it enacted the 2015 Act, as described above.
    If NHTSA determines that raising the CAFE civil penalty rate to $14 
would have a ``negative economic impact,'' it is permitted to adjust 
the rate by less than the otherwise required amount. Without any 
statutory direction or OMB guidance on how much to adjust the rate, if 
at all, it falls to NHTSA to determine the appropriate adjustment--and 
NHTSA has wide discretion in making this determination.\95\
---------------------------------------------------------------------------

    \95\ Nat'l Shooting Sports Found., Inc. v. Jones, 716 F.3d 200, 
214-15 (D.C. Cir. 2013) (``An agency has `wide discretion' in making 
line-drawing decisions and `[t]he relevant question is whether the 
agency's numbers are within a zone of reasonableness, not whether 
its numbers are precisely right.' . . . An agency `is not required 
to identify the optimal threshold with pinpoint precision. It is 
only required to identify the standard and explain its relationship 
to the underlying regulatory concerns.''') (quoting WorldCom, Inc. 
v. FCC, 238 F.3d 449, 461-62 (D.C. Cir. 2001)).
---------------------------------------------------------------------------

    In light of the regulatory concerns described above, and in 
consideration of the unique regulatory structure with non-discretionary 
penalties tied to standards that increase over time, NHTSA is proposing 
to keep the CAFE civil penalty rate at $5.50 because it tentatively 
concludes that retaining the $5.50 rate would avoid the ``negative 
economic impact'' caused by any adjustment upwards.
    Although NHTSA has previously sought comment on these issues, NHTSA 
believes it is important to provide the public with an opportunity to 
provide additional information in light of NHTSA's analysis. Therefore, 
NHTSA requests comment on whether increasing the CAFE civil penalty 
rate to $14 would have a ``negative economic impact,'' and if so, to 
what level the rate should be raised, if at all.
4. The CAFE Civil Penalty Rate is Capped At $10
    Under 49 U.S.C. 32912(c)(1)(B), if the CAFE civil penalty rate is 
increased, the rate at which it is set ``may not be more than $10 for 
each .1 of a mile a gallon.'' This upper limit has been in effect since 
EPCA was amended in 1978 and was left in place when Congress amended 
the civil penalty provision in 2007.\96\
---------------------------------------------------------------------------

    \96\ In the interim final rule required by the 2015 Act, NHTSA 
announced that the adjusted maximum civil penalty would be increased 
from $10 to $25. 82 FR 32139 (July 12, 2017). However, this change 
was never formally codified in the Code of Federal Regulations nor 
adopted by Congress. Even if the adjustment is considered to have 
been adopted, however, NHTSA is now reconsidering that decision for 
the reasons explained above.
---------------------------------------------------------------------------

    The 2015 Act requires adjustments of ``civil monetary penalties,'' 
which must be penalties that are ``assessed or enforced by an agency 
pursuant to Federal law.'' \97\ NHTSA believes that the $10 cap is not 
the maximum amount of a penalty that is ``assessed or enforced.'' 
Rather, it is a limit on the amount NHTSA can set for the CAFE civil 
penalty rate if the required determinations are made. NHTSA cannot 
assess or enforce the $10 cap against anyone. In contrast, other 
penalties in EPCA have a maximum amount that can be ``assessed or 
enforced.'' One example of such a penalty is the ``general penalty'' in 
EPCA for violations of 49 U.S.C. 32911(a). That ``general penalty'' is 
``a civil penalty of not more than $10,000 for each violation.'' NHTSA 
has the authority, without any additional rulemakings, to subject the 
entity committing a violation to the maximum amount--$10,000--for that 
violation, or a lower amount, in its discretion. By contrast NHTSA has 
no discretion to enforce anything other than the result of the CAFE 
formula against a manufacturer, which includes the current $5.50 
multiplier. The $10 figure is not part of that formula and could only 
become so after further rulemaking.
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    \97\ 28 U.S.C. 2461 note, Federal Civil Penalties Inflation 
Adjustment Sec.  3(2)(B), (C).
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    Accordingly, NHTSA is tentatively proposing in the alternative that 
any potential adjustment NHTSA makes to the CAFE civil penalty rate be 
capped at $10 and seeks comment on this proposal. Commenters should 
consider whether the $10 limit is itself a ``civil monetary penalty'' 
that must be adjusted under the 2015 Act, keeping in mind that the 
level was kept the same when the previous adjustment was made in 1997. 
Commenters should also consider the effect of the 2007 amendments in 
ratifying the $10 level and whether the market-based complexities 
established by those amendments bear on what Congress meant 
subsequently by ``civil monetary penalty'' in the 2015 Act.

[[Page 13917]]

F. Rulemaking Analyses and Notices
1. Executive Order 12866, Executive Order 13563, and DOT Regulatory 
Policies and Procedures
    NHTSA has considered the impact of this rulemaking action under 
Executive Order 12866, Executive Order 13563, and the Department of 
Transportation's regulatory policies and procedures. This rulemaking 
document has been considered a ``significant regulatory action'' under 
Executive Order 12866. At this stage, NHTSA believes that this 
rulemaking could also be ``economically significant,'' but cannot 
definitively make that determination until the final rule stage, as it 
depends entirely on the civil penalty rate established in the final 
rule.
2. 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 proposed rulemaking 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). 
No regulatory flexibility analysis is required if the head of an agency 
certifies the proposal will not have a significant economic impact on a 
substantial number of small entities. SBREFA amended the Regulatory 
Flexibility Act to require Federal agencies to provide a statement of 
the factual basis for certifying that a proposal will not have a 
significant economic impact on a substantial number of small entities.
    NHTSA has considered the impacts of this notice of proposed 
rulemaking under the Regulatory Flexibility Act and certifies that this 
rule would not have a significant economic impact on a substantial 
number of small entities. The following provides the factual basis for 
this certification under 5 U.S.C. 605(b).
    The Small Business Administration's (SBA) regulations define a 
small business in part as a ``business entity organized for profit, 
with a place of business located in the United States, and which 
operates primarily within the United States or which makes a 
significant contribution to the U.S. economy through payment of taxes 
or use of American products, materials or labor.'' 13 CFR 121.105(a). 
SBA's size standards were previously organized according to Standard 
Industrial Classification (``SIC'') Codes. SIC Code 336211 ``Motor 
Vehicle Body Manufacturing'' applied a small business size standard of 
1,000 employees or fewer. SBA now uses size standards based on the 
North American Industry Classification System (``NAICS''), Subsector 
336--Transportation Equipment Manufacturing. This action is expected to 
affect manufacturers of motor vehicles. Specifically, this action 
affects manufacturers from NAICS codes 336111--Automobile 
Manufacturing, and 336112--Light Truck and Utility Vehicle 
Manufacturing, which both have a small business size standard threshold 
of 1,500 employees.
    Though civil penalties collected under 49 CFR 578.6(h)(1) and 49 
CFR 578.6(h)(2) apply to some small manufacturers, low volume 
manufacturers can petition for an exemption from the Corporate Average 
Fuel Economy standards under 49 CFR part 525. This would lessen the 
impacts of this rulemaking on small business by allowing them to avoid 
liability for penalties under 49 CFR 578.6(h)(2). Small organizations 
and governmental jurisdictions will not be significantly affected as 
the price of motor vehicles and equipment ought not change as the 
result of this rule.
3. 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.'' ``Policies that have federalism 
implications'' is defined in the Executive Order to include regulations 
that have ``substantial direct effects on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.'' Under Executive Order 13132, the agency may not issue a 
regulation with 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, the agency 
consults with State and local governments, or the agency consults with 
State and local officials early in the process of developing the 
proposed regulation.
    This rule will not have substantial direct effects on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government, as specified in Executive Order 13132.
    The reason is that this rule will generally apply to motor vehicle 
manufacturers. Thus, the requirements of Section 6 of the Executive 
Order do not apply.
4. Unfunded Mandates Reform Act of 1995
    The Unfunded Mandates Reform Act of 1995, Public Law 104-4, 
requires agencies to prepare a written assessment of the cost, benefits 
and other effects of proposed or final rules that include a Federal 
mandate likely to result in the expenditure by State, local, or tribal 
governments, in the aggregate, or by the private sector, of more than 
$100 million annually. Because this rule is not expected to include a 
Federal mandate, no Unfunded Mandates assessment will be prepared.
5. National Environmental Policy Act
    The National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 
4321-4347) requires Federal agencies to analyze the environmental 
impacts of proposed major Federal actions significantly affecting the 
quality of the human environment, as well as the impacts of 
alternatives to the proposed action. 42 U.S.C. 4332(2)(C). When a 
Federal agency prepares an environmental assessment, the Council on 
Environmental Quality (CEQ) NEPA implementing regulations (40 CFR parts 
1500-1508) require it to ``include brief discussions of the need for 
the proposal, of alternatives [. . .], of the environmental impacts of 
the proposed action and alternatives, and a listing of agencies and 
persons consulted.'' 40 CFR 1508.9(b). This section serves as the 
agency's Draft Environmental Assessment (Draft EA). NHTSA invites 
public comments on the contents and tentative conclusions of this Draft 
EA.
i. Purpose and Need
    This notice of proposed rulemaking sets forth the purpose of and 
need for this action. NHTSA is required to consider whether it is 
appropriate, pursuant to the Inflation Adjustment Act, to make an 
initial ``catch-up'' adjustment to the civil monetary penalties it 
administers for the CAFE program. Further, if the agency determines 
that the Inflation Adjustment Act applies, it must consider the 
appropriate approach to undertake pursuant to the legislation. The 
purpose of this notice of proposed rulemaking is to consider the 
applicability of the Inflation Adjustment Act and to propose 
adjustments pursuant to the Act, consistent with its

[[Page 13918]]

requirements as well as the agency's responsibilities under EPCA (as 
amended by EISA).
ii. Alternatives
    NHTSA has considered a range of alternatives for the proposed 
action, including maintaining the civil penalty amount at $5.50 per 
each tenth of a mile per gallon (the No Action Alternative) and 
increasing the civil penalty amount to $14.00 per each tenth of a mile 
per gallon (as previously proposed). This notice of proposed rulemaking 
also seeks public comment on whether it is required to increase the 
civil penalty amount to $6.00 per each tenth of a mile per gallon 
(rounding pursuant to the 2015 Act) or whether the civil penalty amount 
is capped at $10.00 per each tenth of a mile per gallon (pursuant to 
EPCA). In this notice of proposed rulemaking, the agency proposes 
maintaining the civil penalty amount at $5.50 as its preferred 
alternative, although it may select any value along this range of 
alternatives, including any civil penalty amount between $5.50 and 
$14.00. NHTSA is also proposing to increase the ``general penalty'' to 
a maximum penalty of $41,484,\98\ pursuant to the requirements of the 
Inflation Adjustment Act.
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    \98\ NHTSA adjusted this penalty to a maximum of $40,000 in its 
July 2016 IFR. Applying 1.01636 multiplier for 2017 inflationary 
adjustments, as specified in OMB's December 16, 2016 guidance, 
results in an adjusted maximum penalty of $40,654. Applying the 
multiplier for 2018 of 1.02041, as specified in OMB's December 15, 
2017, results in an adjusted maximum penalty of $41,484.
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iii. Environmental Impacts of the Proposed Action and Alternatives
    Under all of the alternatives under consideration, the agency would 
maintain or increase the civil penalty amount for a manufacturer's 
failure to meet its fleet's average fuel economy target (assuming the 
manufacturer does not have sufficient credits available to cover the 
shortfall). When deciding whether to add fuel-saving technology to its 
vehicles, a manufacturer might consider the cost to add the technology, 
the price and availability of credits, the potential reduction in its 
civil penalty liability, and the value to the vehicle purchaser of the 
change in fuel outlays over a specified ``payback period.'' A higher 
civil penalty amount could encourage manufacturers to improve the 
average fuel economy of their passenger car and light truck fleets if 
the benefits of installing fuel-saving technology (i.e., lower civil 
penalty liability and increased revenue from vehicle sales) outweigh 
the costs of installing the technology.
    However, there are many reasons why this might not occur to the 
degree anticipated. Apart from the civil penalty rate, as CAFE 
standards increase in stringency, manufacturers have needed to research 
and install increasingly less cost-effective technology that may not 
obtain levels of consumer acceptance necessary to offset the 
investment. A higher civil penalty amount combined with the value of 
the potential added fuel economy benefit of new, advanced technology to 
the vehicle purchaser may not be sufficient to outweigh the added 
technology costs (including both the financial outlays and the risk 
that consumers may not value the technology or accept its impact on the 
driving experience, therefore opting not to purchase those models). 
This may be especially true when gas prices are low. If the added cost 
in civil penalty payments is borne by the manufacturer, this may result 
in reduced investment in fuel saving technology or reduced consumer 
choice. If the added cost in civil penalty payments is passed on to the 
consumer, the consumer would see higher vehicle purchase costs without 
a corresponding fuel economy benefit or other benefits, resulting in 
fewer purchases of newer, more fuel-efficient vehicles. Based on the 
foregoing, NHTSA believes that each of the alternatives under 
consideration in this notice of proposed rulemaking could result, at 
most, only marginally better levels of compliance with the applicable 
fuel economy targets.
    An increase in a motor vehicle's fuel economy is associated with 
reductions in fuel consumption and greenhouse gas (GHG) emissions for 
an equivalent distance of travel. Increased global GHG emissions are 
associated with climate change, which includes increasing average 
global temperatures, rising sea levels, changing precipitation 
patterns, increasing intensity of severe weather events, and increasing 
impacts on water resources. These, in turn, could affect human health 
and safety, infrastructure, food and water supplies, and natural 
ecosystems. Fewer GHG emissions would reduce the likelihood of these 
impacts. Changes in motor vehicle fuel economy are also associated with 
impacts on criteria and hazardous air pollutant emissions, safety, 
life-cycle environmental impacts, and more.
    As part of recent rulemaking actions establishing CAFE standards, 
NHTSA evaluated the impacts of increasing fuel economy standards for 
passenger cars and light trucks on these and other environmental impact 
areas.\99\ The analyses assumed a civil monetary penalty of $5.50 per 
each tenth of a mile per gallon. Though particular values reported in 
its recent Environmental Impact Statements (EISs) may no longer be 
replicable due to updated assumptions and new information obtained 
since their publication, the agency believes that the environmental 
impact trends reported remain adequate and valid. The agency has 
considered the information and trends presented in those EISs in 
preparing this proposal. For example, the MY 2017-2025 CAFE EIS showed 
that the large stringency increases in the fuel economy standards as a 
result of that rulemaking would result in reductions of global mean 
surface temperature increases of no more than 0.016[deg]C by 2100. 
Further, that EIS showed nationwide reductions in most criteria 
pollutant emissions in 2040 (usually in ranges of 10% or less) and 
small increases or reductions in most toxic pollutant emissions in 2040 
(usually in ranges of 3% or less). NHTSA believes the impacts on fuel 
economy resulting from this action would be very small compared to the 
impacts on fuel economy resulting from the stringency increases that 
were reported in those EISs. Therefore, NHTSA anticipates that the 
environmental impacts resulting from the proposed action would range 
from no change (No Action Alternative) to negligible impacts consistent 
with, but to a much smaller degree than, the trends reported in those 
EISs (increase in the civil penalty).
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    \99\ See, e.g., NHTSA, Final Environmental Impact Statement, 
Corporate Average Fuel Economy Standards, Passenger Cars and Light 
Trucks, Model Years 2017-2025. Docket No. NHTSA-2011-0056. July 
2012.
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    NHTSA will prepare a new EIS for its forthcoming proposal for new 
CAFE standards.\100\ The agency's civil penalty rate is an input in the 
CAFE Model that will inform the development of that EIS and, 
ultimately, the agency's final decision for setting CAFE standards. The 
agency does not believe the civil penalty rate being proposed will 
limit its ability to set ``maximum feasible'' standards pursuant to 49 
U.S.C. 32902(b)(2)(B), nor will it unreasonably constrain the potential 
environmental outcomes associated with future rulemakings. In addition, 
NHTSA will review the new EIS and the updated CAFE Model as it prepares 
its final EA for this action, which will ultimately inform the 
development of the final rule.
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    \100\ NHTSA, Notice of Intent to Prepare an Environmental Impact 
Statement for Model Year 2022-2025 Corporate Average Fuel Economy 
Standards. 82 FR 34740 (Jul. 26, 2017).
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    NHTSA is also proposing to increase the ``general penalty'' 
pursuant to the

[[Page 13919]]

Inflation Adjustment Act. This increase is not anticipated to have 
impacts on the quality of the human environment. The ``general 
penalty'' is applicable to other violations, such as a manufacturer's 
failure to submit pre-model year and mid-model year reports to NHTSA on 
whether they will comply with the average fuel economy standards. These 
violations are not directly related to on-road fuel economy, and 
therefore the penalties are not anticipated to directly or indirectly 
affect fuel use or emissions.
iv. Agencies and Persons Consulted
    NHTSA and DOT have consulted with OMB as described earlier in this 
proposal. NHTSA and DOT have not consulted with any other agencies in 
the development of this proposal.
v. Conclusion
    NHTSA has reviewed the information presented in this Draft EA and 
concludes that the proposed action and alternatives would have no 
impact or a small positive impact on the quality of the human 
environment. The preferred alternative is anticipated to have no impact 
on the quality of the human environment, as it would result in no 
change, as compared to current law, to the civil penalty amount for 
failure to meet fuel economy targets. Further, the proposed change to 
the ``general penalty'' is not anticipated to affect on-road emissions. 
Any of the impacts anticipated to result from the alternatives under 
consideration are not expected to rise to a level of significance that 
necessitates the preparation of an Environmental Impact Statement. 
Based on the information in this Draft EA and assuming no additional 
information or changed circumstances, NHTSA expects to issue a Finding 
of No Significant Impact (FONSI). Such a finding will not be made 
before careful review of all public comments received. A Final EA and a 
FONSI, if appropriate, will be issued as part of the final rule.
6. Executive Order 12778 (Civil Justice Reform)
    This rule does not have a retroactive or preemptive effect. 
Judicial review of a rule based on this proposal may be obtained 
pursuant to 5 U.S.C. 702.
7. Paperwork Reduction Act
    In accordance with the Paperwork Reduction Act of 1980, NHTSA 
states that there are no requirements for information collection 
associated with this rulemaking action.
8. Privacy Act
    Please note that anyone is able to search the electronic form of 
all comments received into any of DOT's dockets by the name of the 
individual submitting the comment (or signing the comment, if submitted 
on behalf of an association, business, labor union, etc.). You may 
review DOT's complete Privacy Act Statement in the Federal Register 
published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78), or 
you may visit http://dms.dot.gov.
9. Executive Order 13771
    This proposed rule is expected to be a deregulatory action under 
Executive Order 13771, although NHTSA, at this point, has not been able 
to quantify potential cost savings.

Proposed Regulatory Text

List of Subjects in 49 CFR Part 578

    Imports, Motor vehicle safety, Motor vehicles, Rubber and rubber 
products, Tires, Penalties.
    In consideration of the foregoing, 49 CFR part 578 is proposed to 
be amended as set forth below.

PART 578--CIVIL AND CRIMINAL PENALTIES

0
1. The authority citation for 49 CFR part 578 is revised to read as 
follows:

    Authority: Pub. L. 101-410, Pub. L. 104-134, Pub. L. 109-59, 
Pub. L. 114-74, Pub. L. 114-94, 49 U.S.C. 30165, 30170, 30505, 
32308, 32309, 32507, 32709, 32710, 32902, 32912, and 33115; 
delegation of authority at 49 CFR 1.81, 1.95.

0
2. Amend Sec.  578.6 by revising paragraph (h) to read as follows:


Sec.  578.6   Civil penalties for violations of specified provisions of 
Title 49 of the United States Code.

* * * * *
    (h) Automobile fuel economy. (1) A person that violates 49 U.S.C. 
32911(a) is liable to the United States Government for a civil penalty 
of not more than $41,484 for each violation. A separate violation 
occurs for each day the violation continues.
    (2) Except as provided in 49 U.S.C. 32912(c), a manufacturer that 
violates a standard prescribed for a model year under 49 U.S.C. 32902 
is liable to the United States Government for a civil penalty of $5.50 
multiplied by each .1 of a mile a gallon by which the applicable 
average fuel economy standard under that section exceeds the average 
fuel economy--
    (i) Calculated under 49 U.S.C. 32904(a)(1)(A) or (B) for 
automobiles to which the standard applies manufactured by the 
manufacturer during the model year;
    (ii) Multiplied by the number of those automobiles; and
    (iii) Reduced by the credits available to the manufacturer under 49 
U.S.C. 32903 for the model year.
* * * * *

    Issued in Washington, DC, under authority delegated in 49 CFR 
1.81, 1.95, and 501.5
Heidi R. King,
Deputy Administrator.
[FR Doc. 2018-06550 Filed 3-30-18; 8:45 am]
 BILLING CODE 4910-59-P