[Federal Register Volume 87, Number 84 (Monday, May 2, 2022)]
[Rules and Regulations]
[Pages 25710-26092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07200]



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Vol. 87

Monday,

No. 84

May 2, 2022

Part II





Department of Transportation





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National Highway Traffic Safety Administration





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49 CFR Parts 531, 533, 536, et al.





Corporate Average Fuel Economy Standards for Model Years 2024-2026 
Passenger Cars and Light Trucks; Final Rule

  Federal Register / Vol. 87 , No. 84 / Monday, May 2, 2022 / Rules and 
Regulations  

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 531, 533, 536, and 537

[NHTSA-2021-0053]
RIN 2127-AM34


Corporate Average Fuel Economy Standards for Model Years 2024-
2026 Passenger Cars and Light Trucks

AGENCY: National Highway Traffic Safety Administration (NHTSA).

ACTION: Final rule.

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SUMMARY: NHTSA, on behalf of the Department of Transportation, is 
finalizing revised fuel economy standards for passenger cars and light 
trucks for model years (MYs) 2024-2025 that increase at a rate of 8 
percent per year, and increase at a rate of 10 percent per year for MY 
2026 vehicles. NHTSA currently projects that the revised standards 
would require an industry fleet-wide average of roughly 49 mpg in MY 
2026, and would reduce average fuel outlays over the lifetimes of 
affected vehicles that provide consumers hundreds of dollars in net 
savings. These standards are directly responsive to the agency's 
statutory mandate to improve energy conservation and reduce the 
Nation's energy dependence on foreign sources. This final rule fulfills 
NHTSA's obligation to revisit the standards set forth in ``The Safer 
Affordable Fuel Efficient (SAFE) Vehicles Rule for Model Years 2021-
2026 Passenger Cars and Light Trucks,'' as directed by President 
Biden's January 20, 2021, Executive order ``Protecting Public Health 
and the Environment and Restoring Science To Tackle the Climate 
Crisis.'' The revised standards set forth in this final rule are 
consistent with the policy direction in the order, to among other 
things, listen to the science, improve public health and protect our 
environment, and to prioritize both environmental justice and the 
creation of the well paying union jobs necessary to deliver on these 
goals. This final rule addresses public comments to the notice of 
proposed rulemaking and also makes certain minor changes to fuel 
economy reporting requirements.

DATES: This rule is effective July 1, 2022.

ADDRESSES: For access to the dockets or to read background documents or 
comments received, please visit https://www.regulations.gov, and/or 
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. The Docket Management Facility is open between 9 
a.m. and 4 p.m. Eastern Time, Monday through Friday, except Federal 
holidays.

FOR FURTHER INFORMATION CONTACT: For technical and policy issues, Greg 
Powell, CAFE Program Division Chief, Office of Rulemaking, National 
Highway Traffic Safety Administration, 1200 New Jersey Avenue SE, 
Washington, DC 20590; email: [email protected]. For legal issues, 
Rebecca Schade, NHTSA Office of Chief Counsel, National Highway Traffic 
Safety Administration, 1200 New Jersey Avenue SE, Washington, DC 20590; 
email: [email protected].

SUPPLEMENTARY INFORMATION:
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Does this action apply to me?

    This action affects companies that manufacture or sell new 
passenger automobiles (passenger cars) and non-passenger automobiles 
(light trucks) as defined under NHTSA's CAFE regulations.\1\ Regulated 
categories and entities include:
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    \1\ ``Passenger car'' and ``light truck'' are defined in 49 CFR 
part 523.
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BILLING CODE 4910-59-C
    This list is not intended to be exhaustive, but rather provides a 
guide regarding entities likely to be regulated by this action. To 
determine whether particular activities may be regulated by this 
action, you should carefully examine the regulations. You may direct 
questions regarding the applicability of this action to the persons 
listed in FOR FURTHER INFORMATION CONTACT.

Executive Summary

    NHTSA, on behalf of the Department of Transportation, is amending 
standards regulating corporate average fuel economy (CAFE) for 
passenger cars and light trucks for MYs 2024-2026. This final rule 
responds to NHTSA's statutory obligation to set CAFE standards at the 
maximum feasible level that the agency determines vehicle manufacturers 
can achieve in each model year, in order to improve energy 
conservation. NHTSA's review of the prior standards was instigated in 
response to President Biden's directive in Executive Order 13990 of 
January 20, 2021, ``Protecting Public Health and the Environment and 
Restoring Science To Tackle the Climate Crisis,'' that ``The Safer 
Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-
2026 Passenger Cars and Light Trucks'' (2020 final rule, SAFE rule, or 
SAFE 2 final rule) (85 FR 24174, April 30, 2020) be immediately 
reviewed for consistency with NHTSA's statutory obligation and our 
Nation's abiding commitment to promote and protect our public health 
and the environment, among other things. NHTSA undertook that review 
immediately, and this final rule is the result of that review, 
conducted with reference to NHTSA's statutory obligations.
    The amended CAFE standards increase in stringency for both 
passenger cars and light trucks, by 8 percent per year for MYs 2024-
2025, and by 10 percent per year for MY 2026. The agency calls the 
amended standards Alternative 2.5. NHTSA concludes that these levels 
are the maximum feasible for these model years as discussed in more 
detail in Section VI. The final rule considers a range of regulatory 
alternatives, consistent with NHTSA's obligations under the National 
Environmental Policy Act (NEPA) and E.O. 12866. While E.O. 13990 
directed the review of CAFE standards for MYs 2021-2026, statutory lead 
time requirements \2\ mean that MY 2024 is the earliest model year that 
can currently be amended in the CAFE program.\3\ The standards remain 
vehicle-footprint-based, like the CAFE standards in effect since MY 
2011. Recognizing that many readers think about CAFE standards in terms 
of the miles per gallon (mpg) values that the standards are projected 
to eventually require, NHTSA currently projects that the standards will 
require, on an average industry fleet-wide basis, roughly 49 mpg in MY 
2026. NHTSA notes both that real-world fuel economy is generally 20-30 
percent lower than the estimated required CAFE level stated above, and 
also that the actual CAFE standards are the footprint target curves for 
passenger cars and light trucks, meaning that ultimate fleet-wide 
levels will vary depending on the mix of vehicles that industry 
produces for sale in those model years. Table I-1 shows the incremental 
differences in stringency levels for passenger cars and light trucks, 
by the different regulatory alternatives considered, in the model years 
subject to regulation.
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    \2\ 49 U.S.C. 32902(a) and (g).
    \3\ 49 U.S.C. 32902(a).

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    This final rule reflects a conclusion significantly different from 
the conclusion that NHTSA reached in the 2020 final rule, but this is 
because important facts have changed, and because NHTSA has 
reconsidered how to balance the relevant statutory considerations in 
light of those facts. In this document, NHTSA concludes that 
significantly more stringent standards are the maximum feasible that 
the agency determines that vehicle manufacturers can achieve in the 
rulemaking time frame. Standards that are more stringent than those 
that were finalized in 2020 appear economically practicable, based on 
manageable average per-vehicle cost increases, large consumer fuel 
savings, minimal effects on sales, and estimated increases in 
employment, among other things. Additionally, and importantly, contrary 
to the 2020 final rule, NHTSA recognizes that the need of the United 
States to conserve energy must include serious consideration of the 
energy security risks, as well as environmental and public health 
implications, of continuing to consume oil, which more stringent fuel 
economy standards can reduce. By increasing fuel economy, more 
stringent standards can also protect consumers from oil market 
volatility from global events outside the borders of the U.S. that can 
result in rapid fuel price increases domestically. Through greater 
energy conservation, more stringent standards also reduce climate 
impacts to our Nation, which further benefit our national security. 
NHTSA also believes that the final standards are complementary to other 
motor vehicle standards of the Government that are simultaneously 
applicable during MYs 2024-2026.
    Moreover, at least part of the automobile industry is increasingly 
demonstrating that improving fuel economy and reducing GHG emissions is 
a growth market for them, and that the market rewards investment in 
advanced technology. Nearly all auto manufacturers have rolled out new 
higher fuel economy and electric vehicle models since MY 2020, and 
continue to announce even more models forthcoming during the rulemaking 
time frame. Five major manufacturers voluntarily bound themselves to 
stricter GHG requirements than set forth by the U.S. Environmental 
Protection Agency (EPA) in 2020 through contractual agreements with the 
State of California.\4\ Some of the technologies that automakers will 
deploy to meet those standards will both reduce emissions and improve 
fuel economy. These companies (including both those who joined the 
Framework Agreements with California and those that have not) are 
sophisticated, for-profit enterprises. If they are taking these steps, 
rolling out these new models, and making these announcements, NHTSA can 
now be more confident than the agency was in 2020 that the market is 
getting ready to make the leap to significantly higher fuel economy. 
The California Framework Agreements and the clear planning by industry 
to migrate toward more advanced technologies provide corroborating 
evidence of the practicability of more stringent standards. 
Additionally, more stringent CAFE standards can improve equity, by 
encouraging industry to continue improving the fuel economy of all 
vehicles, so that all Americans can benefit from higher fuel economy 
and save money on fuel. While NHTSA does not consider the fuel economy 
of electric vehicles in setting CAFE standards, consistent with 
Congress' direction in 49 U.S.C. 32902(h), using electric vehicles to 
meet the standards is a compliance option that many automakers are 
pursuing. Further, NHTSA is setting these CAFE standards in the context 
of a much larger conversation about the future of the U.S. light-duty 
vehicle fleet, the increasing and obvious need to move away from fossil 
fuels for reasons of national and energy security, and the evidence of 
a changing climate that is emerging on an almost daily basis.
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    \4\ https://ww2.arb.ca.gov/news/framework-agreements-clean-cars 
(accessed: March 23, 2022).
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    NHTSA concludes, as we will explain in more detail below, that 
Alternative 2.5 is the maximum feasible alternative that manufacturers 
can achieve for MYs 2024-2026, based on its significant fuel savings 
benefits to consumers and its environmental and energy security 
benefits relative to all other alternatives except Alternative 3. 
Although Alternative 3 would provide greater fuel savings benefits, 
NHTSA estimates that Alternative 3 would result in a large average per-
vehicle cost increase compared to the price of vehicles under 
Alternative 2.5, which for many automakers could exceed $2,000. In 
contrast to Alternative 3, Alternative 2.5

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comes at a cost we believe the market can bear, and NHTSA believes it 
is the appropriate choice given this record. We believe that providing 
the greatest amount of lead time for the biggest stringency increase of 
10 percent for MY 2026, the last of three years covered in the rule, is 
reasonable and appropriate, particularly given the ongoing rapid 
changes in the auto industry. Choosing Alternative 3 would require 
industry to ramp up even faster, and thus provide less lead time, with 
consequences for economic practicability. With relatively small sales 
effects and positive effects on employment, we are confident that 
Alternative 2.5 is feasible, and that industry can rise to meet these 
standards.
    For all of these reasons, and based on consideration of the 
comments received, NHTSA concludes that Alternative 2.5, with standards 
that increase at 8 percent per year for MYs 2024 and 2025, and a 10-
percent increase in MY 2026, is maximum feasible.
    This action is also different from the 2020 final rule in that it 
is issued by NHTSA alone, and EPA has issued a separate final rule.\5\ 
EPA's revised standards apply to MY 2023 as well as MYs 2024-2026. 
NHTSA's 18-month lead time requirement precludes amendment of the MY 
2023 CAFE standards. An important consequence of this is that EPA's 
rate of stringency increase, after increasing in MY 2023, looks slower 
than NHTSA's over the same time period, although collectively EPA's 
standards achieve at least as stringent levels as NHTSA's Alternative 
2.5 by MY 2026.\6\ NHTSA emphasizes, however, that the new standards 
are what NHTSA believes best fulfill our statutory directive of energy 
conservation. Additionally, in the context of the EPA standards, the 
analysis we have done tackles the core question of whether compliance 
with both standards should be achievable with the same vehicle fleet, 
after manufacturers fully understand the requirements from both sets of 
standards, and NHTSA believes that, as always, compliance with both 
standards will be achievable with the same vehicle fleet. It is also 
worth noting that the differences in what the two agencies' standards 
require become smaller each year, until near alignment is achieved in 
2026.
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    \5\ 86 FR 74434 (Dec. 30, 2021).
    \6\ EPA projected a fleet average fuel economy value of about 52 
mpg associated with its MY 2026 standards (assuming full use of air 
conditioning refrigerant credits). See Table 4-43, ``Revised 2023 
and Later Model Year Light-Duty Vehicle GHG Emissions Standards: 
Regulatory Impact Analysis,'' EPA-420-R-21-028, December 2021.
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    While NHTSA recognizes that the last three CAFE standard 
rulemakings have been issued jointly with EPA, and that issuing 
separate rules represents a change in regulatory approach, NHTSA 
coordinated with EPA to avoid inconsistencies and produce requirements 
that are consistent with the agencies' respective statutory 
authorities.\7\ Additionally, and importantly, NHTSA has also 
considered and accounted for California's Zero Emission Vehicle (ZEV) 
program (and its adoption by a number of other states) in developing 
the baseline for this final rule, and has also accounted in the 
baseline for the aforementioned ``Framework Agreements'' between 
California and BMW, Ford, Honda, VWA, and Volvo, which are national-
level GHG emission reduction agreements to which these companies 
committed for several model years. NHTSA reasonably assumes that 
automakers will meet other regulatory requirements that apply to them, 
and commitments that they have made through the Framework Agreements. 
Reflecting these in the analysis improves the accuracy of the baseline 
in reflecting the state of the world without the revised CAFE 
standards, and thus the information available to the decision-makers.
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    \7\ Throughout this preamble, NHTSA uses the term ``maximum 
feasible'' as shorthand to refer to the statutory directive in EPCA, 
requiring the agency to exercise its discretionary authority to set 
CAFE standards at the ``maximum feasible average fuel economy level 
that the Secretary decides the manufacturers can achieve in that 
model year.'' 49 U.S.C. 32902(a).
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    A number of other improvements and updates have been made to the 
analysis since the 2020 final rule based on NHTSA analysis, new data, 
and public comments to the NPRM (86 FR 49602, Sept. 3, 2021) as 
described in Section III. Table I-2 summarizes these, and they are 
discussed in much more detail below and in the documents accompanying 
this preamble.

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    NHTSA estimates that this action could reduce average fuel outlays 
over the lifetimes of MY 2029 vehicles by about $1,387, while 
increasing the average cost of those vehicles by about $1,087 over the 
baseline described above, at a 3-percent discount rate. With the social 
cost of greenhouse gases (SC-GHG) \8\ and all other benefits and costs 
discounted at 3 percent, when considering the entire fleet for MYs 
1981-2029, NHTSA estimates $128 billion in monetized costs and $145 
billion in monetized benefits attributable to the new standards, such 
that the present value of aggregate net monetized benefits to society 
would be over $16 billion, not including other important unquantified 
effects, such as energy security benefits, distributional effects, and 
certain air quality benefits from the reduction of toxic air pollutants 
and other emissions, among other things.
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    \8\ The ``social cost of greenhouse gases'' or ``SC-GHG'' refers 
to the combination of the social costs of carbon dioxide 
(CO2), methane (CH4), and nitrous oxide 
(N2O) emissions. In this preamble, and in the TSD, FRIA, 
and Final SEIS, NHTSA may occasionally use the term ``social cost of 
carbon'' or ``SCC'' to refer to the SC-GHG, and means no substantive 
difference between them.
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    These cost and benefit estimates are based on many different and 
uncertain inputs. One of the inputs informing the benefits estimates is 
the SC-GHG. In this final rule, NHTSA employed the SC-GHG values from 
the Interim Revised Estimates developed by the Interagency Working 
Group on the Social Cost of Greenhouse Gases (IWG), and discounted it 
at values recommended by the IWG for its main analysis. Those values 
are based on the best available science and economics and are the most 
appropriate values to focus on in the analysis of this rule, though DOT 
also affirms that, in its expert judgment, those values are 
conservative estimates that likely significantly underestimate the full 
benefits to social welfare of reducing greenhouse gas pollution. NHTSA 
also explored in its sensitivity analyses values based on other 
assumptions, including values calculated at different discount rates, 
Furthermore, in light of pending litigation, NHTSA also explored an 
analysis that used the same SC-GHG value employed in the 2020 final 
rule. Specifically, on February 11, 2022, the United States District 
Court for the Western District of Louisiana issued a preliminary 
injunction that enjoined NHTSA from, among other activities, 
``[a]dopting, employing, treating as binding, or relying upon any 
Social Cost of Greenhouse Gas estimates based on global effects,'' as 
well as from ``adopting, employing, treating as binding, or relying 
upon the work product of the [IWG].'' \9\
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    \9\ Louisiana v. Biden, Order, No. 2:21-CV-01074, ECF No. 99 
(W.D. La. Feb. 11, 2022).
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    Although the injunction was stayed by the United States Court of 
Appeals for the Fifth Circuit on March 16, 2022,\10\ prior to the stay, 
in order to comply with this prohibition, NHTSA conducted a cost-
benefit analysis based on the SC-GHG values presented in the 2020 final 
rule. In DOT's judgment, those values do not reflect the best available 
science and economics for estimating climate effects in the analysis of 
this rule. As detailed more thoroughly elsewhere in this rule and the 
supporting Technical Support Document (TSD) and Final Regulatory Impact 
Analysis (FRIA), the only way to achieve an efficient allocation of 
resources for greenhouse gas emissions reduction on a global basis--and 
so benefit the United States and its citizens--is for all countries to 
consider global estimates of climate damages. To correctly assess the 
total climate damages to U.S. citizens and residents, an analysis must 
account for all climate impacts that directly and indirectly affect the 
welfare of U.S. citizens and residents, how U.S. greenhouse gas 
mitigation activities affect mitigation activities by other countries, 
and spillover effects from climate action elsewhere. The estimates used 
in the 2020 rule, therefore, severely underestimate climate damages. 
Nevertheless, even if NHTSA's cost-benefit analysis applied the 
misleadingly low SC-GHG estimates from the 2020 rule, which severely 
underestimate the impacts of climate effects on U.S. citizens, NHTSA 
would still conclude in this rule that Alternative 2.5 is maximum 
feasible under its statutory authority. Notably, for example, net 
consumer benefits from significant fuel savings remained positive for 
Alternative 2.5 independent of any estimate of climate benefits.
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    \10\ Louisiana v. Biden, Order, No. 22-30087, Doc. No. 
00516242341 (5th Cir. Mar. 16, 2022).
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    Moreover, NHTSA is required to consider four statutory factors--
technological feasibility, economic practicability, the effect of other 
motor vehicle standards of the Government on fuel economy, and the need 
of the United States to conserve energy--to determine whether the 
standards it adopts are maximum feasible,\11\ and NHTSA finds that 
Alternative 2.5 is the maximum feasible on the basis of these factors, 
and particularly considering the statutory mandate to improve energy 
conservation and reduce the Nation's energy dependence on foreign 
sources. The cost-benefit analysis is not one of those statutory 
factors. While NHTSA's estimates of costs and benefits are important 
considerations and are directed by E.O. 12866, again, it is the 
balancing required by statute--that is, the requirement to set CAFE 
standards at ``the maximum feasible average fuel economy level that the 
Secretary decides the manufacturers can achieve in that model year'' 49 
U.S.C. 32902(a)--that is the basis for the setting of CAFE standards. 
Cost-benefit analysis provides only one informative data point in 
addition to the host of considerations that NHTSA must balance by 
statute when determining maximum feasible standards. As such, any 
changes in the monetized climate benefit figures that resulted from 
using the SC-GHG value from the 2020 final rule did not justify 
disrupting the overall balance of other significant qualitative and 
quantitative considerations and factors that support the selection of 
the Preferred Alternative--as described at length throughout this final 
rule. When the 5th Circuit stayed the injunction, NHTSA returned to 
using the Interim SC-GHG developed by the IWG, discounted at 3 percent, 
because we believe it to be the more accurate and reasonable value.
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    \11\ 49 U.S.C. 32902(g).
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    It is worth emphasizing that CAFE standards apply only to new 
vehicles. The costs attributable to new CAFE standards are thus 
``front-loaded,'' because they result primarily from the application of 
fuel-saving technology to new vehicles. By contrast, the impact of new 
CAFE standards on fuel consumption and energy savings, air pollution, 
and greenhouse gases--and the associated benefits to society--occur 
over an extended time, as drivers buy, use, and eventually scrap these 
new vehicles. By accounting for many model years and extending well 
into the future (2050), our analysis accounts for these differing 
patterns in impacts, benefits, and costs. Given the front-loaded costs 
versus longer-term benefits, it is likely that an analysis extending 
even further into the future would reveal at least some additional net 
present benefits. Our analysis also accounts for the potential that, by 
changing new vehicle prices and fuel economy levels, CAFE standards 
could indirectly impact the operation of vehicles produced before or 
after the MYs 2024-2026 for which we are finalizing new CAFE standards. 
This means that some of the final rule's impacts and corresponding 
benefits and costs are actually attributable to indirect

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impacts on vehicles produced before and after MYs 2024-2026.
    The bulk of our analysis considers a ``model year'' perspective 
that considers the lifetime impacts attributable to all vehicles 
produced prior to MY 2030, accounting for the operation of these 
vehicles over their entire lives (with some MY 2029 vehicles estimated 
to be in service as late as 2068). This approach emphasizes the role of 
MYs 2024-2026, while accounting for the potential that it may take 
manufacturers a few additional years to produce fleets fully responsive 
to the final MY 2026 standards,\12\ and for the potential that the 
final standards could induce some changes in the operation of vehicles 
produced prior to MY 2024, for example, some individuals might choose 
to keep older vehicles in operation, rather than purchase new ones.
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    \12\ The fact that manufacturers have up to three model years to 
``settle'' compliance for a given model year is a function of 
statutory flexibilities--namely, that overcompliance credits may be 
``carried back'' up to three model years--and does not in any way 
imply that NHTSA believes that the MY 2026 standards are not 
feasible in MY 2026.
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    Our analysis also considers a ``calendar year'' (CY) perspective 
that includes the annual impacts attributable to all vehicles estimated 
to be in service in each calendar year for which our analysis includes 
a representation of the entire registered light-duty fleet. For this 
final rule, this calendar year perspective covers each of CYs 2021-
2050, with differential impacts accruing as early as MY 2023.\13\ 
Compared to the ``model year'' perspective, this calendar year 
perspective emphasizes model years of vehicles produced in the longer 
term, beyond those model years for which standards are currently being 
promulgated. Table I-3 summarizes estimates of selected impacts viewed 
from each of these two perspectives, for each of the regulatory 
alternatives considered in this final rule.\14\
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    \13\ For a presentation of effects by calendar year, please see 
FRIA Chapter 6.5 and Chapter 6.6.
    \14\ As discussed at length below, Alternative 0 is the set of 
CAFE standards promulgated in 2020, and thus constitutes the ``No-
Action Alternative.'' Impacts of the four ``Action Alternatives'' 
are measured relative to this baseline. Alternatives 1, 2, 2.5, and 
3 specify passenger car and light truck standards for each of MYs 
2024-2026 that NHTSA estimates will, taken together, increase 
overall CAFE requirements in MY 2026 by about 14, 22, 25, and 30 
percent, respectively, although actual average requirements will 
ultimately depend on the future composition of the fleet, which 
NHTSA cannot predict with certainty. Above, Table I-1 shows 
corresponding projected increases in average requirements for each 
fleet in each model year. Below, Section IV.B discusses the specific 
definitions of each of these regulatory alternatives.
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    Additional important health, environmental, and energy security 
benefits could not be fully quantified or monetized. Finally, for 
purposes of comparing the benefits and costs of new CAFE standards to 
the benefits and costs of other Federal regulations, policies, and 
programs, we have computed ``annualized'' benefits and costs.
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    \15\ Climate benefits are based on reductions in CO2, 
CH4, and N2O emissions and are calculated 
using four different estimates of the global social cost of each 
greenhouse gas (SC-GHG model average at 2.5 percent, 3 percent, and 
5 percent discount rates; 95th percentile at 3 percent discount 
rate), which each increase over time. For the presentational 
purposes of this table and other similar summary tables, we show the 
benefits associated with the average global SC-GHG at a 3 percent 
discount rate, but the agency does not have a single central SC-GHG 
point estimate. We emphasize the importance and value of considering 
the benefits calculated using all four SC-GHG estimates. See Section 
III.G.2 for more information. Where percent discount rate values are 
reported in this table, the social benefits of avoided climate 
damages are discounted at 3 percent. The climate benefits are 
discounted at the same discount rate as used in the underlying SC-
GHG values for internal consistency.
    \16\ To be clear, monetized values do not include other 
important unquantified effects, such as certain climate benefits, 
certain energy security benefits, distributional effects, and 
certain air quality benefits from the reduction of toxic air 
pollutants and other emissions, among other things.
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    Again, and as discussed in detail below, the monetized estimated 
costs and benefits of this final rule are relevant to and inform the 
agency's conclusion regarding which levels of CAFE standards are 
maximum feasible for MYs 2024-2026, but they do not fully capture the 
total benefits of the standards and are not part of the factors 
contained in the governing statute. It is the balancing of the four 
statutory factors (none of which expressly requires maximization of net 
benefits, although NHTSA does consider net benefits pursuant to E.O. 
12866) that provides the basis for setting CAFE standards. Notably, 
NHTSA confirms that on the basis of its four statutory factors, and 
particularly considering the statutory mandate to improve energy 
conservation and reduce the Nation's energy dependence on foreign 
sources, NHTSA would select Alternative 2.5 as the maximum feasible 
even if the cost-benefit analysis had adopted different assumptions for 
the monetization of climate benefits.
    It is also worth emphasizing that, although NHTSA is prohibited 
from considering the availability of certain flexibilities in making 
our determination about the levels of CAFE standards that would be 
maximum feasible,\17\ manufacturers have a variety of flexibilities 
available to them to aid their compliance. Table I-12 through Table I-
15 below summarize available compliance flexibilities.
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    \17\ 49 U.S.C. 32902(h).
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    NHTSA recognizes that the lead time for this final rule is shorter 
than some past rulemakings have provided, and that the economy and the 
country are in the process of recovering from a global pandemic and the 
resulting economic distress. At the same time, NHTSA also recognizes 
that at least parts of the industry are nonetheless stepping up their 
product offerings and releasing more and more high-fuel-economy vehicle 
models, and many companies did not deviate significantly over the past 
ten years from product plans established in response to the EPA and 
NHTSA standards set forth in the 2012 final rule (77 FR 62624, Oct. 15, 
2012) and the EPA standards confirmed by EPA in its January 2017 Final 
Determination. With these and other considerations in mind, NHTSA is 
amending the CAFE standards for MYs 2024-2026, and believes that 
Alternative 2.5 is maximum feasible and represents the best balancing 
of multiple statutory and policy goals for these model years. NHTSA, 
like any other Federal agency, is afforded an opportunity to reconsider 
prior views and, when warranted, to adopt new positions. Indeed, as a 
matter of good governance, agencies should revisit their positions when 
appropriate, especially to ensure that their actions and regulations 
reflect legally sound interpretations of the agency's statutory 
authority and remain consistent with the agency's policy views and 
practices. As a matter of law, ``an Agency is entitled to change its 
interpretation of a statute.'' \18\ Nonetheless, ``[w]hen an Agency 
adopts a materially changed interpretation of a statute, it must in 
addition provide a `reasoned analysis' supporting its decision to 
revise its interpretation.'' \19\ The analysis presented in this 
preamble and in the accompanying TSD, FRIA, Final Supplemental 
Environmental Impact Statement (Final SEIS), CAFE Model Documentation, 
and extensive

[[Page 25730]]

rulemaking docket fully supports the agency's decision and revised 
balancing of the statutory factors for MYs 2024-2026 standards.
---------------------------------------------------------------------------

    \18\ Phoenix Hydro Corp. v. FERC, 775 F.2d 1187, 1191 (D.C. Cir. 
1985).
    \19\ Alabama Educ. Ass'n v. Chao, 455 F.3d 386, 392 (D.C. Cir. 
2006) (quoting Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm 
Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983)); see also Encino 
Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016) (``Agencies 
are free to change their existing policies as long as they provide a 
reasoned explanation for the change.'') (citations omitted).
---------------------------------------------------------------------------

II. Overview of the Final Rule

    In this final rule, NHTSA is revising CAFE standards for MYs 2024-
2026. On January 20, 2021, the President signed E.O. 13990, 
``Protecting Public Health and the Environment and Restoring Science To 
Tackle the Climate Crisis.'' \20\ In it, the President directed that 
the 2020 final rule must be immediately reviewed for consistency with 
the policy commitments in that E.O., including listening to the 
science; improving public health and protect our environment; ensuring 
access to clean air and water; limiting exposure to dangerous chemicals 
and pesticides; holding polluters accountable, including those who 
disproportionately harm communities of color and low-income 
communities; reducing greenhouse gas emissions; bolstering resilience 
to the impacts of climate change; restoring and expanding our national 
treasures and monuments; and prioritizing both environmental justice 
and the creation of the well-paying union jobs necessary to deliver on 
these goals.\21\ E.O. 13990 states expressly that the Administration 
prioritizes listening to the science, improving public health and 
protecting the environment, reducing greenhouse gas emissions, and 
improving environmental justice while creating well-paying union 
jobs.\22\ The E.O. thus directs that the 2020 final rule be reviewed at 
once and that (in this case) the Secretary of Transportation consider 
``suspending, revising, or rescinding'' it, via an NPRM, by July 
2021.\23\ On September 3, 2021, NHTSA published an NPRM to revise these 
requirements, which are being finalized, with changes in response to 
public comments and additional analysis, in this final rule.
---------------------------------------------------------------------------

    \20\ 84 FR 7037 (Jan. 25, 2021).
    \21\ Id., sections 1, 2.
    \22\ Id., section 1.
    \23\ Id., section 2(a)(ii).
---------------------------------------------------------------------------

    Section 32902(g)(1) of title 49, United States Code allows the 
Secretary (by delegation to NHTSA) to prescribe regulations amending an 
average fuel economy standard prescribed under 49 U.S.C. 32902(a), like 
those prescribed in the 2020 final rule, if the amended standard meets 
the requirements of section 32902(a). The Secretary's authority to set 
fuel economy standards is delegated to NHTSA at 49 CFR 1.95(a); 
therefore, NHTSA is revising fuel economy standards for MYs 2024-2026. 
Section 32902(g)(2) states that when the amendment makes an average 
fuel economy standard more stringent, it must be prescribed at least 18 
months before the beginning of the model year to which the amendment 
applies. NHTSA generally calculates the 18-month lead time requirement 
as April of the calendar year prior to the start of the model year. 
Thus, 18 months before MY 2023 would be April 2021, because MY 2023 
begins in October 2022. Because of this lead time requirement, NHTSA is 
not amending the CAFE standards for MYs 2021-2023, even though the 2020 
final rule also covered those model years. For purposes of the CAFE 
program, the 2020 final rule's standards for MYs 2021-2023 will remain 
in effect.
    For the model years for which there is statutory lead time to amend 
the standards, however, NHTSA is amending the currently applicable fuel 
economy standards. Although only two years have passed since the 2020 
final rule, the agency believes it is reasonable and appropriate to 
revisit the CAFE standards for MYs 2024-2026. In particular, the agency 
has further considered the serious adverse effects on energy 
conservation that the standards finalized in 2020 would cause as 
compared to the final standards. The need of the U.S. to conserve 
energy is greater than understood in the 2020 final rule. In addition, 
informed by an updated technical analysis, standards that are more 
stringent than those that were finalized in 2020 appear economically 
practicable, based on manageable average per-vehicle cost increases, 
minimal effects on sales, and estimated increases in employment, as 
well as higher (and increasing) consumer demand for more fuel economy, 
among other considerations. NHTSA also believes that the final 
standards are complementary to other motor vehicle standards of the 
Government that affect fuel economy that are simultaneously applicable 
during MYs 2024-2026. The renewed focus on addressing energy 
conservation and the industry's apparent ability to meet more stringent 
standards show that a rebalancing of the EPCA factors, and a 
corresponding issuance of more stringent standards, is appropriate for 
MYs 2024-2026.
    The following sections introduce the action in more detail.

Summary of NPRM

    In the NPRM, NHTSA proposed to revise the existing CAFE standards 
for MYs 2024-2026. NHTSA explained that it was proposing to revise 
those standards because it had reconsidered its determination made in 
2020 about what levels of CAFE stringency would be maximum feasible for 
those model years, after reviewing the standards in response to the 
President's direction in E.O. 13990. NHTSA discussed the differences 
between the proposal and the 2020 final rule, including NHTSA's 
tentative conclusion that significantly more stringent standards would 
be maximum feasible, based on a reconsideration of how to balance the 
relevant statutory considerations and updated technical information. 
NHTSA also discussed the fact that it was issuing the proposal 
independently, unlike several past rulemakings in which NHTSA and EPA 
had issued joint proposals. NHTSA explained that EPA's revised 
standards apply to MY 2023 as well as MYs 2024-2026, while NHTSA's 18-
month lead time requirement precluded amendment of the MY 2023 CAFE 
standards. An important consequence of this was that EPA's proposed 
rate of stringency increase, after taking a big leap in MY 2023, looked 
slower than NHTSA's over the same time period. NHTSA emphasized, 
however, that the proposed standards were what NHTSA believed best 
fulfilled our statutory directive of energy conservation, and that the 
agencies had worked closely together in developing their respective 
proposals, and that by the end of the rulemaking time frame, alignment 
would be achieved between the two agencies' standards. NHTSA also 
explained that it had employed an analytical baseline for the NPRM that 
included both a representation of the California ZEV program (and its 
adoption in a number of states) and the California ``Framework 
Agreements'' between that state and BMW, Ford, Honda, Volkswagen of 
America (VWA), and Volvo. NHTSA also described other analytical 
improvements made for the NPRM since the 2020 final rule.
    NHTSA proposed CAFE standards for MYs 2024-2026 that would increase 
at a rate of 8 percent per year, for both passenger cars and light 
trucks, and also took comment on a wide range of alternatives, 
including retaining the 2020 standards and returning to levels 
consistent with what was set forth in the 2012 final rule. Table II-1 
and Table II-2 below contain descriptions of the regulatory 
alternatives on which comment was sought, and the estimated translation 
of those alternatives into mpg levels, respectively, for the reader's 
reference. The proposal was accompanied by a Preliminary Regulatory 
Impact Analysis (PRIA), a Draft Supplemental Environmental Impact 
Statement (Draft SEIS), and the

[[Page 25731]]

CAFE Model software source code and documentation, all of which were 
also subject to comment in their entirety and all of which received 
significant comments.
[GRAPHIC] [TIFF OMITTED] TR02MY22.026

[GRAPHIC] [TIFF OMITTED] TR02MY22.027

    NHTSA also sought comment on another potential alternative, the 
effects of which were not expressly quantified, under which MYs 2024-
2025 would increase at 8 percent per year, but MY 2026 would increase 
at 10 percent per year. NHTSA explained that average requirements and 
achieved CAFE levels would ultimately depend on manufacturers' and 
consumers' responses to standards, technology developments, economic 
conditions, fuel prices, and other factors. NHTSA estimated that over 
the lives of vehicles produced prior to MY 2030, the proposal would 
save about 50 billion gallons of gasoline and increase electricity 
consumption (as the percentage of electric vehicles increased over 
time) by about 275 terawatts (TWh), compared to the levels of gasoline 
and electricity consumption that NHTSA projected would occur under the 
baseline standards. Accounting for emissions from both vehicles and 
upstream energy sector processes, NHTSA estimated that the proposal 
would reduce greenhouse gas emissions by about 465 million metric tons 
of carbon dioxide, about 500 thousand metric tons of methane, and about 
12 thousand metric tons of nitrous oxide. NHTSA also estimated that 
emissions of criteria pollutants would generally decline dramatically 
over time.
    In terms of economic effects, NHTSA estimated that for an average 
MY 2029 vehicle subject to the proposed standards, consumers could see 
a price increase of $960, but would gain lifetime fuel savings of 
$1,280. With the SC-GHG discounted at 2.5 percent and other benefits 
and costs discounted at 3 percent, NHTSA estimated that costs and 
benefits could be approximately $120 billion and $121 billion, 
respectively, such that the present value of aggregate net benefits to 
society could be somewhat less than $1 billion. With the SC-GHG 
discounted at 3 percent and other benefits and costs discounted at 7 
percent, NHTSA estimated approximately $90 billion in costs and $76 
billion in benefits, such that the present value of aggregate net costs 
to society could be approximately $15 billion.
    NHTSA explained that it tentatively concluded that Alternative 2 
was maximum feasible for MYs 2024-2026 based on new information and a 
reconsideration of how to interpret and balance the statutory factors, 
as compared to the decision made in the 2020 final rule. The 2020 rule 
had prioritized industry concerns and sought to reduce new vehicle 
costs to consumers, based on assumptions about low consumer demand for 
higher fuel economy vehicles and a discounting of the need of the U.S. 
to conserve energy. In the NPRM, NHTSA recognized the importance of the 
need of the U.S. to conserve energy, and tentatively concluded that 
ongoing manufacturer announcements and rollouts of new higher-fuel-
economy vehicles indicated industry expectation of growing consumer 
demand for those vehicles, such that more stringent standards could be 
economically practicable. NHTSA underscored that ``an [a]gency is 
entitled to change its interpretation of

[[Page 25732]]

a statute,'' \24\ even though ``[w]hen an [a]gency adopts a materially 
changed interpretation of a statute, it must in addition provide a 
`reasoned analysis' supporting its decision to revise its 
interpretation.'' \25\
---------------------------------------------------------------------------

    \24\ Phoenix Hydro Corp. v. FERC, 775 F.2d 1187, 1191 (D.C. Cir. 
1985).
    \25\ Alabama Educ. Ass'n. v. Chao, 455 F.3d 386, 392 (D.C. Cir. 
2006) (quoting Motor Vehicle Mfrs. Ass'n. of U.S., Inc. v. State 
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983)); see also Encino 
Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016) (``Agencies 
are free to change their existing policies as long as they provide a 
reasoned explanation for the change.'') (citations omitted).
---------------------------------------------------------------------------

    NHTSA also addressed the question of harmonization with other motor 
vehicle standards of the Government that affect fuel economy. Even 
though NHTSA and EPA issued separate rather than joint notices, NHTSA 
explained that it had worked closely with EPA in developing the 
respective proposals, and that the agencies had sought to minimize 
inconsistency between the programs where doing so was consistent with 
the agencies' respective statutory mandates. NHTSA emphasized that 
differences between the proposals, especially as regards programmatic 
flexibilities, were not new in the proposal, and that differences were 
often a result of the different statutory frameworks. NHTSA reminded 
readers that since the agencies had begun regulating concurrently under 
President Obama, these differences have meant that manufacturers have 
had (and will have) to plan their compliance strategies considering 
both the CAFE standards and the GHG standards and assure that they are 
in compliance with both. NHTSA explained that it was proposing CAFE 
standards that would increase at 8 percent per year over MYs 2024-2026 
because that was what NHTSA had tentatively concluded was maximum 
feasible during those model years, under the EPCA factors.
    NHTSA was also confident that industry would still be able to build 
a single fleet of vehicles to meet both the NHTSA and EPA standards, 
even if it required them to be slightly more strategic than they might 
otherwise have preferred. NHTSA sought comment broadly on all aspects 
of the proposal.

B. Public Participation Opportunities and Summary of Comments

    The NPRM was published on NHTSA's website on August 10, 2021, and 
published in the Federal Register on September 3, 2021,\26\ beginning a 
60-day comment period. The agency left the docket open for considering 
late comments to the extent practicable. A separate Federal Register 
notification, also published on September 14, 2021 (86 FR 51092), 
announced a virtual public hearing taking place on October 13th and 
14th of 2021. Approximately 77 individuals and organizations signed up 
to participate in the hearing. The hearing started at 9:30 a.m. EDT on 
October 13th and ended at approximately 5:30 p.m., completing the 
entire list of participants within a single day, resulting in a 58-page 
transcript.\27\ The hearing also collected many pages of comments from 
participants, in addition to the hearing transcript, all of which were 
submitted to the docket for the rule.
---------------------------------------------------------------------------

    \26\ 86 FR 49602 (Sept. 3, 2021).
    \27\ The transcript is available in the docket for this rule.
---------------------------------------------------------------------------

    Besides the comments submitted as part of the public hearings, 
NHTSA's docket received a total of 67,256 form letters, 1,636 
individual comments from stakeholder organizations, and 693 attachments 
in response to the proposal, for an overall total of 69,585 
submissions. NHTSA also received several hundred comments on its Draft 
SEIS to the separate Draft SEIS docket (NHTSA-2021-0054). While the 
majority of individual comments were form letters, the agency received 
over 6,000 pages of substantive comments on the proposal.
    Many commenters generally supported the proposal. Commenters 
supporting the proposal tended to cite concerns about climate change, 
which are relevant to the need of the United States to conserve energy, 
and the need for Federal programs to continue or expand for a carbon-
neutral, carbon-free future. Commenters also expressed the need for 
NHTSA and EPA harmonization and close coordination for their respective 
programs. Citizens and environmental groups demonstrated strong support 
for pushing the proposed standard to Alternative 3 or beyond, while 
closing potential loopholes in the program. There were mixed views on 
NHTSA's inclusion of battery electric vehicles in NHTSA's modeling 
analysis. Many manufacturers supported alignment with EPA's proposed 
standards, while electric vehicle manufacturers such as Tesla and 
Rivian supported NHTSA's Alternative 3.
    In other areas, commenters expressed mixed views on the statutorily 
mandated Petroleum Equivalency Factor (PEF) used to calculate mpg 
values for electrified vehicles and the disclosure of credit trading 
information in NHTSA's revised reporting templates.
    Discussion and responses to comments can be found throughout this 
preamble in areas applicable to the comment received.
    Nearly every aspect of the NPRM's analysis and discussion received 
some level of comment by at least one commenter. The comments received, 
as a whole, were both broad and deep, and the agency appreciates the 
level of engagement of commenters in the public comment process and the 
information and opinions provided.

C. Changes in Light of Public Comments and New Information

    Comments received to the NPRM were considered carefully, because 
they are critical for understanding stakeholders' positions, as well as 
for gathering additional information that can help to inform the agency 
about aspects or effects of the proposal that the agency may not have 
considered at the time of the proposal. The views, data, requests, and 
suggestions contained in the comments help us to form solutions and 
make appropriate adjustments to our proposals so that we may be better 
assured that the final standards we set are, indeed, maximum feasible 
for the rulemaking time frame.
    For this final rule, the agency made substantive changes resulting 
directly from the suggestions and recommendations from commenters, as 
well as new information obtained from the time the proposal was 
developed, and corrections both highlighted by commenters and 
discovered internally. These changes reflect DOT's long-standing 
commitment to ongoing refinement of its approach to estimating the 
potential impacts of new CAFE standards. Through further consideration 
and deliberation, and also in response to many public comments received 
since then, NHTSA has made a number of changes to the CAFE Model since 
the 2020 final rule, including those that are listed in the Executive 
Summary and detailed in Section III, as well as in the TSD and FRIA 
that accompany this final rule.

D. Final Standards--Stringency

    NHTSA is setting CAFE standards for passenger cars and light trucks 
manufactured for sale in the United States in MYs 2024-2026. Passenger 
cars are generally sedans, station wagons, and two-wheel drive 
crossovers and sport utility vehicles (CUVs and SUVs), while light 
trucks are generally 4WD sport utility vehicles, pickups, minivans, and 
passenger/cargo vans.\28\ The final standards, represented by 
Alternative 2.5 in NHTSA's analysis, increase at a rate of 8 percent 
per year for both cars and trucks for MYs 2024-

[[Page 25733]]

2025, and at a rate of 10 percent for MY 2026 cars and trucks. The 
final standards, like the proposed standards, are defined by a 
mathematical equation that represents a constrained linear function 
relating vehicle footprint to fuel economy targets for both cars and 
trucks.\29\
---------------------------------------------------------------------------

    \28\ ``Passenger car'' and ``light truck'' are defined at 49 CFR 
part 523.
    \29\ Vehicle footprint is roughly measured as the rectangle that 
is made by the four points where the vehicle's tires touch the 
ground. Generally, passenger cars have more stringent targets than 
light trucks regardless of footprint, and smaller vehicles will have 
more stringent targets than larger vehicles. No individual vehicle 
or vehicle model need meet its target exactly, but a manufacturer's 
compliance is determined by how its average fleet fuel economy 
compares to the average fuel economy of the targets of the vehicles 
it manufactures.
---------------------------------------------------------------------------

    The target curves for passenger cars and light trucks are as 
follows; curves for MYs 2020-2023 are included in the figures for 
context. NHTSA underscores that the equations and coefficients defining 
the curves are, in fact, the CAFE standards, and not the mpg numbers 
that the agency currently estimates could result from manufacturers 
complying with the curves. Because the estimated mpg numbers are an 
effect of the final standards, they are presented in Section II.E.
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TR02MY22.028


[[Page 25734]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.029

    NHTSA has also amended the minimum domestic passenger car CAFE 
standards for MYs 2024-2026. Section 32902(b)(4) of 49 U.S.C. requires 
NHTSA to project the minimum standard when it promulgates passenger car 
standards for a model year, so the minimum standards are established as 
specific mpg values at this time. NHTSA retained the 1.9-percent offset 
used in the 2020 final rule, such that the minimum domestic passenger 
car standard is as shown in Table II-3.
[GRAPHIC] [TIFF OMITTED] TR02MY22.030


[[Page 25735]]


    The next section describes some of the effects that NHTSA estimates 
would follow from the final standards for passenger cars and light 
trucks for MYs 2024-2026, including how the curves shown above 
translate to estimated average mile per gallon requirements for the 
industry.

Final Standards--Impacts

    As for past CAFE rulemakings, NHTSA has used the CAFE Model to 
estimate the effects of this final rule's CAFE standards, and of other 
regulatory alternatives under consideration. Some inputs to the CAFE 
Model are derived from other models, such as Argonne National 
Laboratory's ``Autonomie'' vehicle simulation tool and Argonne's 
``GREET'' fuel-cycle emissions analysis model, the U.S. Energy 
Information Administration's (EIA's) National Energy Modeling System 
(NEMS), and EPA's ``MOVES'' vehicle emissions model. Especially given 
the scope of the NHTSA's analysis (through MY 2050, with driving of MY 
2029 vehicles accounted for through CY 2068), these inputs involve a 
multitude of uncertainties. For example, a set of inputs with 
significant uncertainty could include future population and economic 
growth, future gasoline and electricity prices, future petroleum market 
characteristics (e.g., imports and exports), future battery costs, 
manufacturers' future responses to standards and fuel prices, buyers' 
future responses to changes in vehicle prices and fuel economy levels, 
and future emission rates for ``upstream'' processes (e.g., refining, 
finished fuel transportation, electricity generation). Considering that 
all of this is, to some extent, uncertain from a current vantage point, 
NHTSA underscores that all results of this analysis are, in turn, 
uncertain, and simply represent the agency's best estimates based on 
the information currently before us and on the agency's reasonable 
judgment.
    NHTSA estimates that this final rule would increase the eventual 
\30\ average of manufacturers' CAFE requirements to about 49 mpg by 
2026 rather than, under the No-Action Alternative (i.e., the baseline 
standards issued in 2020), about 40 mpg. For passenger cars, the 
average in 2026 is estimated to reach just over 59 mpg, and for light 
trucks, just over 42 mpg. This compares with 47 mpg and 34 mpg for cars 
and trucks, respectively, under the No-Action Alternative.
---------------------------------------------------------------------------

    \30\ Here, ``eventual'' means by MY 2029, after most of the 
fleet will have been redesigned under the MY 2026 standards. NHTSA 
allows the CAFE Model to continue working out compliance solutions 
for the regulated model years for three model years after the last 
regulated model year, in recognition of the fact that manufacturers 
do not comply perfectly with CAFE standards in each model year.
[GRAPHIC] [TIFF OMITTED] TR02MY22.031

    Because manufacturers do not comply exactly with each standard in 
each model year, but rather focus their compliance efforts when and 
where it is most cost-effective to do so, ``estimated achieved'' fuel 
economy levels differ somewhat from ``estimated required'' levels for 
each fleet, for each year. NHTSA estimates that the industry-wide 
average fuel economy achieved in MY 2029 could increase from about 44 
mpg under the No-Action Alternative to 50 mpg under the final rule's 
standards.
[GRAPHIC] [TIFF OMITTED] TR02MY22.032

    As discussed above, NHTSA's analysis--unlike its CAFE analyses for 
previous rulemakings--estimates manufacturers' potential responses to 
the combined effect of CAFE standards and separate CO2 
standards (including agreements some manufacturers have reached with 
California), ZEV mandates, and fuel prices. Together, the 
aforementioned regulatory programs are more binding (i.e., require more 
of manufacturers) than any single program considered in isolation, and 
this analysis, like past analyses, shows some estimated overcompliance 
with the final CAFE standards, albeit by much less than what was shown 
in the NPRM that preceded the 2020 final rule, and any overcompliance 
is highly manufacturer-dependent.
    The estimated average CO2 levels equivalent to the above 
required and achieved CAFE levels (using 8,887 grams of CO2 
per gallon of gasoline vehicle certification fuel) are provided in 
Table II-6 and Table II-7.

[[Page 25736]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.033

[GRAPHIC] [TIFF OMITTED] TR02MY22.034

    Average requirements and achieved CAFE levels would ultimately 
depend on manufacturers' and consumers' responses to standards, 
technology developments, economic conditions, fuel prices, and other 
factors.
    NHTSA estimates that over the lives of vehicles produced prior to 
MY 2030, the final standards would save about 60 billion gallons of 
gasoline and increase electricity consumption (as the percentage of 
electric vehicles increases over time) by about 180 terawatts (TWh), 
compared to levels of gasoline and electricity consumption NHTSA 
projects would occur under the baseline standards (i.e., the No-Action 
Alternative) as shown in Table II-8.\31\
---------------------------------------------------------------------------

    \31\ While NHTSA does not consider electrification in its 
analysis during the rulemaking time frame, the analysis still 
reflects application of electric vehicles in the baseline fleet and 
during the model years after the rulemaking time frame, such that 
electrification (and thus, electricity consumption) increases in 
NHTSA's analysis even though NHTSA is not considering it in our 
decision-making.
[GRAPHIC] [TIFF OMITTED] TR02MY22.035

    NHTSA's analysis also estimates total annual consumption of fuel by 
the entire on-road fleet from CY 2020 through CY 2050. On this basis, 
gasoline and electricity consumption by the U.S. light-duty vehicle 
fleet evolves as shown in Figure II-3 and Figure II-4, each of which 
shows projections for the No-Action Alternative (Alternative 0, i.e., 
the baseline), Alternative 1, Alternative 2, Alternative 2.5 (the 
Preferred Alternative), and Alternative 3.

[[Page 25737]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.036


[[Page 25738]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.037

    Accounting for emissions from both vehicles and upstream energy 
sector processes (e.g., petroleum refining and electricity generation), 
which are relevant to NHTSA's evaluation of the need of the United 
States to conserve energy, NHTSA estimates that the final rule would 
reduce greenhouse gas emissions by about 607 million metric tons of 
carbon dioxide (CO2), about 733 thousand metric tons of 
methane (CH4), and about 17 thousand tons of nitrous oxide 
(N2O).
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TR02MY22.038

    As for fuel consumption, NHTSA's analysis also estimates annual 
emissions attributable to the entire on-road fleet from CY 2020 through 
CY 2050. Also accounting for both vehicles and upstream processes, 
NHTSA estimates that CO2 emissions could evolve over time as 
shown in Figure II-5, which accounts for both emissions from both 
vehicles and upstream processes.

[[Page 25739]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.039

BILLING CODE 4910-59-C
    Estimated emissions of methane and nitrous oxides follow similar 
trends. As discussed in the TSD, FRIA, and this preamble, NHTSA has 
performed two types of supporting analysis. This document and FRIA 
focus on the ``standard setting'' analysis, which sets aside the 
potential that manufacturers could respond to standards by using 
compliance credits or introducing new alternative fuel vehicle 
(including BEVs) models during the ``decision years'' (for this 
document, 2024, 2025, and 2026). The accompanying Final SEIS focuses on 
an ``unconstrained'' analysis, which does not set aside these potential 
manufacturer actions. The Final SEIS presents much more information 
regarding projected GHG emissions, as well as model-based estimates of 
corresponding impacts on several measures of global climate change.
    Also accounting for vehicular and upstream emissions, NHTSA has 
estimated annual emissions of most criteria pollutants (i.e., 
pollutants for which EPA has issued National Ambient Air Quality 
Standards). NHTSA estimates that under each regulatory alternative, 
annual emissions of carbon monoxide (CO), volatile organic compounds 
(VOC), nitrogen oxide (NOX), and particulate matter with a 
diameter equal to or less than 2.5 microns (PM2.5) 
attributable to the light-duty on-road fleet will decline dramatically 
between 2020 and 2050, and that emissions in any given year could be 
very nearly the same under each regulatory alternative. For example, 
Figure II-6 shows NHTSA's estimate of future NOX emissions 
under each alternative.
BILLING CODE 4910-59-P

[[Page 25740]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.040

BILLING CODE 4910-59-C
    On the other hand, as discussed in the FRIA and Final SEIS, NHTSA 
projects that annual SO2 emissions attributable to the 
light-duty on-road fleet could increase modestly under the action 
alternatives, because, as discussed above, NHTSA projects that each of 
the action alternatives could lead to greater use of electricity (for 
PHEVs and BEVs). The adoption of actions--such as actions prompted by 
President Biden's Executive order directing agencies to develop a 
Federal Clean Electricity and Vehicle Procurement Strategy--to reduce 
electricity generation emission rates beyond projections underlying 
NHTSA's analysis (discussed in Chapter 5 of the TSD) could dramatically 
reduce SO2 emissions under all regulatory alternatives 
considered here.\32\
---------------------------------------------------------------------------

    \32\ https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/ (accessed February 11, 2022).
---------------------------------------------------------------------------

    For the ``standard setting'' analysis, the FRIA accompanying this 
document provides additional detail regarding projected criteria 
pollutant emissions and health effects, as well as the inclusion of 
these impacts in this benefit-cost analysis. For the ``unconstrained'' 
or ``EIS'' type of analysis, the Final SEIS accompanying this document 
presents much more information regarding projected criteria pollutant 
emissions, as well as model-based estimates of corresponding impacts on 
several measures of urban air quality and public health. As mentioned 
above, these estimates of criteria pollutant emissions are based on a 
complex analysis involving interacting simulation techniques and a 
myriad of input estimates and assumptions. Especially extending well 
past 2040, the analysis involves a multitude of uncertainties. 
Therefore, actual criteria pollutant emissions could ultimately be 
different from NHTSA's current estimates.
    To illustrate the effectiveness of the technology added in response 
to this final rule, Table II-10 presents NHTSA's estimates for 
increased vehicle cost and lifetime fuel expenditures if we assumed the 
behavioral response to the lower cost of driving were zero.\33\ These 
numbers are presented in lieu of NHTSA's primary estimate of lifetime 
fuel savings, which would give an incomplete picture of technological 
effectiveness because the analysis accounts for consumers' behavioral 
response to the lower cost-per-mile of driving a more fuel-efficient 
vehicle.
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    \33\ While this comparison illustrates the effectiveness of the 
technology added in response to this final rule, it does not 
represent a full consumer welfare analysis, which would account for 
drivers' likely response to the lower cost-per-mile of driving, as 
well as a variety of other benefits and costs they will experience. 
The agency's complete analysis of the final rule's likely impacts on 
passenger car and light truck buyers appears in the FRIA, Appendix 
I, Table A-23-1.

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[[Page 25741]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.041

    With the SC-GHG discounted at 3 percent and other benefits and 
costs discounted at 3 percent, NHTSA estimates that monetized costs and 
benefits could be approximately $128 billion and $145 billion, 
respectively, such that the present value of aggregate monetized net 
benefits to society could be approximately $16 billion. With the SC-GHG 
discounted at 3 percent and other benefits and costs discounted at 7 
percent, NHTSA estimates approximately $96 billion in monetized costs 
and $100 billion in monetized benefits could be attributable to 
vehicles produced prior to MY 2030 over the course of their lives, such 
that the present value of aggregate net monetized benefits to society 
could be approximately $4 billion.
[GRAPHIC] [TIFF OMITTED] TR02MY22.042

    The following two tables provides a range of benefits and net 
benefits representing varying discount rates for the social cost of 
carbon with all other benefits discounted at 3 percent and 7 percent, 
respectively.
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[[Page 25742]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.044

BILLING CODE 4910-59-C
    Model results can be viewed many different ways, and NHTSA's 
rulemaking considers both ``model year'' and ``calendar year'' 
perspectives. The ``model year'' perspective, above, considers vehicles 
projected to be produced in some range of model years, and accounts for 
impacts, benefits, and costs attributable to these vehicles from the 
present (from the model year's perspective, 2020) until they are 
projected to be scrapped. The bulk of NHTSA's analysis considers 
vehicles produced prior to MY 2030, accounting for the estimated 
indirect impacts new standards could have on the remaining operation of 
vehicles already in service. This perspective emphasizes impacts on 
those model years nearest to those (2024-2026) for which NHTSA is 
finalizing new standards. NHTSA's analysis also presents some results 
focused only on MYs 2024-2026, setting aside the estimated indirect 
impacts on earlier model years, and the impacts estimated to occur 
during MYs 2027-2029, as some manufacturers and products ``catch up'' 
to the standards.
    Another way to present the benefits and costs of the final rule is 
the ``calendar year'' perspective shown in Table II-14, which is 
similar to how EPA presents benefits and costs in its final analysis 
for GHG standards. The calendar year perspective considers all vehicles 
projected to be in service in each of some range of future calendar 
years. NHTSA's presentation of results from this perspective considers 
CYs 2021-2050, because the model's representation of the full on-road 
fleet extends through 2050. Unlike the model year perspective, this 
perspective includes vehicles projected to be produced during MYs 2021-
2050. This perspective emphasizes longer-term impacts that could accrue 
if standards were to continue without change. Under the calendar year 
perspective, net benefits for the standards are estimated to be nearly 
$112 billion by 2050 at a 3 percent discount rate, and over $73 billion 
by 2050 at a 7 percent discount rate.
[GRAPHIC] [TIFF OMITTED] TR02MY22.045


[[Page 25743]]


    Finally, Table II-15 shows costs and benefits over the narrow 
perspective of the lives of MY 2023-2026 vehicles while Table II-11 
shows a wider perspective of the costs and benefits over the remaining 
lives of all vehicles produced through MY 2029.
[GRAPHIC] [TIFF OMITTED] TR02MY22.046

    Though based on the exact same model results, these two 
perspectives provide considerably different views of estimated costs 
and benefits. Because technology costs account for a large share of 
overall estimated costs, and are also projected to decline over time 
(as manufacturers gain more experience with new technologies), costs 
tend to be ``front loaded''--occurring early in a vehicle's life and 
tending to be higher in earlier model years than in later model years. 
Conversely, because social benefits of standards occur as vehicles are 
driven, and because both fuel prices and the social cost of 
CO2 emissions are projected to increase in the future, 
benefits tend to be ``back loaded.'' As a result, estimates of future 
fuel savings, CO2 reductions, and net social benefits are 
higher under the calendar year perspective than under the model year 
perspective. On the other hand, with longer-term impacts playing a 
greater role, the calendar year perspective is more subject to 
uncertainties regarding, for example, future technology costs and fuel 
prices.
    Even though NHTSA and EPA estimate benefits, costs, and net 
benefits using similar methodologies and achieve similar results, 
different approaches to accounting may give the false appearance of 
significant divergences. Table II-13 above presents NHTSA's results 
using comparable accounting to EPA's preamble Table 4. EPA also 
presents cost and benefit information in its RIA over CYs 2021 through 
2050.\34\ The numbers most comparable to those presented in EPA's RIA 
are those NHTSA developed to complete its Final SEIS using an identical 
accounting approach. This is because the statutory limitations 
constraining NHTSA's standard setting analysis, such as those in 49 
U.S.C. 32902(h), do not similarly apply to its ``unconstrained'' 
analysis, some effects of which are used in NHTSA's Final SEIS.\35\ 
NHTSA's ``unconstrained'' analysis estimates $312 billion in monetized 
costs, $443 billion in monetized benefits, and $132 billion in 
monetized net benefits using a 3-percent discount rate over CYs 2021 
through 2050, with the social cost of carbon discounted at 3 
percent.\36\ NHTSA describes its cost and benefit accounting approach 
in Section V of this preamble.
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    \34\ EPA's RIA is available at https://www.epa.gov/regulations-emissions-vehicles-and-engines/final-rule-revise-existing-national-ghg-emissions (accessed: March 24, 2022).
    \35\ As the Final SEIS analysis contains information that NHTSA 
is statutorily prevented from considering, the agency is limited on 
the extent this analysis is used in regulatory decision-making. 
Additionally, the Final SEIS includes no cost and benefit analysis, 
and does not rely in any way on the social cost of greenhouse gas 
emissions.
    \36\ See FRIA Chapter 6.5 for more information regarding NHTSA's 
estimates of annual benefits and costs using NHTSA's standard 
setting analysis. See Tables B-7-25 through B-7-30 in Appendix II of 
the FRIA for a more detailed breakdown of NHTSA's Final SEIS 
analysis.
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Final Standards Are the Maximum Feasible

    NHTSA's conclusion, after consideration of the factors described 
below and information in the administrative record for this action, is 
that 8-percent increases in stringency for MYs 2024-2025 and a 10-
percent increase for MY 2026 for both passenger cars and light trucks 
(Alternative 2.5 of this analysis) are maximum feasible. The Department 
of Transportation is deeply committed to working aggressively to 
improve energy conservation and reduce environmental harms and economic 
and security risks associated with energy use. NHTSA agrees with many 
public comments suggesting that the need of the United States to 
conserve energy and protect the environment compels more stringent 
standards than those set in 2020 if they appear to be consistent with 
the other factors that NHTSA must consider. NHTSA has concluded that 
Alternative 2.5 is technologically feasible, is economically 
practicable (based on manageable average per-vehicle cost increases, 
minimal effects on sales, and estimated increases in employment, among 
other considerations), and is complementary to other motor vehicle 
standards of the Government on fuel economy that are simultaneously 
applicable during MYs 2024-2026, as described in more detail below. 
Despite only 2 years having passed since the 2020 final rule, enough 
has changed in the United States and the world, including as reflected 
in the technical analysis, that revisiting the CAFE standards for MYs 
2024-2026, and raising their stringency considerably, is both 
appropriate and reasonable.
    The 2020 final rule set CAFE standards that increased at 1.5 
percent per year for cars and trucks for MYs 2021-2026, in large part 
because it prioritized industry concerns and reducing upfront costs to 
consumers and manufacturers--even at the expense of longer-term net 
savings to consumers. This final rule reflects greater emphasis on the 
statutory priority of energy conservation, while also taking into 
account other statutory requirements. Moreover, NHTSA is also legally 
required to consider the environmental implications of this action 
under NEPA, and while the 2020 final rule did undertake a NEPA 
analysis, it did not prioritize the environmental

[[Page 25744]]

considerations encompassed within the statutory mandate to set 
``maximum feasible'' fuel economy standards to conserve energy. This 
rule also reflects NHTSA's updated technical analysis.
    NHTSA recognizes that the amount of lead time available before MY 
2024 is less than what was provided in the 2012 rule. The amount of 
lead time is nevertheless consistent with the agency's statutory 
requirements. As will be discussed further in Section VI, NHTSA 
believes that the evidence suggests that the final standards are 
economically practicable as explained above and as discussed in Section 
VI.
    We note further that while this final rule is different from the 
2020 final rule (and also from the 2012 final rule), NHTSA, like any 
other Federal agency, is afforded an opportunity to reconsider prior 
views and, when warranted, to adopt new positions. Indeed, as a matter 
of good governance, agencies should revisit their positions when 
appropriate, especially to ensure that their actions and regulations 
reflect legally sound interpretations of the agency's statutory 
authority and remain consistent with the agency's policy views and 
practices. As a matter of law, ``an [a]gency is entitled to change its 
interpretation of a statute.'' \37\ Nonetheless, ``[w]hen an [a]gency 
adopts a materially changed interpretation of a statute, it must in 
addition provide a `reasoned analysis' supporting its decision to 
revise its interpretation.'' \38\ This preamble and the accompanying 
TSD and FRIA all provide extensive detail on the agency's updated 
analysis, and Section VI contains the agency's explanation of how the 
agency has considered that analysis and other relevant information in 
determining that the standards represented by Alternative 2.5 are 
maximum feasible for MY 2024-2026 passenger cars and light trucks.
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    \37\ Phoenix Hydro Corp. v. FERC, 775 F.2d 1187, 1191 (D.C. Cir. 
1985).
    \38\ Alabama Educ. Ass'n v. Chao, 455 F.3d 386, 392 (D.C. Cir. 
2006) (quoting Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm 
Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983)); see also Encino 
Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016) (``Agencies 
are free to change their existing policies as long as they provide a 
reasoned explanation for the change.'') (citations omitted).
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Final Standards Are Feasible in the Context of EPA's Final Standards 
and California's Programs

    The NHTSA and EPA final rules remain coordinated despite being 
issued as separate regulatory actions. Because NHTSA and EPA are 
regulating the exact same vehicles and manufacturers will use many of 
the same technologies to meet both sets of standards, NHTSA coordinated 
with EPA during the development of each agency's independent rulemaking 
to revise their respective standards set forth in the 2020 final rule. 
The NHTSA CAFE and EPA CO2 standards for MY 2026 represent 
roughly equivalent levels of stringency. While the rates of increase 
for the final CAFE and CO2 standards for MYs 2024-2026 are 
different, the specific differences in what the two agencies' standards 
require become smaller each year, until near alignment is achieved in 
2026. NHTSA nevertheless coordinated closely with EPA to minimize 
inconsistency between the programs while still ensuring that NHTSA's 
standards were maximum feasible for MYs 2024-2026.
    While NHTSA's and EPA's programs differ in certain other respects, 
like programmatic flexibilities, those differences are not new in this 
final rule. Some parts of the programs are harmonized, and others 
differ, often as a result of the respective statutory frameworks. Since 
NHTSA and EPA began coordinating their regulations under President 
Obama, differences in programmatic flexibilities have meant that 
manufacturers have had (and will have) to plan their compliance 
strategies considering both the CAFE standards and the GHG standards 
and assure that they are in compliance with both. NHTSA is finalizing 
CAFE standards that increase at 8 percent per year over MYs 2024-2025 
and at 10 percent per year for MY 2026 because that is what NHTSA has 
concluded is maximum feasible in those model years, under the EPCA 
factors. Auto manufacturers are extremely sophisticated companies, well 
able to manage compliance strategies that account for multiple 
regulatory programs concurrently. Past experience with these programs 
indicates that each manufacturer will optimize its compliance strategy 
around whichever standard is most binding for its fleet of vehicles. If 
different agencies' standards are more binding for some companies in 
certain years, this does not mean that manufacturers must build 
multiple fleets of vehicles, simply that they will have to be more 
strategic about how they build their fleet. NHTSA discusses this issue 
in greater detail in Section VI.A of this preamble. Critically, NHTSA 
has concluded that it is feasible for manufacturers to meet both the 
EPA and the NHTSA standards.\39\
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    \39\ This is consistent with NHTSA's and EPA joint finding in 
the 2012 final rule, as discussed further in Section VI below.
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    NHTSA has also considered and accounted for California's ZEV 
mandate (and its adoption by a number of other states) in developing 
the baseline for this final rule, as additional legal obligations that 
automakers will be meeting during this time frame, and has also 
accounted for the Framework Agreements between California and BMW, 
Ford, Honda, VWA, and Volvo, as those companies have committed to 
meeting those Agreements. NHTSA believes that it is appropriate to 
include ZEV in the baseline for this final rule because EPA has granted 
a waiver of Clean Air Act preemption to California for its Clean Cars 
Program,\40\ and it is appropriate for the baseline to reflect other 
legal obligations that automakers will be meeting during this time 
period. The baseline should reflect the state of the world without the 
CAFE standards so that the regulatory analysis can identify the 
distinct effects of the CAFE standards. In addition, according to 
information provided by California,\41\ there has been extensive 
industry overcompliance with the ZEV standards, which suggests that 
regardless of the waiver, many companies intend to produce ZEVs in 
volumes comparable to what the current ZEV mandate would require. Thus, 
including state ZEV mandates in the regulatory baseline for this final 
rule is consistent with guidance in OMB Circular A-4 directing agencies 
to develop analytical baselines that are as accurate as possible 
regarding the state of the world in the absence of the regulatory 
action being evaluated. However, because modeling a subnational fleet 
is not currently an analytical option for NHTSA, NHTSA has not 
expressly accounted for California GHG standards in the analysis for 
this final rule. Chapter 6 of the accompanying FRIA shows the estimated 
effects of all of these programs simultaneously.
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    \40\ 87 FR 14332 (Mar. 14, 2022).
    \41\ See, e.g., https://ww2.arb.ca.gov/sites/default/files/2020-01/appendix_a_minimum_zev_regulation_compliance_scenarios_formatted_ac.pdf (accessed: March 24, 2022) (stating that ``Since the 2012 
adoption of the ACC requirements, vehicle technology has advanced 
faster and developed more broadly than originally anticipated, and 
the assumptions used in the original rulemaking scenario no longer 
reflect vehicles expected in the 2018 through 2025 timeframe.'').
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III. Technical Foundation for Final Rule Analysis

    Why does NHTSA conduct this analysis?
    NHTSA is establishing revised CAFE standards for passenger cars and 
light trucks produced for MYs 2024-2026. NHTSA establishes CAFE 
standards under the Energy Policy and Conservation Act, as amended, and 
this final rule is undertaken pursuant to that authority. This final 
rule would require

[[Page 25745]]

CAFE stringency for both passenger cars and light trucks to increase at 
a rate of 8 percent, 8 percent, and 10 percent per year annually during 
MY 2024, MY 2025, and MY 2026, respectively. NHTSA estimates that over 
the useful lives of vehicles produced prior to MY 2030, these standards 
would save about 60 billion gallons of gasoline and increase 
electricity consumption by about 180 TWh. Accounting for emissions from 
both vehicles and upstream energy sector processes (e.g., petroleum 
refining and electricity generation), NHTSA estimates that these 
standards would reduce greenhouse gas emissions by about 605 million 
metric tons of carbon dioxide (CO2), about 730 thousand 
metric tons of methane (CH4), and about 17 thousand tons of 
N2O.
    When NHTSA promulgates new regulations, it generally presents an 
analysis that estimates the impacts of such regulations, and the 
impacts of other regulatory alternatives. These analyses derive from 
statutes such as the Administrative Procedure Act (APA), National 
Environmental Policy Act (NEPA), Executive orders (such as E.O. 12866 
and E.O. 13653), and from other administrative guidance (e.g., Office 
of Management Budget Circular A-4). For CAFE, the Energy Policy and 
Conservation Act (EPCA), as amended by the Energy Independence and 
Security Act (EISA), contains a variety of provisions that require 
NHTSA to consider certain compliance elements in certain ways and avoid 
considering other things, in determining maximum feasible CAFE 
standards. Collectively, capturing all of these requirements and 
guidance elements analytically means that, at least for CAFE, NHTSA 
presents an analysis that spans a meaningful range of regulatory 
alternatives, that quantifies a range of technological, economic, and 
environmental impacts, and that does so in a manner that accounts for 
EPCA's express requirements for the CAFE program (e.g., passenger cars 
and light trucks are regulated separately, and the standard for each 
fleet must be set at the maximum feasible level in each model year).
    NHTSA's decision regarding the final standards is thus supported by 
extensive analysis of potential impacts of the regulatory alternatives 
under consideration. Along with this preamble, a TSD, a FRIA, and a 
Final SEIS, together provide an extensive and detailed enumeration of 
related methods, estimates, assumptions, and results. These additional 
analyses can be found in the rulemaking docket for this final rule \42\ 
and on NHTSA's website.\43\ NHTSA's analysis has been constructed 
specifically to reflect various aspects of governing law applicable to 
CAFE standards and has been expanded and improved in response to 
comments received to the prior rulemaking and to the proposal, as well 
as additional work conducted over the last year or two. Further 
improvements may be made in the future based on comments received to 
the proposal, which were either out of scope for this rulemaking or for 
which the improvements were too extensive or complex to implement in 
the available time, on the 2021 NAS Report,\44\ and on other additional 
work generally previewed in these rulemaking documents. The analysis 
for this final rule aided NHTSA in implementing its statutory 
obligations, including the weighing of various considerations, by 
reasonably informing decision-makers about the estimated effects of 
choosing different regulatory alternatives.
    NHTSA's analysis makes use of a range of data (i.e., observations 
of things that have occurred), estimates (i.e., things that may occur 
in the future), and models (i.e., methods for making estimates). Two 
examples of data include (1) records of actual odometer readings used 
to estimate annual mileage accumulation at different vehicle ages and 
(2) CAFE compliance data used as the foundation for the ``analysis 
fleet'' containing, among other things, production volumes and fuel 
economy levels of specific configurations of specific vehicle models 
produced for sale in the U.S. Two examples of estimates include (1) 
forecasts of future GDP growth used, with other estimates, to forecast 
future vehicle sales volumes and (2) the ``retail price equivalent'' 
(RPE) factor used to estimate the ultimate cost to consumers of a given 
fuel-saving technology, given accompanying estimates of the 
technology's ``direct cost,'' as adjusted to account for estimated 
``cost learning effects'' (i.e., the tendency that it will cost a 
manufacturer less to apply a technology as the manufacturer gains more 
experience doing so).
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    \42\ Docket No. NHTSA-2021-0053, which can be accessed at 
https://www.regulations.gov.
    \43\ See https://www.nhtsa.gov/laws-regulations/corporate-average-fuel-economy.
    \44\ National Academies of Sciences, Engineering, and Medicine, 
2021. Assessment of Technologies for Improving Fuel Economy of 
Light-Duty Vehicles--2025-2035, Washington, DC: The National 
Academies Press (hereafter, ``2021 NAS Report''). Available at 
https://www.nationalacademies.org/our-work/assessment-of-technologies-for-improving-fuel-economy-of-light-duty-vehicles-phase-3 (accessed: February 11, 2022) and for hard-copy review at 
DOT headquarters.
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    NHTSA uses the CAFE Compliance and Effects Modeling System (usually 
shortened to the ``CAFE Model'') to estimate manufacturers' potential 
responses to new CAFE and CO2 standards and to estimate 
various impacts of those responses. DOT's Volpe National Transportation 
Systems Center (often simply referred to as the ``Volpe Center'') 
develops, maintains, and applies the model for NHTSA. NHTSA has used 
the CAFE Model to perform analyses supporting every CAFE rulemaking 
since 2001. The 2016 rulemaking regarding heavy-duty pickup and van 
fuel consumption and CO2 emissions also used the CAFE Model 
for analysis.
    The basic design of the CAFE Model is as follows: The system first 
estimates how vehicle manufacturers might respond to a given regulatory 
scenario, and from that potential compliance solution, the system 
estimates what impact that response will have on fuel consumption, 
emissions, and economic externalities. In a highly summarized form, 
Figure III-1 shows the basic categories of CAFE Model procedures and 
the sequential flow between different stages of the modeling. The 
diagram does not present specific model inputs or outputs, as well as 
many specific procedures and model interactions. The model 
documentation accompanying this preamble presents these details, and 
Chapter 1 of the TSD contains a more detailed version of this flow 
diagram for readers who are interested.
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[[Page 25746]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.047

BILLING CODE 4910-59-C
    More specifically, the model may be characterized as an integrated 
system of models. For example, one model estimates manufacturers' 
responses, another estimates resultant changes in total vehicle sales, 
and still another estimates resultant changes in fleet turnover (i.e., 
scrappage). Additionally, and importantly, the model does not determine 
the form or stringency of the standards. Instead, the model applies 
inputs specifying the form and stringency of standards to be analyzed 
and produces outputs showing the impacts of manufacturers working to 
meet those standards, which become the basis for comparing between 
different potential stringencies. A regulatory scenario, meanwhile, 
involves specification of the form, or shape, of the standards (e.g., 
flat standards, or linear or logistic attribute-based standards), scope 
of passenger car and truck regulatory classes, and stringency of the 
CAFE standards for each model year to be analyzed. For example, a 
regulatory scenario may define CAFE standards that increase in 
stringency by a given percent per year for a given number of 
consecutive years.
    Manufacturer compliance simulation and the ensuing effects 
estimation, collectively referred to as compliance modeling, encompass 
numerous subsidiary elements. Compliance simulation begins with a 
detailed user-provided initial forecast of the vehicle models offered 
for sale during the simulation period.\45\ The compliance simulation 
then attempts to bring each manufacturer into compliance with the 
standards defined by the regulatory

[[Page 25747]]

scenario contained within an input file developed by the user.\46\
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    \45\ Because the CAFE Model is publicly available, anyone can 
develop their own initial forecast (or other inputs) for the model 
to use. The DOT-developed Market Data file that contains the 
forecast used for this final rule is available on NHTSA's website at 
https://www.nhtsa.gov/corporate-average-fuel-economy/cafe-compliance-and-effects-modeling-systems. (Accessed: March 22, 2022).
    \46\ With appropriate inputs, the model can also be used to 
estimate impacts of manufacturers' potential responses to new 
CO2 standards and to California's ZEV program.
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    Estimating impacts involves calculating resultant changes in new 
vehicle costs, estimating a variety of costs (e.g., for fuel) and 
effects (e.g., CO2 emissions from fuel combustion) occurring 
as vehicles are driven over their lifetimes before eventually being 
scrapped, and estimating the monetary value of these effects. 
Estimating impacts also involves consideration of consumer responses--
e.g., the impact of vehicle fuel economy, operating costs, and vehicle 
price on consumer demand for passenger cars and light trucks. Both 
basic analytical elements involve the application of many analytical 
inputs. Many of these inputs are developed outside of the model and not 
by the model. For example, the model applies fuel prices; it does not 
estimate fuel prices.
    NHTSA also uses EPA's MOVES model to estimate ``tailpipe'' (a.k.a. 
``vehicle'' or ``downstream'') emission factors for criteria 
pollutants,\47\ and uses four DOE and DOE-sponsored models to develop 
inputs to the CAFE Model, including three developed and maintained by 
DOE's Argonne National Laboratory. The agency uses the DOE Energy 
Information Administration's (EIA's) National Energy Modeling System 
(NEMS) to estimate fuel prices,\48\ and uses Argonne's Greenhouse 
gases, Regulated Emissions, and Energy use in Transportation (GREET) 
model to estimate emissions rates from fuel production and distribution 
processes.\49\ DOT also sponsored DOE/Argonne to use Argonne's 
Autonomie full-vehicle modeling and simulation system to estimate the 
fuel economy impacts for over a million combinations of technologies 
and vehicle types.50 51 The TSD and FRIA describe details of 
the agency's use of these models. In addition, as discussed in the 
Final SEIS accompanying this final rule, DOT relied on a range of 
climate models to estimate impacts on climate, air quality, and public 
health. The Final SEIS discusses and describes the use of these models.
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    \47\ See https://www.epa.gov/moves. This final rule uses version 
MOVES3, available at https://www.epa.gov/moves/latest-version-motor-vehicle-emission-simulator-moves. (Accessed: February 16, 2022).
    \48\ See https://www.eia.gov/outlooks/archive/aeo21. (Accessed: 
February 16, 2022) This final rule uses fuel prices estimated using 
the Annual Energy Outlook (AEO) 2021 version of NEMS (see https://www.eia.gov/outlooks/aeo/pdf/02%20AEO2021%20Petroleum.pdf). 
(Accessed: February 16, 2022).
    \49\ Information regarding GREET is available at https://greet.es.anl.gov/index.php. (Accessed: February 16, 2022) This final 
rule uses the 2021 version of GREET.
    \50\ As part of the Argonne simulation effort, individual 
technology combinations simulated in Autonomie were paired with 
Argonne's BatPaC model to estimate the battery cost associated with 
each technology combination based on characteristics of the 
simulated vehicle and its level of electrification. Information 
regarding Argonne's BatPaC model is available at https://www.anl.gov/cse/batpac-model-software. (Accessed: February 16, 
2022).
    \51\ In addition, the impact of engine technologies on fuel 
consumption, torque, and other metrics was characterized using GT-
POWER simulation modeling in combination with other engine modeling 
that was conducted by IAV Automotive Engineering, Inc. (IAV). The 
engine characterization ``maps'' resulting from this analysis were 
used as inputs for the Autonomie full-vehicle simulation modeling. 
Information regarding GT-POWER is available at https://www.gtisoft.com/gt-suite-applications/propulsion-systems/gt-power-engine-simulation-software. (Accessed: February 16, 2022).
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    To prepare for analysis supporting this final rule, DOT has refined 
and expanded the CAFE Model through ongoing development. Examples of 
such changes, some informed by past external comments, made since early 
2020 include:
     Inclusion of 400- and 500-mile BEVs;
     Inclusion of high compression ratio (HCR) engines with 
cylinder deactivation;
     Accounting for manufacturers' responses to both CAFE and 
CO2 standards jointly (rather than only separately);
     Accounting for the ZEV mandates applicable in California 
and the ``Section 177'' states;
     Accounting for some vehicle manufacturers' (BMW, Ford, 
Honda, VW, and Volvo) voluntary agreement with the state of California 
to continued annual national-level reductions of vehicle greenhouse gas 
emissions through MY 2026, with greater rates of electrification than 
would have been required under the 2020 final rule; \52\
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    \52\ For more information on the Framework Agreements for Clean 
Cars, including the specific agreements signed by individual 
manufacturers, see https://ww2.arb.ca.gov/news/framework-agreements-clean-cars. (Accessed: February 16, 2022).
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     Inclusion of CAFE civil penalties in the ``effective 
cost'' metric used when simulating manufacturers' potential application 
of fuel-saving technologies;
     Refined procedures to estimate health effects and 
corresponding monetized damages attributable to criteria pollutant 
emissions;
     New procedures to estimate the impacts and corresponding 
monetized damages of highway vehicle crashes that do not result in 
fatalities;
     Procedures to ensure that modeled technology application 
and production volumes are the same across all regulatory alternatives 
in the earliest model years; and
     Procedures to more precisely focus application of the 
EPCA's ``standard setting constraints'' (i.e., regarding the 
consideration of compliance credits and additional dedicated 
alternative fueled vehicles) to only those model years for which NHTSA 
is proposing or finalizing new standards.
    These changes reflect DOT's long-standing commitment to ongoing 
refinement of its approach to estimating the potential impacts of new 
CAFE standards. Following the proposal preceding this document, NHTSA 
made several further changes to the CAFE Model, including:
     New options for applying a dynamic fleet share model (of 
the relative shares passenger cars and light trucks comprise of the 
total U.S. new vehicle market);
     Provisions allowing direct input of the number of miles to 
be included when valuing avoided fuel outlays in the models used to 
estimate impacts on the total sales of new vehicles and the scrappage 
of used vehicles;
     Expanded model output reporting to include all estimates 
(for this analysis) of the social cost of carbon dioxide emissions 
(i.e., the SCC) when reporting total and net benefits to society;
     Procedures to calculate and report the value of miles 
reallocated between new and used vehicles (when holding overall travel 
demand before accounting for the rebound effect constant between 
regulatory alternatives);
     Adjustments to reduce exclude finance costs from reported 
incremental costs to consumers, and reduce reported insurance costs by 
20 percent (to prevent double-counting of the costs to replace totaled 
vehicles); and
     Revisions to allow direct specification of total VMT even 
in years for which the CAFE Model estimates new vehicle sales (in 
particular, for this analysis, 2021, to account for VMT recovering 
rapidly following the decline in the early months of the COVID-19 
pandemic.
    The TSD accompanying this document elaborates on these changes to 
the CAFE Model, as well as changes to input to the model for this 
analysis.
    NHTSA underscores that this analysis exercises the CAFE Model in a 
manner that explicitly accounts for the fact that in producing a single 
fleet of vehicles for sale in the United States, manufacturers face the 
combination of CAFE standards, EPA CO2 standards,

[[Page 25748]]

and ZEV mandates, and for five manufacturers, the voluntary agreement 
with California to more stringent GHG reduction requirements (also 
applicable to these manufacturers' total production for the U.S. 
market) through MY 2026. These regulations and contracts have important 
structural and other differences that affect the strategy a 
manufacturer could use to comply with each of the above.
    As explained, the analysis is designed to reflect a number of 
statutory and regulatory requirements applicable to CAFE and tailpipe 
CO2 standard-setting. EPCA contains a number of requirements 
governing the scope and nature of CAFE standard setting. Among these, 
some have been in place since EPCA was first signed into law in 1975, 
and some were added in 2007, when Congress passed EISA and amended 
EPCA. EPCA/EISA requirements regarding the technical characteristics of 
CAFE standards and the analysis thereof include, but are not limited 
to, the following, and the analysis reflects these requirements as 
summarized:
    Corporate Average Standards: Section 32902 of 49 U.S.C. requires 
standards that apply to the average fuel economy levels achieved by 
each corporation's fleets of vehicles produced for sale in the U.S.\53\ 
The CAFE Model calculates the CAFE and CO2 levels of each 
manufacturer's fleets based on estimated production volumes and 
characteristics, including fuel economy levels, of distinct vehicle 
models that could be produced for sale in the U.S.
---------------------------------------------------------------------------

    \53\ This differs from safety standards and traditional 
emissions standards, which apply separately to each vehicle. For 
example, every vehicle produced for sale in the U.S. must, on its 
own, meet all applicable Federal motor vehicle safety standards 
(FMVSS), but no vehicle produced for sale must, on its own, meet 
Federal fuel economy standards. Rather, each manufacturer is 
required to produce a mix of vehicles that, taken together, achieve 
an average fuel economy level no less than the applicable minimum 
level.
---------------------------------------------------------------------------

    Separate Standards for Passenger Cars and Light Trucks: Section 
32902 of 49 U.S.C. requires the Secretary of Transportation to set CAFE 
standards separately for passenger cars and light trucks. The CAFE 
Model accounts separately for passenger cars and light trucks when it 
analyzes CAFE or CO2 standards, including differentiated 
standards and compliance.
    Attribute-Based Standards: Section 32902 of 49 U.S.C. requires the 
Secretary of Transportation to define CAFE standards as mathematical 
functions expressed in terms of one or more vehicle attributes related 
to fuel economy. This means that for a given manufacturer's fleet of 
vehicles produced for sale in the U.S. in a given regulatory class and 
model year, the applicable minimum CAFE requirement (i.e., the 
numerical value of the requirement) is computed based on the applicable 
mathematical function, and the mix and attributes of vehicles in the 
manufacturer's fleet. The CAFE Model accounts for such functions and 
vehicle attributes explicitly.
    Separately Defined Standards for Each Model Year: Section 32902 of 
49 U.S.C. requires the Secretary to set CAFE standards (separately for 
passenger cars and light trucks \54\) at the maximum feasible levels in 
each model year. The CAFE Model represents each model year explicitly, 
and accounts for the production relationships between model years.\55\
---------------------------------------------------------------------------

    \54\ Chapter 329 of title 49 of the U.S. Code uses the term 
``non-passenger automobiles,'' while NHTSA uses the term ``light 
trucks'' in its CAFE regulations. The terms' meanings are identical.
    \55\ For example, a new engine first applied to given vehicle 
model/configuration in MY 2020 will most likely be ``carried 
forward'' to MY 2021 of that same vehicle model/configuration, in 
order to reflect the fact that manufacturers do not apply brand-new 
engines to a given vehicle model every single year. The CAFE Model 
is designed to account for these real-world factors.
---------------------------------------------------------------------------

    Separate Compliance for Domestic and Imported Passenger Car Fleets: 
Section 32904 of 49 U.S.C. requires the EPA Administrator to determine 
CAFE compliance separately for each manufacturers' fleets of domestic 
passenger cars and imported passenger cars, which manufacturers must 
consider as they decide how to improve the fuel economy of their 
passenger car fleets. The CAFE Model accounts explicitly for this 
requirement when simulating manufacturers' potential responses to CAFE 
standards, and combines any given manufacturer's domestic and imported 
cars into a single fleet when simulating that manufacturer's potential 
response to CO2 standards (because EPA does not have 
separate standards for domestic and imported passenger cars).
    Minimum CAFE Standards for Domestic Passenger Car Fleets: Section 
32902 of 49 U.S.C. requires that domestic passenger car fleets meet a 
minimum standard, which is calculated as 92 percent of the industry-
wide average level required under the applicable attribute-based CAFE 
standard, as projected by the Secretary at the time the standard is 
promulgated. The CAFE Model accounts explicitly for this requirement 
for CAFE standards and sets this requirement aside for CO2 
standards.
    Civil Penalties for Noncompliance: Section 32912 of 49 U.S.C. (and 
implementing regulations) prescribes a rate (in dollars per tenth of a 
mpg) at which the Secretary is to levy civil penalties if a 
manufacturer fails to comply with a CAFE standard for a given fleet in 
a given model year, after considering available credits. Some 
manufacturers have historically demonstrated a willingness to pay civil 
penalties rather than achieving full numerical compliance across all 
fleets. The CAFE Model calculates civil penalties (adjusted for 
inflation) for CAFE shortfalls and provides means to estimate that a 
manufacturer might stop adding fuel-saving technologies once continuing 
to do so would be effectively more ``expensive'' (after accounting for 
fuel prices and buyers' willingness to pay for fuel economy) than 
paying civil penalties. The CAFE Model does not allow civil penalty 
payment as an option for CO2 standards.
    Dual-Fueled and Dedicated Alternative Fuel Vehicles: For purposes 
of calculating CAFE levels used to determine compliance, 49 U.S.C. 
32905 and 32906 specify methods for calculating the fuel economy levels 
of vehicles operating on alternative fuels to gasoline or diesel 
through MY 2020. After MY 2020, methods for calculating alternative 
fuel vehicle (AFV) fuel economy are governed by regulation. The CAFE 
Model is able to account for these requirements explicitly for each 
vehicle model. However, 49 U.S.C. 32902 prohibits consideration of the 
fuel economy of dedicated alternative fuel vehicle (AFV) models when 
NHTSA determines what levels of CAFE standards are maximum feasible. 
The CAFE Model therefore has an option to be run in a manner that 
excludes the additional application of dedicated AFV technologies in 
model years for which maximum feasible standards are under 
consideration. As allowed under NEPA for analysis appearing in EISs 
informing decisions regarding CAFE standards, the CAFE Model can also 
be run without this analytical constraint. The CAFE Model does account 
for dual- and alternative fuel vehicles when simulating manufacturers' 
potential responses to CO2 standards. For natural gas 
vehicles, both dedicated and dual-fueled, EPA has a multiplier of 2.0 
for MY 2022.\56\
---------------------------------------------------------------------------

    \56\ That said, the CAFE Model reflects the EPA regulatory 
flexibilities in place when the NHTSA began work on this rulemaking 
to reconsider CAFE standards previously issued for MYs 2024-2026, 
including a multiplier of 2.0 for natural gas vehicles, both 
dedicated and dual-fueled, for MYs 2022-2026, although EPA's recent 
final rule eliminated this multiplier after MY 2022. As explained 
elsewhere in this preamble, the effect of this particular difference 
between the modeling and EPA's final requirements is not 
significant, given the lack of NGVs in the analysis.

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

[[Page 25749]]

    ZEV Mandates: The CAFE Model can simulate manufacturers' compliance 
with ZEV mandates applicable in California and ``Section 177'' \57\ 
states. The approach involves identifying specific vehicle model/
configurations that could be replaced with PHEVs or BEVs, and 
immediately making these changes in each model year, before beginning 
to consider the potential that other technologies could be applied 
toward compliance with CAFE or CO2 standards.
---------------------------------------------------------------------------

    \57\ The term ``Section 177'' states refers to states which have 
elected to adopt California's standards in lieu of Federal 
requirements, as allowed under Section 177 of the CAA.
---------------------------------------------------------------------------

    Creation and Use of Compliance Credits: Section 32903 of 49 U.S.C. 
provides that manufacturers may earn CAFE ``credits'' by achieving a 
CAFE level beyond that required of a given fleet in a given model year, 
and specifies how these credits may be used to offset the amount by 
which a different fleet falls short of its corresponding requirement. 
These provisions allow credits to be ``carried forward'' and ``carried 
back'' between model years, transferred between regulated classes 
(domestic passenger cars, imported passenger cars, and light trucks), 
and traded between manufacturers. However, credit use is also subject 
to specific statutory limits. For example, CAFE compliance credits can 
be carried forward a maximum of five model years and carried back a 
maximum of three model years. Also, EPCA/EISA caps the amount of credit 
that can be transferred between passenger car and light truck fleets 
and prohibits manufacturers from applying traded or transferred credits 
to offset a failure to achieve the applicable minimum standard for 
domestic passenger cars. The CAFE Model explicitly simulates 
manufacturers' potential use of credits carried forward from prior 
model years or transferred from other fleets.\58\ Section 32902 of 49 
U.S.C. prohibits consideration of manufacturers' potential application 
of CAFE compliance credits when setting maximum feasible CAFE 
standards. The CAFE Model can be operated in a manner that excludes the 
application of CAFE credits for a given model year under consideration 
for standard setting. For modeling CO2 standards, the CAFE Model does 
not limit transfers. Insofar as the CAFE Model can be exercised in a 
manner that simulates trading of CO2 compliance credits, such 
simulations treat trading as unlimited.\59\
---------------------------------------------------------------------------

    \58\ The CAFE Model does not explicitly simulate the potential 
that manufacturers would carry CAFE or CO2 credits back 
(i.e., borrow) from future model years, or acquire and use CAFE 
compliance credits from other manufacturers. At the same time, 
because EPA has currently elected not to limit credit trading, the 
CAFE Model can be exercised in a manner that simulates unlimited 
(a.k.a. ``perfect'') CO2 compliance credit trading 
throughout the industry (or, potentially, within discrete trading 
``blocs''). NHTSA believes there is significant uncertainty in how 
manufacturers may choose to employ these particular flexibilities in 
the future: for example, while it is reasonably foreseeable that a 
manufacturer who over-complies in one year may ``coast'' through 
several subsequent years relying on those credits rather than 
continuing to make technology improvements, it is harder to assume 
with confidence that manufacturers will rely on future technology 
investments to offset prior-year shortfalls, or whether/how 
manufacturers will trade credits with market competitors rather than 
making their own technology investments. Historically, carry-back 
and trading have been much less utilized than carry-forward, for a 
variety of reasons including higher risk and preference not to `pay 
competitors to make fuel economy improvements we should be making' 
(to paraphrase one manufacturer), although NHTSA recognizes that 
carry-back and trading are used more frequently when standards 
increase in stringency more rapidly. Given the uncertainty just 
discussed, and given also the fact that the agency has yet to 
resolve some of the analytical challenges associated with simulating 
use of these flexibilities, the agency considers borrowing and 
trading to involve sufficient risk that it is prudent to support 
this final rule with analysis that sets aside the potential that 
manufacturers could come to depend widely on borrowing and trading. 
While compliance costs in real life may be somewhat different from 
what is modeled in this document as a result of this analytical 
decision, that is broadly true no matter what, and the agency does 
not believe that the difference would be so great that it would 
change the policy outcome. Furthermore, a manufacturer employing a 
trading strategy would presumably do so because it represents a 
lower-cost compliance option. Thus, the estimates derived from this 
modeling approach are likely to be conservative in this respect, 
with real-world compliance costs possibly being lower.
    \59\ To avoid making judgments about possible future trading 
activity, the model simulates trading by combining all manufacturers 
into a single entity, so that the most cost-effective choices are 
made for the fleet as a whole.
---------------------------------------------------------------------------

    Statutory Basis for Stringency: Section 32902 of 49 U.S.C. requires 
the Secretary to set CAFE standards at the maximum feasible levels, 
considering technological feasibility, economic practicability, the 
need of the United States to conserve energy, and the impact of other 
motor vehicle standards of the Government on fuel economy. EPCA/EISA 
authorizes the Secretary to interpret these factors, and as the 
Department's interpretation has evolved, NHTSA has continued to expand 
and refine its qualitative and quantitative analysis to account for 
these statutory factors. For example, one of the ways that economic 
practicability considerations are incorporated into the analysis is 
through the technology effectiveness determinations: the Autonomie 
simulations reflect the agency's judgment that it would not be 
economically practicable for a manufacturer to ``split'' an engine 
shared among many vehicle model/configurations into myriad versions 
each optimized to a single vehicle model/configuration.
    National Environmental Policy Act: In addition, NEPA requires the 
Secretary to issue an EIS that documents the estimated impacts of 
regulatory alternatives under consideration. The Final SEIS 
accompanying this final rule documents changes in emission inventories 
as estimated using the CAFE Model, but also documents corresponding 
estimates--based on the application of other models documented in the 
Final SEIS, of impacts on the global climate, on tropospheric air 
quality, and on human health.
    Other Aspects of Compliance: Beyond these statutory requirements 
applicable to DOT, EPA, or both are a number of specific technical 
characteristics of CAFE and/or CO2 regulations that are also 
relevant to the construction of this analysis. For example, EPA has 
defined procedures for calculating average CO2 levels, and 
has revised procedures for calculating CAFE levels, to reflect 
manufacturers' application of ``off-cycle'' technologies that increase 
fuel economy (and reduce CO2 emissions). Although too little 
information is available to account for these provisions explicitly in 
the same way that the agency has accounted for other technologies, the 
CAFE Model includes and makes use of inputs reflecting the agency's 
expectations regarding the extent to which manufacturers may earn such 
credits, along with estimates of corresponding costs. Similarly, the 
CAFE Model includes and makes use of inputs regarding credits EPA has 
elected to allow manufacturers to earn toward CO2 levels 
(not CAFE) based on the use of air conditioner refrigerants with lower 
global warming potential (GWP), or on the application of technologies 
to reduce refrigerant leakage. In addition, the CAFE Model accounts for 
EPA ``multipliers'' for certain alternative fueled vehicles, based on 
current regulatory provisions or on alternative approaches. Although 
these are examples of regulatory provisions that arise from the 
exercise of discretion rather than specific statutory mandate, they can 
materially impact outcomes.
    Besides the updates to the model described above, any analysis of 
regulatory actions that will be implemented several years in the 
future, and whose benefits and costs accrue over decades, requires a 
large number of assumptions. Over such time horizons, many, if not 
most, of the relevant assumptions in such an analysis are inevitably 
uncertain. Each successive CAFE analysis seeks to update assumptions to 
reflect better the current

[[Page 25750]]

state of the world and the best current estimates of future conditions.
    A number of assumptions have been updated since the 2020 final rule 
for this final rule, and some of these assumptions have been further 
updated since the proposal preceding this document. As discussed below, 
NHTSA has updated its ``analysis fleet'' from a MY 2017 reference to a 
MY 2020 reference, updated estimates of manufacturers' compliance 
credit ``holdings,'' updated fuel price projections to reflect the U.S. 
Energy Information Administration's (EIA's) 2021 Annual Energy Outlook 
(AEO), updated projections of GDP and related macroeconomic measures, 
and updated projections of future highway travel. While NHTSA would 
have made these updates as a matter of course, we note that that the 
COVID-19 pandemic impacted major analytical inputs such as fuel prices, 
gross domestic product (GDP), vehicle production and sales, and highway 
travel. However, while NHTSA was able to further update forecasts of 
GDP and related macroeconomic measures after the 2021 proposal to 
reflect a more rapid economic recovery from the pandemic than 
anticipated in early 2021, EIA did not publish AEO 2022 early enough 
for NHTSA to include a correspondingly updated fuel price forecast in 
this analysis, so this analysis retains the fuel price forecasts from 
AEO 2021. E.O. 13990 required the formation of an Interagency Working 
Group (IWG) on the Social Cost of Greenhouse Gases and charged this 
body with updating estimates of the social costs of carbon, nitrous 
oxide, and methane. As discussed in the TSD, NHTSA has followed DOT's 
determination that the values developed in the IWG's interim guidance 
are the most consistent with the best available science and economics 
and are the most appropriate estimates to use in the analysis of this 
rule. Those estimates of costs per ton of emissions (or benefits per 
ton of emissions reductions) are considerably greater than those 
applied in the analysis supporting the 2020 final rule. Even still, the 
estimates NHTSA is now using are not able to fully quantify and 
monetize a number of important categories of climate damages; because 
of those omitted damages and other methodological limits, DOT believes 
its values for SC-GHG are conservative underestimates. These and other 
updated analytical inputs are discussed in detail in the TSD. NHTSA 
addresses comments about these assumptions later in this preamble.

What is NHTSA analyzing?

    As in the CAFE and CO2 rulemakings in 2010, 2012, and 
2020, NHTSA is establishing attribute-based CAFE standards defined by a 
mathematical function of vehicle footprint, which has observable 
correlation with fuel economy. EPCA, as amended by EISA, expressly 
requires that CAFE standards for passenger cars and light trucks be 
based on one or more vehicle attributes related to fuel economy and be 
expressed in the form of a mathematical function.\60\ Thus, the final 
standards (and regulatory alternatives) take the form of fuel economy 
targets expressed as functions of vehicle footprint (the product of 
vehicle wheelbase and average track width) that are separate for 
passenger cars and light trucks. Chapter 1.2.3 of the TSD discusses in 
detail NHTSA's continued reliance on footprint as the relevant 
attribute on which these standards are based.
---------------------------------------------------------------------------

    \60\ 49 U.S.C. 32902(a)(3)(A).
---------------------------------------------------------------------------

    Under the footprint-based standards, the function defines a fuel 
economy performance target for each unique footprint combination within 
a car or truck model type. Using the functions, each manufacturer thus 
will have a CAFE average standard for each year that is almost 
certainly unique to each of its fleets,\61\ based upon the footprints 
and production volumes of the vehicle models produced by that 
manufacturer. A manufacturer will have separate footprint-based 
standards for cars and for trucks, consistent with 49 U.S.C. 32902(b)'s 
direction that NHTSA must set separate standards for cars and for 
trucks. The functions are mostly sloped, so that generally, larger 
vehicles (i.e., vehicles with larger footprints) will be subject to 
lower mpg targets than smaller vehicles. This is because, generally 
speaking, smaller vehicles are more capable of achieving higher levels 
of fuel economy, mostly because they tend not to have to work as hard 
(and therefore require as much energy) to perform their driving task. 
Although a manufacturer's fleet average standards could be estimated 
throughout the model year based on the projected production volume of 
its vehicle fleet (and are estimated as part of EPA's certification 
process), the standards with which the manufacturer must comply are 
determined by its final model year production figures. A manufacturer's 
calculation of its fleet average standards, as well as its fleets' 
average performance at the end of the model year, will thus be based on 
the production-weighted average target and performance of each model in 
its fleet.\62\
---------------------------------------------------------------------------

    \61\ EPCA/EISA requires NHTSA and EPA to separate passenger cars 
into domestic and import passenger car fleets for CAFE compliance 
purposes (49 U.S.C. 32904(b)), whereas EPA combines all passenger 
cars into one fleet for GHG compliance purposes.
    \62\ As discussed in prior rulemakings, a manufacturer may have 
some vehicle models that exceed their target and some that are below 
their target. Compliance with a fleet average standard is determined 
by comparing the fleet average standard (based on the production-
weighted average of the target levels for each model) with fleet 
average performance (based on the production-weighted average of the 
performance of each model).
---------------------------------------------------------------------------

    For passenger cars, consistent with prior rulemakings, NHTSA is 
defining fuel economy targets as shown in Equation III-1.
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TR02MY22.048

Where:

TARGETFE is the fuel economy target (in mpg) applicable to a 
specific vehicle model type with a unique footprint combination,
a is a minimum fuel economy target (in mpg),
b is a maximum fuel economy target (in mpg),
c is the slope (in gallons per mile per square foot, or gpm, per 
square foot) of a line relating fuel consumption (the inverse of 
fuel economy) to footprint, and
d is an intercept (in gpm) of the same line.


[[Page 25751]]


    Here, MIN and MAX are functions that take the minimum and maximum 
values, respectively, of the set of included values. For example, 
MIN[40, 35] = 35 and MAX(40, 25) = 40, such that MIN[MAX(40, 25), 35] = 
35.
    For the Preferred Alternative, this equation is represented 
graphically as the curves in Figure III-2.
[GRAPHIC] [TIFF OMITTED] TR02MY22.049

    For light trucks, also consistent with prior rulemakings, NHTSA is 
defining fuel economy targets as shown in Equation III-2.
[GRAPHIC] [TIFF OMITTED] TR02MY22.050


[[Page 25752]]


Where:

TARGETFE is the fuel economy target (in mpg) applicable to a 
specific vehicle model type with a unique footprint combination,
a, b, c, and d are as for passenger cars, but taking values specific 
to light trucks,
e is a second minimum fuel economy target (in mpg),
f is a second maximum fuel economy target (in mpg),
g is the slope (in gpm per square foot) of a second line relating 
fuel consumption (the inverse of fuel economy) to footprint, and
h is an intercept (in gpm) of the same second line.

    For the Preferred Alternative, this equation is represented 
graphically as the curves in Figure III-3.
[GRAPHIC] [TIFF OMITTED] TR02MY22.051

    Although the general model of the target function equation is the 
same for each vehicle category (passenger cars and light trucks) and 
each model year, the parameters of the function equation differ for 
cars and trucks. The actual parameters for both the Preferred 
Alternative and the other regulatory alternatives are presented in 
Section IV.B of this preamble.
    As has been the case since NHTSA began establishing attribute-based 
standards, no vehicle need meet the specific applicable fuel economy 
target, because compliance with CAFE standards is determined based on 
corporate average fuel economy. In this respect, CAFE standards are 
unlike, for example, Federal Motor Vehicle Safety Standards (FMVSS) and 
certain vehicle criteria pollutant emissions standards where each car 
must meet the requirements. CAFE standards apply to the average fuel 
economy levels achieved by manufacturers' entire fleets of vehicles 
produced for sale in the U.S. Safety standards apply on a vehicle-by-
vehicle basis, such that every single vehicle produced for sale in the 
U.S. must, on its own, comply with minimum FMVSS. When first mandating 
CAFE standards in the 1970s, Congress specified a more flexible 
averaging-based approach that inherently allows some vehicles to 
``under comply'' (i.e., fall short of the overall flat standard, or 
fall short of their target under attribute-based standards), as long as 
a manufacturer's overall fleet is in compliance.

[[Page 25753]]

    The required CAFE level applicable to a given fleet in a given 
model year is determined by calculating the production-weighted 
harmonic average of fuel economy targets applicable to specific vehicle 
model configurations in the fleet, as shown in Equation III-3.
[GRAPHIC] [TIFF OMITTED] TR02MY22.052

BILLING CODE 4910-59-C
Where:

CAFErequired is the CAFE level the fleet is required to achieve,
i refers to specific vehicle model/configurations in the fleet,
PRODUCTIONi is the number of model configuration i produced for sale 
in the U.S., and
TARGETFE,I is the fuel economy target (as defined above) for model 
configuration i.

    Chapter 1 of the TSD describes the use of attribute-based 
standards, generally, and explains the specific decision, in past rules 
and for the current rule, to continue to use vehicle footprint as the 
attribute over which to vary stringency. That chapter also discusses 
the policy in selecting the specific mathematical function; the 
methodologies used to develop the current attribute-based standards; 
and methodologies previously used to reconsider the mathematical 
function for CAFE standards. NHTSA refers readers to the TSD for a full 
discussion of these topics.
    Several commenters supported the continued use of footprint as the 
attribute on which to base fuel economy standards. Consumer 
Reports,\63\ Alliance for Automotive Innovation (Auto Innovators),\64\ 
the Aluminum Association,\65\ and National Automobile Dealers 
Association (NADA) \66\ all agreed that footprint-based standards 
continue to incentivize improvements in fuel economy across all 
companies and across all market segments/vehicle classes. Auto 
Innovators pointed to the most recent EPA Trends Report as indicating 
that any change in average vehicle footprint has been minimal at the 
industry level, implying that footprint-based standards are not leading 
to ``gaming'' by manufacturers seeking a less-stringent standard by 
increasing their vehicles' footprints.\67\ The Aluminum Association 
suggested that footprint-based standards could be beneficial for 
safety, because they incentivize weight reduction in larger footprint 
vehicles, which make up an increasing portion of the fleet.\68\ NADA 
\69\ and International Union, United Automobile, Aerospace & 
Agricultural Implement Workers of America (UAW) \70\ both stated that 
footprint-based standards supported manufacturers continuing to provide 
a wide range of vehicles from which consumers could choose, with UAW 
stating that ``[s]imply put, to do otherwise undermines domestic 
manufacturing, workers' living standards, and communities well-being. 
All vehicles do not have the same function and surely our rules need to 
continue to reflect this reality.'' \71\
---------------------------------------------------------------------------

    \63\ Consumer Reports, Docket No. NHTSA-2021-0053-1576-A9, at p. 
7.
    \64\ Auto Innovators, Docket No. NHTSA-2021-0053-1492, at p. 47.
    \65\ The Aluminum Association (Aluminum Association), Docket No. 
NHTSA-2021-0053-1518, at p. 3; Arconic Corporation (Arconic), Docket 
No. NHTSA-2021-0053-1560, at p. 2 (Arconic, an individual aluminum 
producer, also supported footprint-based standards).
    \66\ NADA, Docket No. NHTSA-2021-0053-1471, at p. 3.
    \67\ Auto Innovators, at p. 48.
    \68\ Aluminum Association, at p. 3.
    \69\ NADA, at p. 3.
    \70\ UAW, Docket No. NHTSA-2021-0053-0931, at p. 2.
    \71\ UAW, at p. 4.
---------------------------------------------------------------------------

    One citizen commenter, Doug Peterson (Peter Douglas), objected to 
the use of footprint as the attribute on which to base fuel economy 
standards, stating that a consequence of using footprint is that 
``[w]asteful models are simply compensated for by more efficient models 
that outperform their footprint targets, and this will become a huge 
problem as more and more ZEVs enter the marketplace.'' \72\ Mr. Douglas 
further commented that discouraging vehicle downsizing (as footprint-
based standards can do) was an inappropriate policy goal, because 
downsizing can be a good way to reduce fuel consumption and the current 
upsizing trend in the fleet is not mitigated by footprint-based 
standards. He also commented that the safety concern that footprint-
based standards can address is in fact misplaced, because ``[l]arge 
vehicles provide safety benefits to their occupants at the expense of 
people occupying small vehicles.'' \73\
---------------------------------------------------------------------------

    \72\ Peter Douglas, Docket No. NHTSA-2021-0053-0085, at pp. 12-
13, p. 19.
    \73\ Id.
---------------------------------------------------------------------------

    NHTSA appreciates these comments but is continuing to rely on 
footprint as the attribute for the final standards for MYs 2024-2026. 
NHTSA notes that the first issue that Mr. Douglas raised is due to the 
fact that the standards are, by law, corporate average standards, and 
that ``wasteful models [being] compensated for by more efficient 
models'' is difficult to avoid when standards are corporate averages--
by their nature, they enable averaging across a manufacturer's fleet. 
The comments from the Aluminum Association comments, Auto Innovators, 
and Mr. Douglas' further comments on the topic of footprint seem to 
address one another. As Auto Innovators notes, the most recent EPA 
Trends Report appears to suggest that, on average, vehicle upsizing has 
been minimal at the industry (fleet) level. While footprint may not 
encourage vehicle downsizing, it does reward vehicle downweighting, 
which NHTSA typically refers to as ``mass reduction.'' A lighter 
vehicle saves fuel compared to a heavier vehicle of the same footprint, 
and thus performs better against its footprint target. NHTSA addresses 
safety comments in Section V of this preamble.
    While Chapter 1 of the TSD explains why the final standards for MYs 
2024-2026 continue to be footprint-based, the question has arisen 
periodically of whether NHTSA should instead consider multi-attribute 
standards, such as those that also depend on weight, torque, power, 
towing capability, off-road capability, or a combination of such 
attributes. To date, every time NHTSA has considered options for which 
attribute(s) to select, the agency has concluded that a properly 
designed footprint-based approach provides the best means of achieving 
the basic policy goals (i.e., by increasing the likelihood of improved 
fuel economy across the

[[Page 25754]]

entire fleet of vehicles, as noted by commenters) involved in applying 
an attribute-based standard. At the same time, footprint-based 
standards need also to be structured in a way that furthers the energy 
and environmental policy goals of EPCA without creating inappropriate 
incentives to increase vehicle size in ways that could increase fuel 
consumption or compromise safety. That said, as NHTSA moves forward 
with the CAFE program, and continues to refine our understanding of the 
light-duty vehicle market and trends in vehicle and highway safety, 
NHTSA will also continue to revisit whether other approaches (or other 
ways of applying the same basic approaches) could provide better means 
of achieving policy goals.
    For example, in the 2021 NAS Report, the committee recommended that 
if Congress does not act to remove the prohibition at 49 U.S.C. 
32902(h) on considering the fuel economy of dedicated alternative fuel 
vehicles (like BEVs) in determining maximum feasible CAFE standards, 
then NHTSA should account for the fuel economy benefits of ZEVs by 
``setting the standard as a function of a second attribute in addition 
to footprint--for example, the expected market share of ZEVs in the 
total U.S. fleet of new light-duty vehicles--such that the standards 
increase as the share of ZEVs in the total U.S. fleet increases.'' \74\ 
DOE seconded this suggestion in its comments during interagency review 
of the proposal. NHTSA sought comment on whether and how NHTSA might 
consider adding electrification as an attribute on which to base CAFE 
standards, and specifically on the NAS committee recommendation.
---------------------------------------------------------------------------

    \74\ 2021 NAS Report, at Summary Recommendation p. 5.
---------------------------------------------------------------------------

    Two electric vehicle manufacturers supported the addition of 
electrification as an attribute on which fuel economy standards could 
be based. Lucid USA, Inc. (Lucid) stated that, in setting standards 
based on electrification as well as footprint, NHTSA should ``consider 
the battery efficiency of the electric vehicles manufactured by each 
automaker, as well as the market penetration of electric vehicles in 
the fleet.'' \75\ Rivian Automotive, LLC (Rivian) stated that such 
``[a]pproaches . . . merit further study and eventual implementation.'' 
\76\ With regard to the timing of making such a change, a question on 
which NHTSA specifically sought comment, Rivian commented that ``[i]t 
is likely infeasible and inappropriate to implement such a change in 
time for any of the model years subject to this rulemaking, but Rivian 
believes development, review, and implementation of a newly conceived 
multi-attribute function could take effect in the second half of this 
decade, coinciding with a post-MY 2027 rule, and provide industry with 
appropriate lead-time given typical product development lifecycles.'' 
\77\
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    \75\ Lucid, Docket No. NHTSA-2021-0053-1584, at p. 5.
    \76\ Rivian, Docket No. NHTSA-2021-0053-1562, at p. 5.
    \77\ Id.
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    Other commenters disagreed with adding electrification as an 
attribute. Several opined that adding electrification as an attribute 
seemed impermissible under 49 U.S.C. 32902(h).\78\ Auto Innovators 
argued that it could create battery supply chain risks as an unintended 
consequence, and that ``. . . including electrification as a fuel 
economy attribute could be solidifying a dependence on foreign supply 
chains that might not be reliable or have shared interests with our 
country.'' \79\ American Honda Motor Co., Inc. (Honda) \80\ and Kia 
Corporation (Kia) \81\ also raised the possibility of unintended 
consequences and externalities. Kia further suggested that ``[i]n the 
same manner that the footprint curves include many of the weight, 
technology cost, and engineering analyses that go in to bringing these 
vehicles online, electrification would need to have similar 
considerations accounted for in the modeling assumptions,'' \82\ while 
Honda stated that the agency should provide ``more than a full product 
cycle (5-6 year[s]) of lead time'' to give industry time to plan for 
any changes.\83\ Auto Innovators commented that it could be permissible 
to limit consideration of electrification to HEVs, but ``[t]he existing 
approach with footprint-based curves does not need to be modified if 
one simply wants to require a more efficient gasoline-powered fleet--
whether through increased electrification or some other means.'' \84\ 
Jaguar Land Rover NA, LLC (JLR) offered a similar comment.\85\
---------------------------------------------------------------------------

    \78\ Auto Innovators, at 48; Stellantis, Docket No. NHTSA-2021-
0053-1527, at 12; NADA, at p. 4; Valero Energy Corporation (Valero), 
Docket No. NHTSA-2021-0053-1541, at pp. 3-4; Peter Douglas, at p. 
25.
    \79\ Auto Innovators, at p. 50.
    \80\ Honda, Docket No. NHTSA-2021-0053-1501, at p. 4.
    \81\ Kia, Docket No. NHTSA-2021-0053-1525, at p. 10.
    \82\ Id.
    \83\ Honda, at p. 4.
    \84\ Auto Innovators, at p. 50.
    \85\ JLR, Docket No. NHTSA-2021-0053-1505, at p. 4.
---------------------------------------------------------------------------

    Stellantis commented that ``the `percent of work' metric as 
ultimately applied in the proposal is a fleet level of electrification 
selected as a policy goal rather than an attribute of a particular 
vehicle (like footprint) as intended by the statute.'' \86\ NADA argued 
that ``[f]leet-wide standards should be technologically neutral and set 
at levels that are achievable without ZEVs so as not to penalize those 
OEMs (and their dealers) that choose not to aggressively develop, 
produce, and push ZEVs to market.'' \87\ And finally, Securing 
America's Future Energy commented that adding electrification as an 
attribute just makes the program more complicated, and NHTSA should be 
looking for ways to simplify it instead, perhaps via a legislative 
solution.\88\
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    \86\ Stellantis, at p. 12.
    \87\ NADA, at pp. 3-4.
    \88\ Securing America's Future Energy, Docket No. NHTSA-2021-
0053-1513, at pp. 18-19.
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    As explained above, for this final rule, NHTSA is continuing to 
base the MY 2024-2026 standards on footprint. NHTSA is not adding 
electrification as an attribute at this time, based in part on comments 
that raised concerns with how to implement such an approach 
practically, in a way that would further EPCA's overarching goal of 
energy conservation, while providing industry with appropriate lead 
time to make changes to their fleet. NHTSA is also mindful of 
introducing further uncertainty to the standards during this time of 
rapid change in the stringency of the standards. Therefore, while NHTSA 
agrees with comments suggesting that the recommendation from the NAS 
committee merits further consideration, NHTSA also agrees with other 
commenters who suggested that this rulemaking is not the proper one in 
which to implement such a change, given the available lead time for 
manufacturers to adjust their compliance approaches.

C. What inputs does the compliance analysis require?

    The CAFE Model applies various technologies to different vehicle 
models in each manufacturer's product line to simulate how each 
manufacturer might make progress toward compliance with the specified 
standard. Subject to a variety of user-controlled constraints, the 
model applies technologies based on their relative cost-effectiveness, 
as determined by several input assumptions regarding the cost and 
effectiveness of each technology, the cost of compliance (determined by 
the change in CAFE or CO2 credits, CAFE-related civil 
penalties, or value of CO2 credits, depending on the 
compliance

[[Page 25755]]

program being evaluated), and the value of avoided fuel expenses. For a 
given manufacturer, the compliance simulation algorithm applies 
technologies either until the manufacturer runs out of cost-effective 
technologies,\89\ until the manufacturer exhausts all available 
technologies, or, if the manufacturer is assumed to be willing to pay 
civil penalties or acquire credits from another manufacturer, until 
paying civil penalties or purchasing credits becomes more cost-
effective than increasing vehicle fuel economy. At this stage, the 
system assigns an incurred technology cost and updated fuel economy to 
each vehicle model, as well as any civil penalties incurred/credits 
purchased by each manufacturer. This compliance simulation process is 
repeated for each model year included in the study period (through MY 
2050 in this analysis).
---------------------------------------------------------------------------

    \89\ Generally, the model considers a technology cost-effective 
if it pays for itself in fuel savings within a ``payback period'' 
specified as a model input (for this analysis, 30 months). Depending 
on the settings applied, the model can continue to apply 
technologies that are not cost-effective rather than choosing other 
compliance options; if it does so, it will apply those additional 
technologies in order of cost-effectiveness (i.e., most cost-
effective first).
---------------------------------------------------------------------------

    At the conclusion of the compliance simulation for a given 
regulatory scenario, the system transitions between compliance 
simulation and effects calculations. This is the point where the system 
produces a full representation of the registered light-duty vehicle 
population in the United States. The CAFE Model then uses this fleet to 
generate estimates of the following (for each model year and calendar 
year included in the analysis): Lifetime travel, fuel consumption, 
carbon dioxide and criteria pollutant emissions, the magnitude of 
various economic externalities related to vehicular travel (e.g., 
congestion and noise), and energy consumption (e.g., the economic costs 
of short-term increases in petroleum prices, or social damages 
associated with GHG emissions). The system then uses these estimates to 
measure the benefits and costs associated with each regulatory 
alternative (relative to the No-Action Alternative).
    To perform this analysis, the CAFE Model uses millions of data 
points contained in several input files that have been populated by 
engineers, economists, and safety and environmental program analysts at 
both NHTSA and the DOT's Volpe National Transportations Systems Center 
(Volpe). In addition, some of the input data come from modeling and 
simulation analysis performed by experts at Argonne National Laboratory 
using their Autonomie full vehicle simulation model and BatPaC battery 
cost model. Other inputs are derived from other models, such as the 
U.S. Energy Information Administration's (EIA's) National Energy 
Modeling System (NEMS), Argonne's ``GREET'' fuel-cycle emissions 
analysis model, and U.S. EPA's ``MOVES'' vehicle emissions analysis 
model. As NHTSA and Volpe are both organizations within DOT, we use DOT 
throughout these sections to refer to the collaborative work performed 
for this analysis.
    This section and Section III.D describe the inputs that the 
compliance simulation requires, including an in-depth discussion of the 
technologies used in the analysis, how they are defined in the CAFE 
Model, how they are characterized for vehicles that already exist in 
the market, and how they can be applied to realistically simulate 
manufacturers' decisions, their effectiveness, and their cost. The 
inputs and analyses for the effects calculations, including economic, 
safety, and environmental effects, are discussed later in Sections 
III.C through III.H.
1. Overview of Inputs to the Analysis
    As discussed above, the current analysis involves estimating four 
major swaths of effects. First, the analysis estimates how the 
application of various combinations of technologies could impact 
vehicles' costs and fuel economy levels (and CO2 emission 
rates). Second, the analysis estimates how vehicle manufacturers might 
respond to standards by adding fuel-saving technologies to new 
vehicles. Third, the analysis estimates how changes in new vehicles 
might impact vehicle sales and operation. Finally, the analysis 
estimates how the combination of these changes might impact national-
scale energy consumption, emissions, highway safety, and public health.
    There are several CAFE Model input files important to the 
discussion of these first two steps, and these input files are 
discussed in detail later in this section and in Section III.D. The 
Market Data file contains the detailed description of the vehicle 
models and model configurations each manufacturer produces for sale in 
the United States. The file also contains a range of other inputs that, 
though not specific to individual vehicle models, may be specific to 
individual manufacturers. The Technologies file identifies about six 
dozen technologies to be included in the analysis, indicates when and 
how widely each technology can be applied to specific types of 
vehicles, provides most of the inputs involved in estimating what costs 
will be incurred, and provides some of the inputs involved in 
estimating impacts on vehicle fuel consumption and weight.
    The CAFE Model also makes use of databases of estimates of fuel 
consumption impacts and, as applicable, battery costs for different 
combinations of fuel-saving technologies.\90\ These databases are 
termed the FE1 and FE2 Adjustments databases (the main database and the 
database specific to plug-in hybrid electric vehicles, applicable to 
those vehicles' operation on electricity) and the Battery Costs 
database. DOT developed these databases using a large set of full 
vehicle and accompanying battery cost model simulations developed by 
Argonne National Laboratory. The Argonne simulation outputs, battery 
costs, and other reference materials are also discussed in the 
following sections.\91\
---------------------------------------------------------------------------

    \90\ To be used as files provided separately from the model and 
loaded every time the model is executed, these databases are 
prohibitively large, spanning more than a million records and more 
than half a gigabyte. To conserve memory and speed model operation, 
DOT has integrated the databases into the CAFE Model executable 
file. When the model is run, however, the databases are extracted 
and placed in an accessible location on the user's disk drive.
    \91\ The Argonne workbooks included in the docket for this 
notice include 10 databases that contain the outputs of the 
Autonomie full vehicle simulations, two summary workbooks of 
assumptions used for the full vehicle simulations, a data 
dictionary, and the lookup tables for battery costs generated using 
the BatPaC battery cost model.
---------------------------------------------------------------------------

    The following discussion in this section and in Section III.D 
expands on the inputs used in the compliance analysis. Further detail 
is included in Chapters 2 and 3 of the TSD accompanying this notice, 
and all input values relevant to the compliance analysis can be seen in 
the Market Data, Technologies, fuel consumption and battery cost 
database files, and Argonne summary files included in the docket for 
this notice. As previously mentioned, other model input files underlie 
the effects analysis, and these are discussed in detail in Sections 
III.C through III.H.
2. The Market Data File
    The Market Data file contains the detailed description of the 
vehicle models and model configurations each manufacturer produces for 
sale in the U.S. This snapshot of the recent light duty vehicle market, 
termed the analysis fleet, or baseline fleet, is the starting point for 
the evaluation of different stringency levels for future fuel economy 
standards. The analysis fleet provides a reference from which to 
project how manufacturers could apply additional technologies to 
vehicles to

[[Page 25756]]

cost-effectively improve vehicle fuel economy, in response to 
regulatory action and market conditions.\92\ For this analysis, the MY 
2020 light duty fleet was selected as the baseline for further 
evaluation of the effects of different fuel economy standards. The 
Market Data file also contains a range of other inputs that, though not 
specific to individual vehicle models, may be specific to individual 
manufacturers.
---------------------------------------------------------------------------

    \92\ The CAFE Model does not generate compliance paths a 
manufacturer should, must, or will deploy. It is intended as a tool 
to demonstrate a compliance pathway a manufacturer could choose. It 
is almost certain all manufacturers will make compliance choices 
differing from those projected by the CAFE Model.
---------------------------------------------------------------------------

    The Market Data file is an Excel spreadsheet that contains five 
worksheets. Three worksheets, the Vehicles worksheet, Engines 
worksheet, and Transmissions worksheet, characterize the baseline fleet 
for this analysis. The three worksheets contain a characterization of 
every vehicle sold in MY 2020 and their relevant technology content, 
including the engines and transmissions that a manufacturer uses in its 
vehicle platforms and how those technologies are shared across 
platforms. In addition, the Vehicles worksheet includes baseline 
economic and safety inputs linked to each vehicle that allow the CAFE 
Model to estimate economic and safety impacts resulting from any 
simulated compliance pathway. The remaining two worksheets, the 
Manufacturers worksheet and Credits and Adjustments worksheet, include 
baseline compliance positions for each manufacturer, including each 
manufacturer's starting CAFE credit banks and whether the manufacturer 
is willing to pay civil penalties for noncompliance with CAFE 
standards, among other inputs.
    New inputs have been added for this analysis in the Vehicles 
worksheet and Manufacturers worksheet. The new inputs indicate which 
vehicles a manufacturer may reasonably be expected to convert to a zero 
emissions vehicle (ZEV) at first redesign opportunity, to comply with 
several states' ZEV program provisions. The new inputs also indicate if 
a manufacturer has entered into an agreement with California to achieve 
more stringent GHG emissions reductions targets than those promulgated 
in the 2020 final rule.
    The following sections discuss how we built the Market Data file, 
including characterizing vehicles sold in MY 2020 and their technology 
content, and baseline safety, economic, and manufacturer compliance 
positions. A detailed discussion of the Market Data file development 
process is in TSD Chapter 2.2.
(a) Characterizing Vehicles and Their Technology Content
    The Market Data file integrates information from many sources, 
including manufacturer compliance submissions, publicly available 
information, and confidential business information. At times, DOT must 
populate inputs using analyst judgment, either because information is 
still incomplete or confidential, or because the information does not 
yet exist.\93\ For this analysis DOT uses mid-MY 2020 compliance data 
as the basis of the analysis fleet. The compliance data are 
supplemented for each vehicle nameplate with manufacturer specification 
sheets, usually from the manufacturer media website, or from online 
marketing brochures.\94\ For additional information about how 
specification sheets inform MY 2020 vehicle technology assignments, see 
the technology specific assignments sections in Section III.D.
---------------------------------------------------------------------------

    \93\ Forward looking refresh/redesign cycles are one example of 
when analyst judgement is necessary.
    \94\ The catalogue of reference specification sheets (broken 
down by manufacturer, by nameplate) used to populate information in 
the Market Data file is available in the docket.
---------------------------------------------------------------------------

    DOT uses the mid-MY 2020 compliance data to create a row on the 
Vehicles worksheet in the Market Data file for each vehicle (or vehicle 
variant \95\) that lists a certification fuel economy, sales volume, 
regulatory class, and footprint. DOT identifies which combination of 
modeled technologies reasonably represents the fuel saving technologies 
already on each vehicle, and assigns those technologies to each 
vehicle, either on the Vehicles worksheet, the Engines worksheet, or 
the Transmissions worksheet. The fuel saving technologies considered in 
this analysis are listed in Table III-1.
---------------------------------------------------------------------------

    \95\ The Market Data file often includes a few rows for vehicles 
that may have identical certification fuel economies, regulatory 
classes, and footprints (with compliance sales volumes divided out 
among rows), because other pieces of information used in the CAFE 
Model may be dissimilar. For instance, in the reference materials 
used to create the Market Data file, for a nameplate curb weight may 
vary by trim level (with premium trim levels often weighing more on 
account of additional equipment on the vehicle), or a manufacturer 
may provide consumers the option to purchase a larger fuel tank size 
for their vehicle. These pieces of information may not impact the 
observed compliance position directly, but curb weight (in relation 
to other vehicle attributes) is important to assess mass reduction 
technology already used on the vehicle, and fuel tank size is 
directly relevant to saving time at the gas pump, which the CAFE 
Model uses when calculating the value of avoided time spent 
refueling.
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[[Page 25760]]

    For additional information on the characterization of these 
technologies (including the cost, prevalence in the 2020 fleet, 
effectiveness estimates, and considerations for their adoption) see the 
appropriate technology section in Section III.D or TSD Chapter 3.
    DOT also assigns each vehicle a technology class. The CAFE Model 
uses the technology class (and engine class, discussed below) in the 
Market Data file to reference the most relevant technology costs for 
each vehicle, and fuel saving technology combinations. We assign each 
vehicle in the fleet a technology class using a two-step algorithm that 
takes into account key characteristics of vehicles in the fleet 
compared to the baseline characteristics of each technology class.\96\ 
As discussed further in Section III.C.4.b), there are ten technology 
classes used in the CAFE analysis that span five vehicle types and two 
performance variants. The technology class algorithm and assignment 
process is discussed in more detail in TSD Chapter 2.4.2.
---------------------------------------------------------------------------

    \96\ Baseline 0 to 60 mph accelerations times are assumed for 
each technology class as part of the Autonomie full vehicle 
simulations. DOT calculates class baseline curb weights and 
footprints by averaging the curb weights and footprints of vehicles 
within each technology class as assigned in previous analyses.
---------------------------------------------------------------------------

    We also assign each vehicle an engine technology class so that the 
CAFE Model can reference the powertrain costs in the Technologies file 
that most reasonably align with the observed vehicle. DOT assigns 
engine technology classes for all vehicles, including electric 
vehicles. If an electric powertrain replaces an internal combustion 
engine, the electric motor specifications may be different (and hence 
costs may be different) depending on the capabilities of the internal 
combustion engine it is replacing, and the costs in the technologies 
file (on the engine tab) account for the power output and capability of 
the gasoline or electric drivetrain.
    Parts sharing helps manufacturers achieve economies of scale, 
deploy capital efficiently, and make the most of shared research and 
development expenses, while still presenting a wide array of consumer 
choices to the market. The CAFE Model simulates part sharing by 
implementing shared engines, shared transmissions, and shared mass 
reduction platforms. Vehicles sharing a part (as recognized in the CAFE 
Model), will adopt fuel saving technologies affecting that part 
together. To account for parts sharing across products, vehicle model/
configurations that share engines are assigned the same engine 
code,\97\ vehicle model/configurations that share transmissions have 
the same transmission code, and vehicles that adopt mass reduction 
technologies together share the same platform. For more information 
about engine codes, transmission codes, and mass reduction platforms 
see TSD Chapter 3.
---------------------------------------------------------------------------

    \97\ Engines (or transmissions) may not be exactly identical, as 
specifications or vehicle integration features may be different. 
However, the architectures are similar enough that it is likely the 
powertrain systems share R&D, tooling, and production resources in a 
meaningful way.
---------------------------------------------------------------------------

    Manufacturers often introduce fuel saving technologies at a major 
redesign of their product or adopt technologies at minor refreshes in 
between major product redesigns. To support the CAFE Model accounting 
for new fuel saving technology introduction as it relates to product 
lifecycle, the Market Data file includes a projection of redesign and 
refresh years for each vehicle. DOT projects future redesign years and 
refresh years based on the historical cadence of that vehicle's product 
lifecycle. For new nameplates, DOT considers the manufacturer's 
treatment of product lifecycles for past products in similar market 
segments. When considering year-by-year analysis of standards, the 
sizing of redesign and refresh intervals will affect projected 
compliance pathways and how quickly manufacturers can respond to 
standards. TSD Chapter 2.2.1.7 includes additional information about 
the product design cycles assumed for this action based on historical 
manufacturer product design cycles.
    The Market Data file also includes information about air 
conditioning (AC) and off-cycle technologies, but the information is 
not currently broken out at a row level, vehicle by vehicle.\98\ 
Instead, historical data (and forecast projections, which are used for 
analysis regardless of regulatory scenario) are listed by manufacturer, 
by fleet on the Credits and Adjustments worksheet of the Market Data 
file. Section III.D.8 shows model inputs specifying estimated 
adjustments (all in grams/mile) for improvements to air conditioner 
efficiency and other off-cycle energy consumption, and for reduced 
leakage of air conditioner refrigerants with high global warming 
potential (GWP). DOT estimated future values based on an expectation 
that manufacturers already relying heavily on these adjustments would 
continue do so, and that other manufacturers would, over time, also 
approach the limits on adjustments allowed for such improvements.
---------------------------------------------------------------------------

    \98\ Regulatory provisions regarding off-cycle technologies are 
new, and manufacturers have only recently begun including related 
detailed information in compliance reporting data. For this 
analysis, though, such information was not sufficiently complete to 
support a detailed representation of the application of off-cycle 
technology to specific vehicle model/configurations in the MY 2020 
fleet.
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(b) Characterizing Baseline Safety, Economic, and Compliance Positions
    In addition to characterizing vehicles and their technology 
content, the Market Data file contains a range of other inputs that, 
though not specific to individual vehicle models, may be specific to 
individual manufacturers, or that characterize baseline safety or 
economic information.
    First, the CAFE Model considers the potential safety effect of mass 
reduction technologies and crash compatibility of different vehicle 
types. Mass reduction technologies lower the vehicle's curb weight, 
which may improve crash compatibility and safety, or not, depending on 
the type of vehicle. DOT assigns each vehicle in the Market Data file a 
safety class that best aligns with the mass-size-safety analysis. This 
analysis is discussed in more detail in Section III.H of this action 
and TSD Chapter 7.
    The CAFE Model also includes procedures to consider the direct 
labor impacts of manufacturer's response to CAFE regulations, 
considering the assembly location of vehicles, engines, and 
transmissions, the percent U.S. content (that reflects percent U.S. and 
Canada content),\99\ and the dealership employment associated with new 
vehicle sales. The Market Data file therefore includes baseline labor 
information, by vehicle. Sales volumes also influence total estimated 
direct labor projections in the analysis.
---------------------------------------------------------------------------

    \99\ Percent U.S. content was informed by the 2020 Part 583 
American Automobile Labeling Act Reports, appearing on NHTSA's 
website.
---------------------------------------------------------------------------

    We hold the percent U.S. content constant for each vehicle row for 
the duration of the analysis. In practice, this may not be the case. 
Changes to trade policy and tariff policy may affect percent U.S. 
content in the future. Also, some technologies may be more or less 
likely to be produced in the U.S., and if that is the case, their 
adoption could affect future U.S. content. NHTSA does not have data at 
this time to support varying the percent U.S. content.
    We also hold the labor hours projected in the Market Data file per 
unit transacted at dealerships, per unit produced for final assembly, 
per unit produced for engine assembly, and per unit produced for 
transmission assembly constant for the duration of the analysis, and 
project that the origin

[[Page 25761]]

of these activities to remain unchanged. In practice, it is reasonable 
to expect that plants could move locations, or engine and transmission 
technologies are replaced by another fuel saving technology (like 
electric motors and fixed gear boxes) that could require a meaningfully 
different amount of assembly labor hours. NHTSA does not have data at 
this time to support varying labor hours projected in the Market Data 
file, but we will continue to explore methods to estimate the direct 
labor impacts of manufacturer's responses to CAFE standards in future 
analyses.
    As observed from Table III-2, manufacturers employ U.S. labor with 
varying intensity. In many cases, vehicles certifying in the light 
truck (LT) regulatory class have a larger percent U.S. content than 
vehicles certifying in the passenger car (PC) regulatory class.
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BILLING CODE 4910-59-C
    Next, manufacturers may over-comply with CAFE standards and bank 
so-called over compliance credits. As discussed further in Section 
III.C.7, manufacturers may use these credits later, sell them to other 
manufacturers, or let them expire. The CAFE Model does not explicitly 
trade credits between and among manufacturers, but staff have adjusted 
starting credit banks in the Market Data file to reflect trades that 
are likely to happen when the simulation begins (in MY 2020). 
Considering information manufacturers have reported regarding 
compliance credits, and considering recent manufacturers' compliance 
positions, DOT estimates manufacturers' potential use of compliance 
credits in earlier model years. This aligns to an extent that 
represents how manufacturers could deplete their credit banks rather 
than producing high volume vehicles with fuel saving technologies in 
earlier model years. This also avoids the unrealistic application of 
technologies for manufacturers in early analysis years that typically 
rely on credits. For a complete discussion about how these data are 
collected and assigned in the Market Data file, see TSD Chapter 
2.2.2.3.
---------------------------------------------------------------------------

    \100\ Tesla does not have internal combustion engines, or multi-
speed transmissions, even thought they are identified as producing 
engine and transmission systems in the United States in the Market 
Data file.
---------------------------------------------------------------------------

    The Market Data file also includes assumptions about a vehicle 
manufacturer's preferences towards civil penalty payments. EPCA 
requires that if a manufacturer does not achieve

[[Page 25762]]

compliance with a CAFE standard in a given model year and cannot apply 
credits sufficient to cover the compliance shortfall, the manufacturer 
must pay civil penalties (i.e., fines) to the Federal Government. If 
inputs indicate that a manufacturer treats civil penalty payment as an 
economic choice (i.e., one to be taken if doing so would be 
economically preferable to applying further technology toward 
compliance), the CAFE Model, when evaluating the manufacturer's 
response to CAFE standards in a given model year, will apply fuel-
saving technology only up to the point beyond which doing so would be 
more expensive (after subtracting the value of avoided fuel outlays) 
than paying civil penalties.
    For this analysis, DOT exercises the CAFE Model with inputs 
treating all manufacturers as treating civil penalty payment as an 
economic choice through MY 2023. While DOT expects that only 
manufacturers with some history of paying civil penalties would 
actually treat civil penalty payment as an acceptable option, the CAFE 
Model does not currently simulate compliance credit trading between 
manufacturers, and DOT expects that this treatment of civil penalty 
payment will serve as a reasonable proxy for compliance credit 
purchases some manufacturers might actually make through MY 2023. These 
input assumptions for model years through 2023 reduce the potential 
that the model will overestimate technology application in the model 
years leading up to those for which the agency is finalizing new 
standards. As in past CAFE rulemaking analyses (except that supporting 
the 2020 final rule), DOT has treated manufacturers with some history 
of civil penalty payment (i.e., BMW, Daimler, FCA, Jaguar-Land Rover, 
Volvo, and Volkswagen) as continuing to treat civil penalty payment as 
an acceptable option beyond MY 2023, but has treated all other 
manufacturers as unwilling to do so beyond MY 2023. DOT believes it is 
more accurate, as in past analyses besides the 2020 final rule, to 
reflect the possibility that these historical payers of civil penalties 
may continue to do so in the future.
    Next, the CAFE Model uses an ``effective cost'' metric to evaluate 
options to apply specific technologies to specific engines, 
transmissions, and vehicle model configurations. Expressed on a $/
gallon basis, the analysis computes this metric by subtracting the 
estimated values of avoided fuel outlays and civil penalties from the 
corresponding technology costs, and then dividing the result by the 
quantity of avoided fuel consumption. The analysis computes the value 
of fuel outlays over a ``payback period'' representing the 
manufacturer's expectation that the market will be willing to pay for 
some portion of fuel savings achieved through higher fuel economy. Once 
the model has applied enough technology to a manufacturer's fleet to 
achieve compliance with CAFE standards (and CO2 standards 
and ZEV mandates) in a given model year, the model will apply any 
further fuel economy improvements estimated to produce a negative 
effective cost (i.e., any technology applications for which avoided 
fuel outlays during the payback period are larger than the 
corresponding technology costs). As discussed above in Section III.A 
and below in Section III.C, DOT anticipates that manufacturers are 
likely to act as if the market is willing to pay for avoided fuel 
outlays expected during the first 30 months of vehicle operation.
    In addition, the Market Data file includes two new sets of inputs 
for this analysis. In 2020, five vehicle manufacturers reached a 
voluntary commitment with the state of California to improve the 
emissions levels of their future nationwide fleets above levels 
required by the 2020 final rule. For this analysis, compliance with 
this agreement is in the baseline case for designated manufacturers. 
The Market Data file contains inputs indicating whether each 
manufacturer has committed to exceed Federal requirements per this 
agreement.
    Finally, when considering other standards that may affect fuel 
economy compliance pathways, DOT includes projected zero emissions 
vehicles (ZEV) that would be required for manufacturers to meet 
standards in California and Section 177 states, per the waiver granted 
under the Clean Air Act. To support the inclusion of the ZEV program in 
the analysis, DOT identifies specific vehicle model/configurations that 
could adopt BEV technology in response to the ZEV program, independent 
of CAFE standards, at the first redesign opportunity. These ZEVs are 
identified in the Market Data file as future BEV200s, BEV300s, or 
BEV400s. Not all announced BEV nameplates appear in the MY 2020 Market 
Data file; in these cases, in consultation with CARB, DOT used the 
volume from a comparable vehicle in the manufacturer's Market Data file 
portfolio as a proxy. The Market Data file also includes information 
about the portion of each manufacturer's sales that occur in California 
and Section 177 states, which is helpful for determining how many ZEV 
credits each manufacturer will need to generate in the future to comply 
with the ZEV program with their own portfolio in the rulemaking 
timeframe. These new procedures are described in detail below and in 
TSD Chapter 2.3.
3. Simulating the Zero Emissions Vehicle Program
    California's Zero Emissions Vehicle (ZEV) program is one part of a 
program of coordinated standards that the California Air Resources 
Board (CARB) has enacted to control emissions of criteria pollutants 
and greenhouse gas emissions from vehicles. The program began in 1990 
with the low-emission vehicle (LEV) regulation,\101\ and has since 
expanded to include eleven other states.102 103 These states 
may be referred to as Section 177 states, in reference to Section 177 
of the Clean Air Act's grant of authority to allow these states to 
adopt California's air quality standards,\104\ but it is important to 
note that not all Section 177 states have adopted the ZEV program 
component.\105\ In the following discussion of the incorporation of the 
ZEV program into the CAFE Model, any reference to the Section 177 
states refers to those states that have adopted California's ZEV 
program requirements.
---------------------------------------------------------------------------

    \101\ California Air Resource Board (CARB), Zero-Emission 
Vehicle Program. California Air Resources Board. https://ww2.arb.ca.gov/our-work/programs/zero-emission-vehicle-program/about. (Accessed: February 16, 2022)
    \102\ Through 2020, the Section 177 states that had adopted the 
ZEV program included Colorado, Connecticut, Maine, Maryland, 
Massachusetts, New Jersey, New York, Oregon, Rhode Island, Vermont, 
and Washington. See Vermont Department of Environmental 
Conservation, Zero Emission Vehicles. https://dec.vermont.gov/air-quality/mobile-sources/zev. (Accessed: February 16, 2022)
    \103\ The states of Minnesota, Nevada, and Virginia have 
recently adopted ZEV standards, which will go into effect for MY 
2025. As discussed in this section, reflecting these three states' 
adoption of ZEV mandates would have only negligibly impacted the 
agency's national-scale modeling. See Green Car Reports, Minnesota 
adopts California EV mandate, https://www.greencarreports.com/news/1133027_minnesota-adopts-california-ev-mandate-makes-it-tougher-for-plug-in-compliance-cars (accessed: February 16, 2022); State of 
Nevada Climate Initiative, Adopt Low-and Zero-Emissions Passenger 
Vehicle Standards, https://climateaction.nv.gov/policies/lev-zev 
(accessed: February 16, 2022); Green Car Reports, Virginia becomes 
15th Clean Cars State, https://www.greencarcongress.com/2021/03/20210330-virginia.html (accessed: February 16, 2022).
    \104\ Section 177 of the Clean Air Act allows other states to 
adopt California's new motor vehicle emission standards, if 
specified criteria are met.
    \105\ At the time of writing, Delaware and Pennsylvania are the 
two states that have adopted the LEV standards, but not the ZEV 
portion.
---------------------------------------------------------------------------

    In their comments on the NPRM, Rivian stated that our ZEV program 
modeling should include Minnesota, Virginia, and Nevada as ZEV states, 
as those states have recently adopted the

[[Page 25763]]

regulation.\106\ We have not included those states as part of the ZEV 
program in the modeling, but have ascertained that reflecting these 
three states' adoption of ZEV mandates would have only negligibly 
impacted the agency's national-scale modeling. Furthermore, the ZEV 
standards for these states go into effect only beginning in MY 2025, 
which created an inconsistency with our current modeling approach.
---------------------------------------------------------------------------

    \106\ Rivian, Docket ID No. NHTSA-2021-0053-1562, at p. 2.
---------------------------------------------------------------------------

    To account for the ZEV program, and particularly as other states 
have recently adopted California's ZEV standards, DOT includes the main 
provisions of the ZEV program in the CAFE Model's analysis of 
compliance pathways. As explained below, incorporating the ZEV program 
into the model includes converting vehicles that have been identified 
as potential ZEV candidates into battery-electric vehicles (BEVs) at 
the first redesign opportunity, so that a manufacturer's fleet meets 
calculated ZEV credit requirements. Since ZEV program compliance 
pathways happen independently from the adoption of fuel saving 
technology in response to increasing CAFE standards, the ZEV program is 
considered in the baseline of the analysis, and in all other regulatory 
alternatives.
    Through its ZEV program, California requires that all manufacturers 
that sell cars within the state meet ZEV credit standards. The current 
credit requirements are calculated based on manufacturers' California 
sales volumes. Manufacturers primarily earn ZEV credits through the 
production of BEVs, fuel cell vehicles (FCVs), and transitional zero-
emissions vehicles (TZEVs), which are vehicles with partial 
electrification, namely plug-in hybrids (PHEVs). Total credits are 
calculated by multiplying the credit value each ZEV receives by the 
vehicle's volume.
    The ZEV and PHEV/TZEV credit value per vehicle is calculated based 
on the vehicle's range; ZEVs may earn up to four credits each and PHEVs 
with a US06 all-electric range capability of 10 mi or higher receive an 
additional 0.2 credits on top of the credits received based on all-
electric range.\107\ The maximum PHEV credit amount available per 
vehicle is 1.10.\108\ Note however that CARB only allows intermediate-
volume manufacturers to meet their ZEV credit requirements through PHEV 
production.\109\
---------------------------------------------------------------------------

    \107\ US06 is one of the drive cycles used to test fuel economy 
and all-electric range, specifically for the simulation of 
aggressive driving. See https://www.epa.gov/vehicle-and-fuel-emissions-testing/dynamometer-drive-schedules for more information, 
as well as Section III.C.4 and Section III.D.3.d). (Accessed: March 
6, 2022)
    \108\ 13 California Code of Regulations (CCR) 1962.2(c)(3).
    \109\ 13 CCR 1962.2(c)(3).
---------------------------------------------------------------------------

    DOT's method for simulating the ZEV program involves several steps; 
first, DOT calculates an approximate ZEV credit target for each 
manufacturer based on the manufacturer's national sales volumes, share 
of sales in Section 177 states, and the CARB credit requirements. Next, 
DOT identifies a general pathway to compliance that involves accounting 
for manufacturers' potential use of ZEV overcompliance credits or other 
credit mechanisms, and the likelihood that manufacturers would choose 
to comply with the requirements with BEVs rather than PHEVs or other 
types of compliant vehicles, in addition to other factors. For this 
analysis, as discussed further below, DOT consulted with CARB to 
determine reasonable assumptions for this compliance pathway. Finally, 
DOT identifies vehicles in the MY 2020 analysis fleet that 
manufacturers could reasonably adapt to comply with the ZEV standards 
at the first opportunity for vehicle redesign, based on publicly 
announced product plans and other information. Each of these steps is 
discussed in turn, below, and a more detailed description of DOT's 
simulation of the ZEV program is included in TSD Chapter 2.3.
    The CAFE Model is designed to present outcomes at a national scale, 
so the ZEV analysis considers the Section 177 states as a group as 
opposed to estimating each state's ZEV credit requirements 
individually. To capture the appropriate volumes subject to the ZEV 
requirement, DOT calculates each manufacturer's total market share in 
Section 177 states. DOT also calculates the overall market share of 
ZEVs in Section 177 states, in order to estimate as closely as 
possible, the number of predicted ZEVs we expect all manufacturers to 
sell in those states. These shares are then used to scale down 
national-level information in the CAFE Model to ensure that we 
represent only Section 177 states in the final calculation of ZEV 
credits that we project each manufacturer to earn in future years.
    DOT uses MY 2019 National Vehicle Population Profile (NVPP) from 
IHS Markit--Polk to calculate these percentages.\110\ These data 
include vehicle characteristics such as powertrain, fuel type, 
manufacturer, nameplate, and trim level, as well as the state in which 
each vehicle is sold, which allows staff to identify the different 
types of ZEVs manufacturers sell in the Section 177 state group.
---------------------------------------------------------------------------

    \110\ National Vehicle Population Profile (NVPP) 2020, IHS 
Markit--Polk. At the time of the analysis, MY 2019 data from the 
NVPP contained the most current estimate of market shares by 
manufacturer, and best represented the registered vehicle population 
on January 1, 2020.
---------------------------------------------------------------------------

    We calculate sales volumes for the ZEV credit requirement based on 
each manufacturer's future assumed market share in Section 177 states. 
DOT decided to carry each manufacturer's ZEV market shares forward to 
future years, after examination of past market share data from MY 2016, 
from the 2017 version of the NVPP.\111\ Comparison of these data to the 
2020 version showed that manufacturers' market shares remain fairly 
constant in terms of geographic distribution. Therefore, we determined 
that it was reasonable to carry forward the recently calculated market 
shares to future years.
---------------------------------------------------------------------------

    \111\ National Vehicle Population Profile (NVPP) 2017, IHS 
Markit--Polk.
---------------------------------------------------------------------------

    We calculate total credits required for ZEV compliance by 
multiplying the percentages from CARB's ZEV requirement schedule by the 
Section 177 state volumes. CARB's credit percentage requirement 
schedule for the years covered in this analysis begins at 9.5 percent 
in 2020 and ramps up in increments to 22 percent by 2025.\112\ Note 
that the requirements do not currently change after 2025.\113\
---------------------------------------------------------------------------

    \112\ See 13 CCR 1962.2(b). The percentage credit requirements 
are as follows: 9.5 percent in 2020, 12 percent in 2021, 14.5 
percent in 2022, 17 percent in 2023, 19.5 percent in 2024, and 22 
percent in 2025 and onward.
    \113\ 13 CCR 1962.2(b).
---------------------------------------------------------------------------

    We generate national sales volume predictions for future years 
using the Compliance Report, a CAFE Model output file that includes 
simulated sales by manufacturer, fleet, and model year. We use a 
Compliance Report that corresponds to the baseline scenario of 1.5 
percent per year increases in standards for both passenger car and 
light truck fleets. The resulting national sales volume predictions by 
manufacturer are then multiplied by each manufacturer's total market 
share in the Section 177 states to capture the appropriate volumes in 
the ZEV credits calculation. Required credits by manufacturer, per 
year, are determined by multiplying the Section 177 state volumes by 
CARB's ZEV credit percentage requirement. These required credits are 
subsequently added to the CAFE Model inputs as targets for manufacturer 
compliance with ZEV standards in the CAFE baseline.
    The estimated ZEV credit requirements serve as a target for 
simulating ZEV compliance in the baseline. To achieve this, DOT 
determines a modeling philosophy for ZEV pathways, reviews various 
sources

[[Page 25764]]

for information regarding upcoming ZEV programs, and inserts those 
programs into the analysis fleet inputs. As manufacturers can meet ZEV 
standards in a variety of different ways, using various technology 
combinations, the analysis must include certain simplifying assumptions 
in choosing ZEV pathways. We made these assumptions in conjunction with 
guidance from CARB staff. The following sections discuss the approach 
used to simulate a pathway to ZEV program compliance in this analysis.
    First, DOT targeted 2025 compliance, as opposed to assuming 
manufacturers would perfectly comply with their credit requirements in 
each year prior to 2025. This simplifying assumption was made upon 
review of past history of ZEV credit transfers, existing ZEV credit 
banks, and redesign schedules. DOT focused on integrating ZEV 
technology throughout that timeline with the target of meeting 2025 
obligations; thus, some manufacturers are estimated to over-comply or 
under-comply, depending on their individual situations, in the years 
2021-2024.
    Second, DOT determined that the most reasonable way to model ZEV 
compliance would be to allow under-compliance in certain cases and 
assume that some manufacturers would not meet their ZEV obligation on 
their own in 2025. Instead, these manufacturers were assumed to prefer 
to purchase credits from another manufacturer with a credit surplus. 
Reviews of past ZEV credit transfers between manufacturers informed the 
decision to make this simplifying assumption.\114\ CARB advised that 
for these manufacturers, the CAFE Model should still project that each 
manufacturer meet approximately 80 percent of their ZEV requirements 
with technology included in their own portfolio. Manufacturers that 
were observed to have generated many ZEV credits in the past or had 
announced major upcoming BEV initiatives were projected to meet 100 
percent of their ZEV requirements on their own, without purchasing ZEV 
credits from other manufacturers.\115\
---------------------------------------------------------------------------

    \114\ See https://ww2.arb.ca.gov/our-work/programs/advanced-clean-cars-program/zev-program/zero-emission-vehicle-credit-balances 
for past credit balances and transfer information. (Accessed: 
February 16, 2022)
    \115\ The following manufacturers were assumed to meet 100-
percent ZEV compliance: Ford, General Motors, Hyundai, Kia, Jaguar 
Land Rover, and Volkswagen Automotive. Tesla was also assumed to 
meet 100 percent of its required standards, but the analyst team did 
not need to add additional ZEV substitutes to the baseline for this 
manufacturer.
---------------------------------------------------------------------------

    Third, DOT agreed that manufacturers would meet their ZEV credit 
requirements in 2025 though the production of BEVs. As discussed above, 
manufacturers may choose to build PHEVs or FCVs to earn some portion of 
their required ZEV credits. However, DOT projected that manufacturers 
would rely on BEVs to meet their credit requirements, based on reviews 
of press releases and industry news, as well as discussion with CARB. 
Since nearly all manufacturers have announced some plans to produce 
BEVs at a scale meaningful to future ZEV requirements, DOT agreed that 
this was a reasonable assumption.\116\ Furthermore, as CARB only allows 
intermediate-volume manufacturers to meet their ZEV credit requirements 
through the production of PHEVs, and the volume status of these few 
manufacturers could change over the years, assuming BEV production for 
ZEV compliance is the most straightforward path.
---------------------------------------------------------------------------

    \116\ See TSD Chapter 2.3 for a list of potential BEV programs 
recently announced by manufacturers.
---------------------------------------------------------------------------

    Fourth, to account for the new BEV programs announced by some 
manufacturers, DOT identified vehicles in the 2020 fleet that closely 
matched the upcoming BEVs, by regulatory class, market segment, and 
redesign schedule. DOT made an effort to distribute ZEV candidate 
vehicles by CAFE regulatory class (light truck, passenger car), by 
manufacturer, in a manner consistent with the 2020 manufacturer fleet 
mix. Since passenger car and light truck mixes by manufacturer could 
change in response to the CAFE policy alternative under consideration, 
this effort was deemed necessary in order to avoid redistributing the 
fleet mix in an unrealistic manner. However, there were some exceptions 
to this assumption, as some manufacturers are already closer to meeting 
their ZEV obligation through 2025 with BEVs currently produced, and 
some manufacturers underperform their compliance targets more so in one 
fleet than another. In these cases, DOT deviated from keeping the LT/PC 
mix of BEVs evenly distributed across the manufacturer's 
portfolio.\117\
---------------------------------------------------------------------------

    \117\ The GM light truck and passenger car distribution is one 
such example.
---------------------------------------------------------------------------

    DOT then identified future ZEV programs that could plausibly 
contribute towards the ZEV requirements for each manufacturer by 2025. 
To obtain this information, DOT examined various sources, including 
trade press releases, industry announcements, and investor reports. In 
many cases, these BEV programs are in addition to programs already in 
production.\118\ Some manufacturers have not yet released details of 
future electric vehicle programs at the time of writing, but have 
indicated goals of reaching certain percentages of electric vehicles in 
their portfolios by a specified year. In these cases, DOT reviewed the 
manufacturer's current fleet characteristics as well as the 
aspirational information in press releases and other news in order to 
make reasonable assumptions about the vehicle segment and range of 
those future BEVs. No changes in BEV program assumptions were made 
between the NPRM and this document.
---------------------------------------------------------------------------

    \118\ Examples of BEV programs already in production include the 
Nissan Leaf and the Chevrolet Bolt.
---------------------------------------------------------------------------

    Overall, analysts assumed that manufacturers would lean towards 
producing BEV300s rather than BEV200s, based on the information 
reviewed and an initial conversation with CARB.\119\ Phase-in caps were 
also considered, especially for BEV200, with the understanding that the 
CAFE Model will always pick BEV200 before BEV300 or BEV400, until the 
quantity of BEV200s is exhausted. See Section III.D.3.c) for details 
regarding BEV phase-in caps.
---------------------------------------------------------------------------

    \119\ BEV300s are 300-mile range battery-electric vehicles. See 
Section III.D.3.b) for further information regarding electrification 
fleet assignments.
---------------------------------------------------------------------------

    BEVs with smaller battery packs and less range are less likely to 
meet all the performance needs of traditional pickup truck owners 
today, such as long-range towing. However, longer-range BEV pickups are 
being introduced, and may be joined by new markets in the form of 
electric delivery trucks and some light-duty electric truck 
applications in state and local government. The extent to which BEVs 
will be used in these and other new markets is difficult to project. 
DOT did identify certain trucks as upcoming BEVs for ZEV compliance, 
and these BEVs were expected to have higher ranges, due to the specific 
performance needs associated with these vehicles. Outside of the ZEV 
inputs described here, the CAFE Model does not handle the application 
of BEV technology with any special considerations as to whether the 
vehicle is a pickup truck or not.
    Finally, in order to simulate manufacturers' compliance with their 
particular ZEV credits target, 142 rows in the analysis fleet were 
identified as substitutes for future ZEV programs. As discussed above, 
the analysis fleet summarizes the roughly 13.6 million light-duty 
vehicles produced and sold in the United States in MY 2020 with more 
than 3,500 rows, each reflecting

[[Page 25765]]

information for one vehicle type observed. Each row includes the 
vehicle's nameplate and trim level, the sales volume, engine, 
transmission, drive configuration, regulatory class, projected redesign 
schedule, and fuel saving technologies, among other attributes.
    As the goal of the ZEV analysis is to simulate compliance with the 
ZEV program in the baseline, and the analysis fleet only contains 
vehicles produced during MY 2020, DOT identified existing models in the 
analysis fleet that shared certain characteristics with upcoming BEVs. 
DOT also focused on identifying substitute vehicles with redesign years 
similar to the future BEV's introduction year. The sales volumes of 
those existing models, as predicted for 2025, were then used to 
simulate production of the upcoming BEVs. DOT identified a combination 
of rows that would meet the ZEV target, could contribute productively 
towards CAFE program obligations (by manufacturer and by fleet), and 
would introduce BEVs in each manufacturer's portfolio in a way that 
reasonably aligned with projections and announcements. DOT tagged each 
of these rows with information in the Market Data file, instructing the 
CAFE Model to apply the specified BEV technology to the row at the 
first redesign year, regardless of the scenario or type of CAFE or GHG 
simulation.
    The CAFE Model does not optimize compliance with the ZEV mandate; 
it relies upon the inputs described in this section in order to 
estimate each manufacturer's resulting ZEV credits. The resulting 
amount of ZEV credits earned by manufacturer for each model year can be 
found in the CAFE Model's Compliance file.
    Not all ZEV-qualifying vehicles in the U.S. earn ZEV credits, as 
they are not all sold in states that have adopted ZEV regulations. In 
order to reflect this in the CAFE Model, which only estimates sales 
volumes at the national level, the percentages calculated for each 
manufacturer are used to scale down the national-level volumes. 
Multiplying national-level ZEV sales volumes by these percentages 
ensures that only the ZEVs sold in Section 177 states count towards the 
ZEV credit targets of each manufacturer.\120\ See Section 5.8 of the 
CAFE Model Documentation for a detailed description of how the model 
applied these ZEV technologies and any changes made to the model's 
programming for the incorporation of the ZEV program into the baseline.
---------------------------------------------------------------------------

    \120\ The single exception to this assumption is Mazda, as Mazda 
has not yet produced any ZEV-qualifying vehicles at the time of 
writing. Thus, the percentage of ZEVs sold in Section 177 states 
cannot be calculated from existing data. However, Mazda has 
indicated its intention to produce ZEV-qualifying vehicles in the 
future, so DOT assumed that 100 percent of future ZEVs would be sold 
in Section 177 states for the purposes of estimating ZEV credits in 
the CAFE Model.
---------------------------------------------------------------------------

    As discussed above, DOT made an effort to distribute the newly 
identified ZEV candidates between CAFE regulatory classes (light truck 
and passenger car) in a manner consistent with the proportions seen in 
the 2020 analysis fleet, by manufacturer. As mentioned previously, 
there were a few exceptions to this assumption in cases where 
manufacturers' regulatory class distribution of current or planned ZEV 
programs clearly differed from their regulatory class distribution as a 
whole.
    In some instances, the regulatory distribution of flagged ZEV 
candidates leaned towards a higher portion of PCs. The reasoning behind 
this differs in each case, but there is an observed pattern in the 2020 
analysis fleet of fewer BEVs being light trucks, especially pickups. 
The 2020 analysis fleet contains no BEV pickups in the light truck 
segment. The slow emergence of electric pickups could be linked to the 
specific performance needs associated with pickup trucks. However, the 
market for BEVs may emerge in unexpected ways that are difficult to 
project. Examples of this include anticipated electric delivery trucks 
and light-duty electric trucks used by state and local governments. Due 
to these considerations, DOT tagged some trucks as BEVs for ZEV, and 
expected that these would generally be of higher ranges.
    TSD Chapter 2.3 includes more information about the process we use 
to simulate ZEV program compliance in this analysis.
4. Technology Effectiveness Values
    The next input we use to simulate manufacturers' decision-making 
processes for the year-by-year application of technologies to specific 
vehicles are estimates of how effective each technology would be at 
reducing fuel consumption. For this analysis, we use full-vehicle 
modeling and simulation to estimate the fuel economy improvements 
manufacturers could make to a fleet of vehicles, considering the 
vehicles' technical specifications and how combinations of technologies 
interact. Full-vehicle modeling and simulation uses physics-based 
models to predict how combinations of technologies perform as a full 
system under defined conditions. We use full vehicle simulations 
performed in Autonomie, a physics-based full-vehicle modeling and 
simulation software developed and maintained by the U.S. Department of 
Energy's Argonne National Laboratory.\121\
---------------------------------------------------------------------------

    \121\ Islam, E.S., A. Moawad, N. Kim, R. Vijayagopal, and A. 
Rousseau. A Detailed Vehicle Simulation Process to Support CAFE 
Standards for the MY 2024-2026 Analysis. ANL/ESD-21/9 (hereinafter, 
Autonomie model documentation).
---------------------------------------------------------------------------

    A model is a mathematical representation of a system, and 
simulation is the behavior of that mathematical representation over 
time. In this analysis, the model is a mathematical representation of 
an entire vehicle,\122\ including its individual components such as the 
engine and transmission, overall vehicle characteristics such as mass 
and aerodynamic drag, and the environmental conditions, such as ambient 
temperature and barometric pressure. We simulate the model's behavior 
over test cycles, including the 2-cycle laboratory compliance tests (or 
2-cycle tests),\123\ to determine how the individual components 
interact.
---------------------------------------------------------------------------

    \122\ Each full vehicle model in this analysis is composed of 
sub-models, which is why the full vehicle model could also be 
referred to as a full system model, composed of sub-system models.
    \123\ EPA's compliance test cycles are used to measure the fuel 
economy of a vehicle. For readers unfamiliar with this process, it 
is like running a car on a treadmill following a program--or more 
specifically, two programs. The ``programs'' are the ``urban 
cycle,'' or Federal Test Procedure (abbreviated as ``FTP''), and the 
``highway cycle,'' or Highway Fuel Economy Test (abbreviated as 
``HFET''), and they have not changed substantively since 1975. Each 
cycle is a designated speed trace (of vehicle speed versus time) 
that all certified vehicles must follow during testing. The FTP is 
meant roughly to simulate stop and go city driving, and the HFET is 
meant roughly to simulate steady flowing highway driving at about 50 
mph.
---------------------------------------------------------------------------

    Using full-vehicle modeling and simulation to estimate technology 
efficiency improvements has two primary advantages over using single or 
limited point estimates. An analysis using single or limited point 
estimates may assume that, for example, one fuel economy-improving 
technology with an effectiveness value of 5 percent by itself and 
another technology with an effectiveness value of 10 percent by itself, 
when applied together achieve an additive improvement of 15 percent. 
Single point estimates generally do not provide accurate effectiveness 
values because they do not capture complex relationships among 
technologies. Technology effectiveness often differs significantly 
depending on the vehicle type (e.g., sedan versus pickup truck) and the 
way in which the technology interacts with other technologies on the 
vehicle, as different technologies may provide different incremental 
levels of fuel economy improvement if implemented alone or in 
combination with other technologies. Any

[[Page 25766]]

oversimplification of these complex interactions leads to less accurate 
and often overestimated effectiveness estimates.
    In addition, because manufacturers often implement several fuel-
saving technologies simultaneously when redesigning a vehicle, it is 
difficult to isolate the effect of individual technologies using 
laboratory measurement of production vehicles alone. Modeling and 
simulation offer the opportunity to isolate the effects of individual 
technologies by using a single or small number of baseline vehicle 
configurations and incrementally adding technologies to those baseline 
configurations. This provides a consistent reference point for the 
incremental effectiveness estimates for each technology and for 
combinations of technologies for each vehicle type. Vehicle modeling 
also reduces the potential for overcounting or undercounting technology 
effectiveness.
    An important feature of this analysis is that the incremental 
effectiveness of each technology and combinations of technologies 
should be accurate and relative to a consistent baseline vehicle. For 
this analysis, the baseline absolute fuel economy value for each 
vehicle in the analysis fleet is based on CAFE compliance data for each 
make and model.\124\ The absolute fuel economy values of the full 
vehicle simulations are used only to determine incremental 
effectiveness and are never used directly to assign an absolute fuel 
economy value to any vehicle model or configuration. For subsequent 
technology changes, we apply the incremental effectiveness values of 
one or more technologies to the baseline fuel economy value to 
determine the absolute fuel economy achieved for applying the 
technology change.
---------------------------------------------------------------------------

    \124\ See Section III.C.2 for further discussion of CAFE 
compliance data in the Market Data file.
---------------------------------------------------------------------------

    As an example, if a Ford F-150 2-wheel drive crew cab and short bed 
in the analysis fleet has a fuel economy value of 30 mpg for CAFE 
compliance, 30 mpg will be considered the reference absolute fuel 
economy value. A similar full vehicle model node in the Autonomie 
simulation may begin with an average fuel economy value of 32 mpg, and 
with incremental addition of a specific technology X its fuel economy 
improves to 35 mpg, a 9.3 percent improvement. In this example, the 
incremental fuel economy improvement (9.3 percent) from technology X 
would be applied to the F-150's 30 mpg absolute value.
    We determine the incremental effectiveness of technologies as 
applied to the thousands of unique vehicle and technology combinations 
in the analysis fleet. Although, as mentioned above, full-vehicle 
modeling and simulation reduces the work and time required to assess 
the impact of moving a vehicle from one technology state to another, it 
would be impractical--if not impossible--to build a unique vehicle 
model for every individual vehicle in the analysis fleet. Therefore, as 
discussed in the following sections, the Autonomie analysis relies on 
ten vehicle technology class models that are representative of large 
portions of the analysis fleet vehicles. The vehicle technology classes 
ensure that key vehicle characteristics are reasonably represented in 
the full vehicle models.
    We sought comment on the full vehicle modeling and simulation 
assumptions used for this analysis and received some comments specific 
to individual technologies, which are discussed further in the 
individual technology subsections in final rule Section III.D. However, 
we did not receive any comments on our use of Autonomie itself. The 
next sections discuss the details of the technology effectiveness 
analysis input specifications and assumptions that we continued to use 
for this final rule analysis.
(a) Full Vehicle Modeling and Simulation
    As discussed above, for this analysis we use Argonne's full vehicle 
modeling tool, Autonomie, to build vehicle models with different 
technology combinations and simulate the performance of those models 
over regulatory test cycles. The difference in the simulated 
performance between full vehicle models, with differing technology 
combination, is used to determine effectiveness values. We consider 
over 50 individual technologies as inputs to the Autonomie 
modeling.\125\ These inputs consist of engine technologies, 
transmission technologies, powertrain electrification, light-weighting, 
aerodynamic improvements, and tire rolling resistance improvements. 
Section III.D broadly discusses each of the technology groupings 
definitions, inputs, and assumptions. A deeper discussion of the 
Autonomie modeled subsystems, and how inputs feed the sub models 
resulting in outputs, is contained in the Autonomie model documentation 
that accompanies this analysis. The 50 individual technologies, when 
considered with the ten vehicle technology classes, result in over 1 
million individual vehicle technology combination models. For 
additional discussion on the full vehicle modeling used in this 
analysis see TSD Chapter 2.
---------------------------------------------------------------------------

    \125\ See Autonomie model documentation; ANL--All 
Assumptions_Summary_NPRM_022021.xlsx; ANL--Data Dictionary January 
2021.xlsx.
---------------------------------------------------------------------------

    While Argonne built full-vehicle models and ran simulations for 
many combinations of technologies, it did not simulate literally every 
single vehicle model/configuration in the analysis fleet. Not only 
would it be impractical to assemble the requisite detailed information 
specific to each vehicle/model configuration, much of which would 
likely only be provided on a confidential basis, doing so would 
increase the scale of the simulation effort by orders of magnitude. 
Instead, Argonne simulated ten different vehicle types, corresponding 
to the five ``technology classes'' generally used in CAFE analysis over 
the past several rulemakings, each with two performance levels and 
corresponding vehicle technical specifications (e.g., small car, small 
performance car, pickup truck, performance pickup truck, etc.).
    Technology classes are a means of specifying common technology 
input assumptions for vehicles that share similar characteristics. 
Because each vehicle technology class has unique characteristics, the 
effectiveness of technologies and combinations of technologies is 
different for each technology class. Conducting Autonomie simulations 
uniquely for each technology class provides a specific set of 
simulations and effectiveness data for each technology class. In this 
analysis the technology classes are compact cars, midsize cars, small 
SUVs, large SUVs, and pickup trucks. In addition, for each vehicle 
class there are two levels of performance attributes (for a total of 10 
technology classes). The high performance and low performance vehicles 
classifications allow for better diversity in estimating technology 
effectiveness across the fleet.
    For additional discussion on the development of the vehicle 
technology classes used in this analysis and the attributes used to 
characterize each vehicle technology class, see TSD Chapter 2.4 and the 
Autonomie model documentation.
    Before any simulation is initiated in Autonomie, Argonne must 
``build'' a vehicle by assigning reference technologies and initial 
attributes to the components of the vehicle model representing each 
technology class. The reference technologies are baseline

[[Page 25767]]

technologies that represent the first step on each technology pathway 
used in the analysis. For example, a compact car is built by assigning 
it a baseline engine (DOHC, VVT, PFI), a baseline transmission (AT5), a 
baseline level of aerodynamic improvement (AERO0), a baseline level of 
rolling resistance improvement (ROLL0), a baseline level of mass 
reduction technology (MR0), and corresponding attributes from the 
Argonne vehicle assumptions database like individual component weights. 
A baseline vehicle will have a unique starting point for the simulation 
and a unique set of assigned inputs and attributes, based on its 
technology class. Argonne collected over a hundred baseline vehicle 
attributes to build the baseline vehicle for each technology class. In 
addition, to account for the weight of different engine sizes, like 4-
cylinder versus 8-cylinder or turbocharged versus naturally aspirated 
engines, Argonne developed a relationship curve between peak power and 
engine weight based on the A2Mac1 benchmarking data. Argonne uses the 
developed relationship to estimate mass for all engines. For additional 
discussion on the development and optimization of the baseline vehicle 
models and the baseline attributes used in this analysis see TSD 
Chapter 2.4 and the Autonomie model documentation.
    The next step in the process is to run a powertrain sizing 
algorithm that ensures the built vehicle meets or exceeds defined 
performance metrics, including low-speed acceleration (time required to 
accelerate from 0-60 mph), high-speed passing acceleration (time 
required to accelerate from 50-80 mph), gradeability (the ability of 
the vehicle to maintain constant 65 miles per hour speed on a six 
percent upgrade), and towing capacity. Together, these performance 
criteria are widely used by the automotive industry as metrics to 
quantify vehicle performance attributes that consumers observe and that 
are important for vehicle utility and customer satisfaction.
    As with conventional vehicle models, electrified vehicle models 
were also built from the ground up. For MY 2020, the U.S. market has an 
expanded number of available hybrid and electric vehicle models. To 
capture improvements for electrified vehicles for this analysis, DOT 
applied a mass regression analysis process that considers electric 
motor weight versus electric motor power (similar to the regression 
analysis for internal combustion engine weights) for vehicle models 
that have adopted electric motors. Benchmarking data for hybrid and 
electric vehicles from the A2Mac1 database were analyzed to develop a 
regression curve of electric motor peak power versus electric motor 
weight.\126\
---------------------------------------------------------------------------

    \126\ See Autonomie model documentation, Chapter 5.2.10, 
Electric Machines System Weight.
---------------------------------------------------------------------------

    We maintain performance neutrality in the full vehicle simulations 
by resizing engines, electric machines, and hybrid electric vehicle 
battery packs at specific incremental technology steps. To address 
product complexity and economies of scale, engine resizing is limited 
to specific incremental technology changes that would typically be 
associated with a major vehicle or engine redesign. This is intended to 
reflect manufacturers' comments to DOT on how they consider engine 
resizing and product complexity, and DOT's observations on industry 
product complexity. A detailed discussion on powertrain sizing can be 
found in TSD Chapter 2.4 and in the Autonomie model documentation.
    After all vehicle class and technology combination models have been 
built, Autonomie simulates the vehicles' performance on test cycles to 
calculate the effectiveness improvement of adding fuel-economy-
improving technologies to the vehicle. Simulating vehicles' performance 
using tests and procedures specified by Federal law and regulations 
minimizes the potential variation in determining technology 
effectiveness.
    For vehicles with conventional powertrains and micro hybrids, 
Autonomie simulates the vehicles per EPA 2-cycle test procedures and 
guidelines.\127\ For mild and full hybrid electric vehicles and FCVs, 
Autonomie simulates the vehicles using the same EPA 2-cycle test 
procedure and guidelines, and the drive cycles are repeated until the 
initial and final state of charge are within a SAE J1711 tolerance. For 
PHEVs, Autonomie simulates vehicles per similar procedures and 
guidelines as prescribed in SAE J1711.\128\ For BEVs Autonomie 
simulates vehicles per similar procedures and guidelines as prescribed 
in SAE J1634.\129\
---------------------------------------------------------------------------

    \127\ 40 CFR part 600.
    \128\ PHEV testing is broken into several phases based on SAE 
J1711: Charge-sustaining on the city cycle and HWFET cycle, and 
charge-depleting on the city and HWFET cycles.
    \129\ SAE J1634. ``Battery Electric Vehicle Energy Consumption 
and Range Test Procedure.'' July 12, 2017.
---------------------------------------------------------------------------

    We received comments from The International Council on Clean 
Transportation (ICCT) regarding the application of the engine sizing 
algorithm, and when it is applied in relation to vehicle road load 
improvement technologies. ICCT stated that, ``[d]ue to the large 
uncertainties in when and how to downsize engines for the variety of 
vehicles, the only acceptable solution is to always model the 
appropriate amount of engine downsizing to maintain performance.'' 
\130\
---------------------------------------------------------------------------

    \130\ ICCT, Docket No. NHTSA-2021-0053-1581-A1, at p. 5.
---------------------------------------------------------------------------

    We disagree with the comment implying that engine resizing is 
required for every technology change on a vehicle platform. We believe 
that this would artificially inflate effectiveness relative to cost. 
Manufacturers have repeatedly and consistently conveyed that the costs 
for redesign and the increased manufacturing complexity resulting from 
continual resizing engine displacement for small technology changes 
preclude them from doing so. NHTSA believes that it would not be 
reasonable or cost-effective to expect resizing powertrains for every 
unique combination of technologies, and even less reasonable and cost-
effective for every unique combination of technologies across every 
vehicle model due to the extreme manufacturing complexity that would be 
required to do so.\131\ In addition, a 2011 NAS report stated that 
``[f]or small (under 5 percent [of curb weight]) changes in mass, 
resizing the engine may not be justified, but as the reduction in mass 
increases (greater than 10 percent [of curb weight]), it becomes more 
important for certain vehicles to resize the engine and seek secondary 
mass reduction opportunities.'' \132\
---------------------------------------------------------------------------

    \131\ For more details, see comments and discussion in the 2020 
Rulemaking Preamble Section VI.B.3.a)(6) Performance Neutrality.
    \132\ National Research Council 2011. Assessment of Fuel Economy 
Technologies for Light-Duty Vehicles. Washington, DC: The National 
Academies Press. https://doi.org/10.17226/12924 (hereinafter, 2011 
NAS Report), at 107.
---------------------------------------------------------------------------

    We also believe that ICCT's comment regarding Autonomie's engine 
resizing process is further addressed by the Autonomie's powertrain 
calibration process. We do agree that the powertrain should be re-
calibrated for every unique technology combination and this calibration 
is performed as part of the transmission shift initializer 
routine.\133\ Autonomie runs the shift initializer routine for every 
unique Autonomie full vehicle model configuration and generates 
customized transmission shift maps. The algorithms' optimization is 
designed to balance minimization of energy consumption and vehicle 
performance.
---------------------------------------------------------------------------

    \133\ See FRM ANL Model Documentation at Paragraph 4.4.5.2.
---------------------------------------------------------------------------

(b) Performance Neutrality
    The purpose of the CAFE analysis is to examine the impact of 
technology

[[Page 25768]]

application that can improve fuel economy. When the fuel economy-
improving technology is applied, frequently the manufacturer must 
choose how the technology will affect the vehicle. The advantages of 
the new technology can either be completely applied to improving fuel 
economy or be used to increase vehicle performance while maintaining 
the existing fuel economy, or some mix of the two effects. 
Historically, vehicle performance, historically equated with 
horsepower, has improved over the years as more technology is applied 
to the fleet. The average horsepower is the highest that it has ever 
been; all vehicle types have improved horsepower by at least 43 percent 
compared to the 1978 model year, and pickup trucks have improved by 49 
percent.\134\ Fuel economy has also improved, but the horsepower and 
acceleration trends show that not 100 percent of technological 
improvements have been applied to fuel savings. While future trends are 
uncertain, the past trends suggest that vehicle performance is unlikely 
to decrease, as it seems reasonable to assume that customers will, at a 
minimum, demand vehicles that offer the same utility as today's fleet.
---------------------------------------------------------------------------

    \134\ ``The 2021 EPA Automotive Trends Report, Greenhouse Gas 
Emissions, Fuel Economy, and Technology since 1975,'' EPA-420-R-21-
023, November 2021, at pp. 20-7 (hereinafter, 2021 EPA Automotive 
Trends Report).
---------------------------------------------------------------------------

    For this rulemaking analysis, we analyzed technology pathways 
manufacturers could use for compliance that attempt to maintain vehicle 
attributes, utility, and performance. Using this approach allows us to 
assess the costs and benefits of potential standards under a scenario 
where consumers continue to get the similar vehicle attributes and 
features, other than changes in fuel economy. The purpose of 
constraining vehicle attributes is to simplify the analysis and reduce 
variance in other attributes that consumers may value across the 
analyzed regulatory alternatives. This allows for a streamlined 
accounting of costs and benefits by not requiring the values of other 
vehicle attributes.
    To confirm minimal differences in performance metrics across 
regulatory alternatives, we analyzed the sales-weighted average 0-60 
mph acceleration performance of the entire simulated vehicle fleet for 
MYs 2020 and 2029. The analysis compared performance under the baseline 
standards and Preferred Alternative. For the NPRM, this analysis 
identified that the analysis fleet under the No-Action Alternative in 
MY 2029 had a 0.77 percent worse 0-60 mph acceleration time than under 
the Preferred Alternative; in other words, the alternative with the 
higher fuel economy standards also showed greater acceleration and 
performance. For the final rule analysis, using the similar approach 
yielded a 0.0615 percent better (as compared to the baseline) 0-60 mph 
acceleration time, indicating there is minimal difference in 
performance between the alternatives. This assessment shows that for 
this analysis, the performance difference is minimal across regulatory 
alternatives and across the simulated model years, which allows for 
fair, direct comparison among the alternatives. Further details about 
this assessment can be found in TSD Chapter 2.4.5.
    Overall, commenters were supportive of our approach to maintaining 
performance neutrality and the metrics we use to accomplish this. 
Commenters said we should continue to improve our methodologies for 
maintaining performance neutrality.\135\ Auto Innovators stated that 
``[t]he [a]gencies have historically sought to maintain the performance 
characteristics of vehicles modeled with fuel economy-improving 
technologies.'' They added that they ``appreciate that the [a]gencies 
continue to consider high- speed acceleration, gradeability, towing, 
range, traction, and interior room (including headroom) in the analysis 
when sizing powertrains and evaluating pathways for road-load 
reductions.'' Finally, they stated that ``[a]ll of these parameters 
should be considered separately, not just in combination. (For example, 
we do not support an approach where various acceleration times are 
added together to create a single `performance' statistic. 
Manufacturers must provide all types of performance, not just one or 
two to the detriment of others.).''
---------------------------------------------------------------------------

    \135\ RV Industry Association, Docket No. NHTSA-2021-0053-0053, 
at 4; Auto Innovators, Docket No. NHTSA-2021-0053-1492, at p. 62.
---------------------------------------------------------------------------

    The RV Industry Association commented that the agency should 
include towing capacity considerations for large SUVs because of the 
public's reliance on large SUVs for RV towing.\136\ Currently, our 
analysis assumes that SUVs are primarily used for carrying passengers 
and cargo and towing is not their primary function, in contrast to how 
full-size pickups are characterized in the analysis. Other aspects of 
the analysis capture potential performance limitations for SUVs such as 
limiting the adoption of technologies that could be considered less 
practical for SUVs. For example, for some larger SUVs with higher power 
density requirements, we limit HCR engine technologies and power-split 
strong hybrid powertrains. For more details on these limitations, see 
Section III.D.1.c) of this preamble for each technology pathway.
---------------------------------------------------------------------------

    \136\ RV Industry Association, at p. 4.
---------------------------------------------------------------------------

    For this final rule analysis, we continued to use the same 
methodology for modeling full vehicles and maintaining performance 
neutrality. As such, the estimated compliance costs reflect the 
assumption that manufacturers will resize powertrains or make other 
adjustments to maintain performance while increasing fuel economy. We 
will continue to monitor performance neutrality metrics and their 
incorporation as part of future analyses.
(c) Implementation in the CAFE Model
    The CAFE Model uses two elements of information from the large 
amount of data generated by the Autonomie simulation runs: Battery 
costs, and fuel consumption on the city and highway cycles. We combine 
the fuel economy information from the two cycles to produce a composite 
fuel economy for each vehicle, and for each fuel used in dual fuel 
vehicles. The fuel economy information for each simulation run is 
converted into a single value for use in the CAFE Model.
    In addition to the technologies in the Autonomie simulation, the 
CAFE Model also incorporated a handful of technologies not explicitly 
simulated in Autonomie. These technologies' performance either could 
not be captured on the 2-cycle test, or there were no robust data 
usable as an input for full-vehicle modeling and simulation. The 
specific technologies are discussed in the individual technology 
sections below and in TSD Chapter 3. To calculate fuel economy 
improvements attributable to these additional technologies, estimates 
of fuel consumption improvement factors were developed and scale 
multiplicatively when applied together. See TSD Chapter 3 for a 
complete discussion on how these factors were developed. The Autonomie-
simulated results and additional technologies are combined, forming a 
single dataset used by the CAFE Model.
    Each line in the CAFE Model dataset represents a unique combination 
of technologies. We organize the records using a unique technology 
state vector, or technology key (tech key), that describes the 
technology content associated with each unique record. The modeled 2-
cycle fuel economy (miles per gallon) of each combination is converted 
into fuel consumption (gallons per mile) and then normalized relative 
to a baseline tech key. The improvement factors used by the model

[[Page 25769]]

are a given combination's fuel consumption improvement relative to the 
baseline tech key in its technology class.
    The tech key format was developed by recognizing that most of the 
technology pathways are unrelated and are only logically linked to 
designate the direction in which technologies are allowed to progress. 
As a result, it is possible to condense the paths into groups based on 
the specific technology. These groups are used to define the technology 
vector, or tech key. The following technology groups defined the tech 
key: Engine cam configuration (CONFIG), VVT engine technology (VVT), 
VVL engine technology (VVL), SGDI engine technology (SGDI), DEAC engine 
technology (DEAC), non-basic engine technologies (ADVENG), transmission 
technologies (TRANS), electrification and hybridization (ELEC), low 
rolling resistance tires (ROLL), aerodynamic improvements (AERO), mass 
reduction levels (MR), EFR engine technology (EFR), electric accessory 
improvement technologies (ELECACC), LDB technology (LDB), and SAX 
technology (SAX). This summarizes to a tech key with the following 
fields: CONFIG; VVT; VVL; SGDI; DEAC; ADVENG; TRANS; ELEC; ROLL; AERO; 
MR; EFR; ELECACC; LDB; SAX. It should be noted that some of the fields 
may be blank for some tech key combinations. These fields will be left 
visible for the examples below, but blank fields may be omitted from 
tech keys shown elsewhere in the documentation.
    As an example, a technology state vector describing a vehicle with 
a SOHC engine, variable valve timing (only), a 6-speed automatic 
transmission, a belt-integrated starter generator, rolling resistance 
(level 1), aerodynamic improvements (level 2), mass reduction (level 
1), electric power steering, and low drag brakes, would be specified as 
``SOHC; VVT; ; ; ; ; AT6; BISG; ROLL10; AERO20; MR1; ; EPS; LDB ; .'' 
\137\
---------------------------------------------------------------------------

    \137\ In the example tech key, the series of semicolons between 
VVT and AT6 correspond to the engine technologies which are not 
included as part of the combination, while the gap between MR1 and 
EPS corresponds to EFR and the omitted technology after LDB is SAX. 
The extra semicolons for omitted technologies are preserved in this 
example for clarity and emphasis and will not be included in future 
examples.
---------------------------------------------------------------------------

    Once a vehicle is assigned (or mapped) to an appropriate tech key, 
adding a new technology to the vehicle simply represents progress from 
a previous tech key to a new tech key. The previous tech key refers to 
the technologies that are currently in use on a vehicle. The new tech 
key is determined, in the simulation, by adding a new technology to the 
combination represented by the previous state vector while 
simultaneously removing any technologies that are superseded by the 
newly added one.
    For example, start with a vehicle with the tech key: SOHC; VVT; 
AT6; BISG; ROLL10; AERO20; MR1; EPS; LDB. Assume the simulation is 
evaluating PHEV20 as a candidate technology for application on this 
vehicle. The new tech key for this vehicle is computed by removing 
SOHC, VVT, AT6, and BISG technologies from the previous state 
vector,\138\ and adding PHEV20, resulting a tech key that looks like 
this: PHEV20; ROLL10; AERO20; MR1; EPS; LDB.
---------------------------------------------------------------------------

    \138\ For more discussion of how the CAFE Model handles 
technology supersession, see S4.5 of the CAFE Model Documentation.
---------------------------------------------------------------------------

    From here, the simulation obtains a fuel economy improvement factor 
for the new combination of technologies and applies that factor to the 
fuel economy of a vehicle in the analysis fleet. The resulting 
improvement is applied to the original compliance fuel economy value 
for a discrete vehicle in the analysis fleet.
5. Defining Technology Adoption in the Rulemaking Timeframe
    As discussed in Section III.C.2, starting with a fixed analysis 
fleet (for this analysis, the MY 2020 fleet indicated in manufacturers' 
early CAFE compliance data), the CAFE Model estimates ways each 
manufacturer could potentially apply specific fuel-saving technologies 
to specific vehicle model/configurations in response to, among other 
things (such as fuel prices), CAFE standards, CO2 standards, 
commitments some manufacturers have made to CARB's ``Framework 
Agreements,'' and ZEV mandates imposed by California and several other 
states. The CAFE Model follows a year-by-year approach to simulating 
manufacturers' potential decisions to apply technology, accounting for 
multiyear planning within the context of estimated schedules for future 
vehicle redesigns and refreshes during which significant technology 
changes may most practicably be implemented.
    The modeled technology adoption for each manufacturer under each 
regulatory alternative depends on this representation of multiyear 
planning, and on a range of other factors represented by other model 
characteristics and inputs, such as the logical progression of 
technologies defined by the model's technology pathways; the 
technologies already present in the analysis fleet; inputs directing 
the model to ``skip'' specific technologies for specific vehicle model/
configurations in the analysis fleet (e.g., because secondary axle 
disconnect cannot be applied to 2-wheel-drive vehicles, and because 
manufacturers already heavily invested in engine turbocharging and 
downsizing are unlikely to abandon this approach in favor of using high 
compression ratios); inputs defining the sharing of engines, 
transmissions, and vehicle platforms in the analysis fleet; the model's 
logical approach to preserving this sharing; inputs defining each 
regulatory alternative's specific requirements; inputs defining 
expected future fuel prices, annual mileage accumulation, and valuation 
of avoided fuel consumption; inputs defining the estimated efficacy and 
future cost (accounting for projected future ``learning'' effects) of 
included technologies; inputs controlling the maximum pace the 
simulation is to ``phase in'' each technology; and inputs further 
defining the availability of each technology to specific technology 
classes.
    Two of these inputs--the ``phase-in cap'' and the ``phase-in start 
year''--apply to the manufacturer's entire estimated production and, 
for each technology, define a share of production in each model year 
that, once exceeded, will stop the model from further applying that 
technology to that manufacturer's fleet in that model year. The 
influence of these inputs varies with regulatory stringency and other 
model inputs. For example, setting the inputs to allow immediate 100 
percent penetration of a technology will not guarantee any application 
of the technology if stringency increases are low and the technology is 
not at all cost effective. Also, even if these are set to allow only 
very slow adoption of a technology, other model aspects and inputs may 
nevertheless force more rapid application than these inputs, alone, 
would suggest (e.g., because an engine technology propagates quickly 
due to sharing across multiple vehicles, or because BEV application 
must increase quickly in response to ZEV requirements). For this 
analysis, nearly all of these inputs are set at levels that do not 
limit the simulation at all.
    As discussed below, for the most advanced engines (advanced 
cylinder deactivation, variable compression ratio, variable 
turbocharger geometry, and turbocharging with cylinder deactivation), 
we have specified phase-in caps and phase-in start years that limit the 
pace at which the analysis shows the technology being adopted in

[[Page 25770]]

the rulemaking timeframe. For example, this analysis applies a 34-
percent phase-in cap and MY 2019 phase-in start year for advanced 
cylinder deactivation (ADEAC), meaning that in MY 2021 (using a MY 2020 
fleet, the analysis begins simulating further technology application in 
MY 2021), the model will stop adding ADEAC to a manufacturer's MY 2021 
fleet once ADEAC reaches more than 68-percent penetration, because 34% 
x (2021-2019) = 34% x 2 = 68%.
    We apply phase-in caps and corresponding start years to prevent the 
simulation from showing unlikely rates of applying battery-electric 
vehicles (BEVs), such as showing that a manufacturer producing very few 
BEVs in MY 2020 could plausibly replace every product with a 300- or 
400-mile BEV by MY 2025. Also, as discussed in Section III.D.4, we 
apply phase-in caps and corresponding start years intended to ensure 
that the simulation's plausible application of the highest included 
levels of mass reduction (20 and 28.2 percent reductions of vehicle 
``glider'' weight) do not, for example, outpace plausible supply of raw 
materials and development of entirely new manufacturing facilities.
    These model logical structures and inputs act together to produce 
estimates of ways each manufacturer could potentially shift to new 
fuel-saving technologies over time, reflecting some measure of 
protection against rates of change not reflected in, for example, 
technology cost inputs. This does not mean that every modeled solution 
would necessarily be economically practicable. Using technology 
adoption features like phase-in caps and phase-in start years is one 
mechanism that can be used so that the analysis better represents the 
potential costs and benefits of technology application in the 
rulemaking timeframe.
6. Technology Costs
    DOT estimates present and future costs for fuel-saving technologies 
taking into consideration the type of vehicle, or type of engine if 
technology costs vary by application. These cost estimates are based on 
three main inputs. First, we estimate direct manufacturing costs 
(DMCs), or the component and labor costs of producing and assembling 
the physical parts and systems, assuming high volume production. DMCs 
generally do not include the indirect costs of tools, capital 
equipment, financing costs, engineering, sales, administrative support 
or return on investment. DOT accounts for these indirect costs via a 
scalar markup of direct manufacturing costs (the retail price 
equivalent, or RPE). Finally, costs for technologies may change over 
time as industry streamlines design and manufacturing processes. To 
reflect this, DOT estimates potential cost improvements with learning 
effects (LE). The retail cost of equipment in any future year is 
estimated to be equal to the product of the DMC, RPE, and LE. 
Considering the retail cost of equipment, instead of merely direct 
manufacturing costs, is important to account for the real-world price 
effects of a technology, as well as market realities.
(a) Direct Manufacturing Costs
    Direct manufacturing costs (DMCs) are the component and assembly 
costs of the physical parts and systems that make up a complete 
vehicle. The analysis uses agency-sponsored tear-down studies of 
vehicles and parts to estimate the DMCs of individual technologies, in 
addition to independent tear-down studies, other publications, and 
confidential business information. In the simplest cases, the agency-
sponsored studies produce results that confirm third-party industry 
estimates and align with confidential information provided by 
manufacturers and suppliers. In cases with a large difference between 
the tear-down study results and credible independent sources, DOT 
scrutinized the study assumptions, and sometimes revised or updated the 
analysis accordingly.
    Due to the variety of technologies and their applications, and the 
cost and time required to conduct detailed tear-down analyses, the 
agency did not sponsor teardown studies for every technology. In 
addition, we consider some fuel-saving technologies that are pre-
production or are sold in very small pilot volumes. For those 
technologies, DOT could not conduct a tear-down study to assess costs 
because the product is not yet in the marketplace for evaluation. In 
these cases, DOT relied upon third-party estimates and confidential 
information from suppliers and manufacturers; however, there are some 
common pitfalls with relying on confidential business information to 
estimate costs. The agency and the source may have had incongruent or 
incompatible definitions of ``baseline.'' The source may have provided 
DMCs at a date many years in the future, and assumed very high 
production volumes, important caveats to consider for agency analysis. 
In addition, a source, under no contractual obligation to DOT, may 
provide incomplete and/or misleading information. In other cases, 
intellectual property considerations and strategic business 
partnerships may have contributed to a manufacturer's cost information 
and could be difficult to account for in the CAFE Model as not all 
manufacturers may have access to proprietary technologies at stated 
costs. The agency carefully evaluates new information in light of these 
common pitfalls, especially regarding emerging technologies.
    While costs for fuel-saving technologies reflect the best estimates 
available today, technology cost estimates will likely change in the 
future as technologies are deployed and as production is expanded. For 
emerging technologies, DOT uses the best information available at the 
time of the analysis and will continue to update cost assumptions for 
any future analysis. The discussion of each category of technologies in 
Section III.D (e.g., engines, transmissions, electrification) and 
corresponding TSD Chapter 3 summarizes the specific cost estimates DOT 
applied for this analysis.
(b) Indirect Costs (Retail Price Equivalent)
    As discussed above, direct costs represent the cost associated with 
acquiring raw materials, fabricating parts, and assembling vehicles 
with the various technologies manufacturers are expected to use to meet 
future CAFE standards. They include materials, labor, and variable 
energy costs required to produce and assemble the vehicle. However, 
they do not include overhead costs required to develop and produce the 
vehicle, costs incurred by manufacturers or dealers to sell vehicles, 
or the profit manufacturers and dealers make from their investments. 
All of these items contribute to the price consumers ultimately pay for 
the vehicle. These components of retail prices are illustrated in Table 
III-3 below.

[[Page 25771]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.057

    To estimate the impact of higher vehicle prices on consumers, both 
direct and indirect costs must be considered. To estimate total 
consumer costs, DOT multiplies direct manufacturing costs by an 
indirect cost factor to represent the average price for fuel-saving 
technologies at retail.
    Historically, the method most commonly used to estimate indirect 
costs of producing a motor vehicle has been the retail price equivalent 
(RPE). The RPE markup factor is based on an examination of historical 
financial data contained in 10-K reports filed by manufacturers with 
the Securities and Exchange Commission (SEC). It represents the ratio 
between the retail price of motor vehicles and the direct costs of all 
activities that manufacturers engage in.
    Figure III-4 indicates that for more than three decades, the retail 
price of motor vehicles has been, on average, roughly 50 percent above 
the direct cost expenditures of manufacturers. This ratio has been 
remarkably consistent, averaging roughly 1.5 with minor variations from 
year to year over this period. At no point has the RPE markup exceeded 
1.6 or fallen below 1.4.\139\ During this time frame, the average 
annual increase in real direct costs was 2.5 percent, and the average 
annual increase in real indirect costs was also 2.5 percent. Figure 
III-4 illustrates the historical relationship between retail prices and 
direct manufacturing costs.\140\
---------------------------------------------------------------------------

    \139\ Based on data from 1972-1997 and 2007. Data were not 
available for intervening years, but results for 2007 seem to 
indicate no significant change in the historical trend.
    \140\ Rogozhin, A., Gallaher, M., & McManus, W., 2009, 
Automobile Industry Retail Price Equivalent and Indirect Cost 
Multipliers. Report by RTI International to Office of Transportation 
Air Quality. U.S. Environmental Protection Agency, RTI Project 
Number 0211577.002.004, February, Research Triangle Park, N.C. 
Spinney, B.C., Faigin, B., Bowie, N., & S. Kratzke, 1999, Advanced 
Air Bag Systems Cost, Weight, and Lead Time analysis Summary Report, 
Contract NO. DTNH22-96-0-12003, Task Orders--001, 003, and 005. 
Washington, DC, U.S. Department of Transportation.
---------------------------------------------------------------------------

    An RPE of 1.5 does not imply that manufacturers automatically mark 
up each vehicle by exactly 50 percent. Rather, it means that, over 
time, the competitive marketplace has resulted in pricing structures 
that average out to this relationship across the entire industry. 
Prices for any individual model may be marked up at a higher or lower 
rate depending on market demand. The consumer who buys a popular 
vehicle may, in effect, subsidize the installation of a new technology 
in a less marketable vehicle. But, on average, over time and across the 
vehicle fleet, the retail price paid by consumers has risen by about 
$1.50 for each dollar of direct costs incurred by manufacturers.

[[Page 25772]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.058

    It is also important to note that direct costs associated with any 
specific technology will change over time as some combination of 
learning and resource price changes occurs. Resource costs, such as the 
price of steel, can fluctuate over time and can experience real long-
term trends in either direction, depending on supply and demand. 
However, the normal learning process generally reduces direct 
production costs as manufacturers refine production techniques and seek 
out less costly parts and materials for increasing production volumes. 
By contrast, this learning process does not generally influence 
indirect costs. The implied RPE for any given technology would thus be 
expected to grow over time as direct costs decline relative to indirect 
costs. The RPE for any given year is based on direct costs of 
technologies at different stages in their learning cycles, and that may 
have different implied RPEs than they did in previous years. The RPE 
averages 1.5 across the lifetime of technologies of all ages, with a 
lower average in earlier years of a technology's life, and, because of 
learning effects on direct costs, a higher average in later years.
    The RPE has been used in all NHTSA safety and most previous CAFE 
rulemakings to estimate costs. In 2011, the National Academy of 
Sciences (NAS) recommended RPEs of 1.5 for suppliers and 2.0 for in-
house production be used to estimate total costs.\141\ Auto Innovators, 
formerly known as the Alliance of Automobile Manufacturers, also 
advocated these values as appropriate markup factors for estimating 
costs of technology changes.\142\ In their 2015 report, NAS recommended 
1.5 as an overall RPE markup.\143\ An RPE of 2.0 has also been adopted 
by a coalition of environmental and research groups (NESCCAF, ICCT, 
Southwest Research Institute, and TIAX-LLC) in a report on reducing 
heavy truck emissions, and 2.0 is recommended by the U.S. Department of 
Energy for estimating the cost of hybrid-electric and automotive fuel 
cell costs (see Vyas et al. (2000) in Table III-4 below). Table III-4 
below also lists other estimates of the RPE. Note that all RPE 
estimates vary between 1.4 and 2.0, with most in the 1.4 to 1.7 range.
---------------------------------------------------------------------------

    \141\ Effectiveness and Impact of Corporate Average Fuel Economy 
Standards, Washington, DC--The National Academies Press; NRC, 2011.
    \142\ Communication from Chris Nevers (Auto Innovators) to 
Christopher Lieske (EPA) and James Tamm (NHTSA), http://www.regulations.gov Docket ID Nos. NHTSA-2018-0067; EPA-HQ-OAR-2018-
0283, p .143.
    \143\ National Research Council 2015. Cost, Effectiveness, and 
Deployment of Fuel Economy Technologies for Light Duty Vehicles. 
Washington, DC: The National Academies Press. https://doi.org/10.17226/21744 (hereafter, ``2015 NAS Report''). (Accessed: February 
16, 2022)

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[[Page 25773]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.059

    The RPE has thus enjoyed widespread use and acceptance by a variety 
of governmental, academic, and industry organizations.
---------------------------------------------------------------------------

    \144\ Duleep, K.G. ``2008 Analysis of Technology Cost and Retail 
Price.'' Presentation to Committee on Assessment of Technologies for 
Improving Light Duty Vehicle Fuel Economy, January 25, Detroit, MI.; 
Jack Faucett Associates, September 4, 1985. Update of EPA's Motor 
Vehicle Emission Control Equipment Retail Price Equivalent (RPE) 
Calculation Formula. Chevy Chase, MD--Jack Faucett Associates; 
McKinsey & Company, October 2003. Preface to the Auto Sector Cases. 
New Horizons--Multinational Company Investment in Developing 
Economies, San Francisco, CA.; NRC (National Research Council), 
2002. Effectiveness and Impact of Corporate Average Fuel Economy 
Standards, Washington, DC--The National Academies Press; NRC, 2011. 
Assessment of Fuel Economy Technologies for Light Duty Vehicles. 
Washington, DC--The National Academies Press; Cost, Effectiveness, 
and Deployment of Fuel Economy Technologies in Light Duty Vehicles. 
Washington, DC--The National Academies Press, 2015; Sierra Research, 
Inc., November 21, 2007, Study of Industry-Average Mark-Up Factors 
used to Estimate Changes in Retail Price Equivalent (RPE) for 
Automotive Fuel Economy and Emissions Control Systems, Sacramento, 
CA--Sierra Research, Inc.; Vyas, A. Santini, D., & Cuenca, R. 2000. 
Comparison of Indirect Cost Multipliers for Vehicle Manufacturing. 
Center for Transportation Research, Argonne National Laboratory, 
April. Argonne, Ill.
---------------------------------------------------------------------------

    In past rulemakings, a second type of indirect cost multiplier has 
also been examined. Known as the ``Indirect Cost Multiplier'' (ICM) 
approach, ICMs were first examined alongside the RPE approach in the 
2010 rulemaking regarding standards for MYs 2012-2016. Both methods 
have been examined in subsequent rulemakings.
    Consistent with the 2020 final rule, we continue to employ the RPE 
approach to account for indirect manufacturing costs. The RPE accounts 
for indirect costs like engineering, sales, and administrative support, 
as well as other overhead costs, business expenses, warranty costs, and 
return on capital considerations. A detailed discussion of indirect 
cost methods and the basis for our use of the RPE to reflect these 
costs is available in the FRIA for the 2020 final rule.\145\
---------------------------------------------------------------------------

    \145\ FRIA, The Safer Affordable Fuel-Efficient (SAFE) Vehicles 
Rule for Model Year 2021-2026 Passenger Cars and Light Trucks, 
USDOT, EPA, March 2020, at pp. 354-76.
---------------------------------------------------------------------------

    The Consumer Federation of America (CFA) noted that the inputs we 
use for indirect costs produce less optimistic results than those used 
by EPA. They cite these differing results as evidence that our analysis 
should use the EPA values. CFA states that, ``EPA's benefit cost ratios 
are much higher affirming that their analysis is more appropriate.'' 
\146\ CFA provided no new data or discussion to justify a conclusion 
that their preferred values are justified empirically, and NHTSA 
continues to believe that an RPE of 1.5 is the most justified by 
empirical evidence and research, without regard to the outcomes that a 
different RPE would produce. We have provided a full description of the 
basis for choosing the indirect cost values that we use in Chapter 
2.6.2 of the TSD accompanying this final rule, as well as in the FRIA 
accompanying the 2020 final rule. In addition, we note that the RPE 
value of 1.5 was also used by EPA in its regulatory impact analysis to 
calculate RPE-inclusive vehicle manufacturer costs.\147\
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    \146\ CFA, Docket No. NHTSA-2021-0053-1535, at p. 5.
    \147\ FRIA, Revised 2023 and Later Model Year Light-Duty Vehicle 
GHG Emissions Standards: Regulatory Impact Analysis, US EPA, 
December 2021, at pp. 4-8.
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(c) Stranded Capital Costs
    The idea behind stranded capital is that manufacturers amortize 
research, development, and tooling expenses over many years, especially 
for engines and transmissions. The traditional production life-cycles 
for transmissions and engines have been a decade or longer. If a 
manufacturer launches or updates a product with fuel-saving technology, 
and then later replaces that technology with an unrelated or different 
fuel-saving technology before the equipment and research and 
development investments have been fully paid off, there will be 
unrecouped, or stranded, capital costs. Quantifying stranded capital 
costs accounts for such lost investments.
    As DOT has observed previously, manufacturers may be shifting their 
investment strategies in ways that may alter how stranded capital could 
be considered. For example, some suppliers sell similar transmissions 
to multiple manufacturers. Such arrangements allow manufacturers to 
share in capital expenditures or amortize expenses more quickly. 
Manufacturers share parts on vehicles around the globe, achieving 
greater scale and greatly affecting tooling strategies and costs.
    As a proxy for stranded capital in recent CAFE analyses, the CAFE 
Model has accounted for platform and engine sharing and includes 
redesign and refresh cycles for significant and less significant 
vehicle updates. This analysis continues to rely on the CAFE Model's 
explicit year-by-year accounting for estimated refresh and redesign 
cycles, and shared vehicle platforms and engines, to moderate the 
cadence of technology adoption and thereby limit the implied occurrence 
of stranded capital and the need to account for it explicitly. In 
addition, confining some manufacturers to specific advanced technology 
pathways through technology adoption features acts as a proxy to 
indirectly account for stranded capital. Adoption features specific to 
each technology, if applied on a manufacturer-by-manufacturer basis, 
are

[[Page 25774]]

discussed in each technology section. The agency will monitor these 
trends to assess the role of stranded capital moving forward.
(d) Cost Learning
    Manufacturers make improvements to production processes over time, 
which often result in lower costs. ``Cost learning'' reflects the 
effect of experience and volume on the cost of production, which 
generally results in better utilization of resources, leading to higher 
and more efficient production. As manufacturers gain experience through 
production, they refine production techniques, raw material and 
component sources, and assembly methods to maximize efficiency and 
reduce production costs. Typically, a representation of this cost 
learning, or learning curves, reflects initial learning rates that are 
relatively high, followed by slower learning as additional improvements 
are made and production efficiency peaks. This eventually produces an 
asymptotic shape to the learning curve, as small percent decreases are 
applied to gradually declining cost levels. These learning curve 
estimates are applied to various technologies that are used to meet 
CAFE standards.
    We estimate cost learning by considering methods established by 
T.P. Wright and later expanded upon by J.R. Crawford.148 149 
Wright, examining aircraft production, found that every doubling of 
cumulative production of airplanes resulted in decreasing labor hours 
at a fixed percentage. This fixed percentage is commonly referred to as 
the progress rate or progress ratio, where a lower rate implies faster 
learning as cumulative production increases. J.R. Crawford expanded 
upon Wright's learning curve theory to develop a single unit cost 
model, which estimates the cost of the nth unit produced 
given the following information is known: (1) Cost to produce the first 
unit; (2) cumulative production of n units; and (3) the progress ratio.
---------------------------------------------------------------------------

    \148\ Wright, T. P., Factors Affecting the Cost of Airplanes. 
Journal of Aeronautical Sciences, Vol. 3 (1936), at pp. 124-25. 
Available at https://www.uvm.edu/pdodds/research/papers/others/1936/wright1936a.pdf. (Accessed: February 16, 2022)
    \149\ Crawford, J.R., Learning Curve, Ship Curve, Ratios, 
Related Data, Burbank, California-Lockheed Aircraft Corporation 
(1944).
---------------------------------------------------------------------------

    As pictured in Figure III-5, Wright's learning curve shows the 
first unit is produced at a cost of $1,000. Initially cost per unit 
falls rapidly for each successive unit produced. However, as production 
continues, cost falls more gradually at a decreasing rate. For each 
doubling of cumulative production at any level, cost per unit declines 
20 percent, so that 80 percent of cost is retained. The CAFE Model uses 
the basic approach by Wright, where cost reduction is estimated by 
applying a fixed percentage to the projected cumulative production of a 
given fuel economy technology.
[GRAPHIC] [TIFF OMITTED] TR02MY22.060

    The analysis accounts for learning effects with model year-based 
cost learning forecasts for each technology that reduces direct 
manufacturing costs over time. We evaluate the historical use of 
technologies, and reviews industry forecasts to estimate future volumes 
to develop the model year-based technology cost learning curves.
    The following section discusses the development of model year-based 
cost learning forecasts for this analysis, including how the approach 
has evolved from the 2012 rulemaking for MY 2017-2025 vehicles, and how 
the progress ratios were developed for different technologies 
considered in the analysis. Finally, we discuss how these learning 
effects are applied in the CAFE Model.
(l) Time Versus Volume-Based Learning
    For the 2012 joint CAFE and GHG rulemaking, DOT developed learning 
curves as a function of vehicle model year.\150\ Although the concept 
of this methodology is derived from Wright's cumulative production 
volume-based learning curve, its application for CAFE technologies was 
more of a function of time. More than a dozen learning curve schedules 
were developed, varying

[[Page 25775]]

between fast and slow learning, and assigned to each technology 
corresponding to its level of complexity and maturity. The schedules 
were applied to the base year of direct manufacturing cost and 
incorporate a percentage of cost reduction by model year, declining at 
a decreasing rate through the technology's production life. Some newer 
technologies experience 20 percent cost reductions for introductory 
model years, while mature or less complex technologies experience 0-3 
percent cost reductions over a few years.
---------------------------------------------------------------------------

    \150\ 77 FR 62624 (Oct. 15, 2012).
---------------------------------------------------------------------------

    In their 2015 report to Congress, NAS recommended NHTSA should 
``continue to conduct and review empirical evidence for the cost 
reductions that occur in the automobile industry with volume, 
especially for large-volume technologies that will be relied on to meet 
the CAFE/GHG standards.'' \151\
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    \151\ 2015 NAS Report.
---------------------------------------------------------------------------

    In response, we incorporated statically projected cumulative volume 
production data of fuel economy-improving technologies, representing an 
improvement over the previously used time-based method. Dynamic 
projections of cumulative production are not feasible with current CAFE 
Model capabilities, so one set of projected cumulative production data 
for most vehicle technologies was developed for the purpose of 
determining cost impact. We obtained historical cumulative production 
data for many technologies produced and/or sold in the U.S. to 
establish a starting point for learning schedules. Groups of similar 
technologies or technologies of similar complexity may share identical 
learning schedules.
    The slope of the learning curve, which determines the rate at which 
cost reductions occur, has been estimated using research from an 
extensive literature review and automotive cost tear-down reports (see 
below). The slope of the learning curve is derived from the progress 
ratio of manufacturing automotive and other mobile source technologies.
(2) Deriving the Progress Ratio Used in This Analysis
    Learning curves vary among different types of manufactured 
products. Progress ratios can range from 70 to 100 percent, where 100 
percent indicates no learning can be achieved.\152\ Learning effects 
tend to be greatest in operations where workers often touch the 
product, while effects are less substantial in operations consisting of 
more automated processes. As automotive manufacturing plant processes 
become increasingly automated, a progress ratio towards the higher end 
would seem more suitable. We incorporated findings from automotive 
cost-teardown studies with EPA's 2015 literature review of learning-
related studies to estimate a progress ratio used to determine learning 
schedules of fuel economy-improving technologies.
---------------------------------------------------------------------------

    \152\ Martin, J., ``What is a Learning Curve?'' Management and 
Accounting Web, University of South Florida, available at: https://www.maaw.info/LearningCurveSummary.htm. (Accessed: February 16, 
2022)
---------------------------------------------------------------------------

    EPA's literature review examined and summarized 20 studies related 
to learning in manufacturing industries and mobile source 
manufacturing.\153\ The studies focused on many industries, including 
motor vehicles, ships, aviation, semiconductors, and environmental 
energy. Based on several criteria, EPA selected five studies providing 
quantitative analysis from the mobile source sector (progress ratio 
estimates from each study are summarized in Table III-5, below). 
Further, those studies expand on Wright's learning curve function by 
using cumulative output as a predictor variable, and unit cost as the 
response variable. As a result, EPA determined a best estimate of 84 
percent as the progress ratio in mobile source industries. However, of 
those five studies, EPA at the time placed less weight on the Epple et 
al. (1991) study, because of a disruption in learning due to incomplete 
knowledge transfer from the first shift to introduction of a second 
shift at a North American truck plant. While learning may have 
decelerated immediately after adding a second shift, we note that unit 
costs continued to fall as the organization gained experience operating 
with both shifts. We recognize that disruptions are an essential part 
of the learning process and should not, in and of themselves, be 
discredited. For this reason, the analysis uses a re-estimated average 
progress ratio of 85 percent from those five studies (equally 
weighted).
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    \153\ Cost Reduction through Learning in Manufacturing 
Industries and in the Manufacture of Mobile Sources, U.S. 
Environmental Protection Agency (2015). Prepared by ICF 
International and available at https://19january2017snapshot.epa.gov/sites/production/files/2016-11/documents/420r16018.pdf. (Accessed: February 16, 2022)
    \154\ Argote, L., Epple, D., Rao, R. D., & Murphy, K., The 
acquisition and depreciation of knowledge in a manufacturing 
organization--Turnover and plant productivity, Working paper, 
Graduate School of Industrial Administration, Carnegie Mellon 
University (1997).
    \155\ Benkard, C. L., Learning and Forgetting--The Dynamics of 
Aircraft Production, The American Economic Review, Vol. 90(4), at 
1034-54 (2000).
    \156\ Epple, D., Argote, L., & Devadas, R., Organizational 
Learning Curves--A Method for Investigating Intra-Plant Transfer of 
Knowledge Acquired through Learning by Doing, Organization Science, 
Vol. 2(1), at 58-70 (1991).
    \157\ Epple, D., Argote, L., & Murphy, K., An Empirical 
Investigation of the Microstructure of Knowledge Acquisition and 
Transfer through Learning by Doing, Operations Research, Vol. 44(1), 
at 77-86 (1996).
    \158\ Levitt, S. D., List, J. A., & Syverson, C., Toward an 
Understanding of Learning by Doing--Evidence from an Automobile 
Assembly Plant, Journal of Political Economy, Vol. 121 (4), at 643-
81 (2013).
[GRAPHIC] [TIFF OMITTED] TR02MY22.061


[[Page 25776]]


    In addition to EPA's literature review, this progress ratio 
estimate was informed based on findings from automotive cost-teardown 
studies. NHTSA routinely performs evaluations of costs of previously 
issued Federal Motor Vehicle Safety Standards (FMVSS) for new motor 
vehicles and equipment. NHTSA engages contractors to perform detailed 
engineering ``tear-down'' analyses for representative samples of 
vehicles, to estimate how much specific FMVSS add to the weight and 
retail price of a vehicle. As part of the effort, the agency examines 
cost and production volume for automotive safety technologies. In 
particular, we estimated costs from multiple cost tear-down studies for 
technologies with actual production data from the Cost and weight added 
by the Federal Motor Vehicle Safety Standards for MY 1968-2012 
passenger cars and LTVs (2017).\159\
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    \159\ Simons, J. F., Cost and weight added by the Federal Motor 
Vehicle Safety Standards for MY 1968-2012 Passenger Cars and LTVs 
(Report No. DOT HS 812 354). Washington, DC--National Highway 
Traffic Safety Administration (November 2017), at pp. 30-33.
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    We chose five vehicle safety technologies with sufficient data to 
estimate progress ratios of each, because these technologies are large-
volume technologies and are used by almost all vehicle manufacturers. 
Table III-6 includes these five technologies and yields an average 
progress rate of 92 percent.
[GRAPHIC] [TIFF OMITTED] TR02MY22.062

    For the final progress ratio used in the CAFE Model, the five 
progress rates from EPA's literature review and five progress rates 
from NHTSA's evaluation of automotive safety technologies results were 
averaged. This resulted in an average progress rate of approximately 89 
percent. We placed equal weight on progress ratios from all 10 sources. 
More specifically, we placed equal weight on the Epple et al. (1991) 
study, because disruptions have more recently been recognized as an 
essential part in the learning process, especially in an effort to 
increase the rate of output.
(3) Obtaining Appropriate Baseline Years for Direct Manufacturing Costs
    DOT obtained direct manufacturing costs for each fuel economy-
improving technology from various sources, as discussed above. To 
establish a consistent basis for direct manufacturing costs in the 
rulemaking analysis, we adjusted each technology cost to MY 2018 
dollars. For each technology, the DMC is associated with a specific 
model year, and sometimes a specific production volume, or cumulative 
production volume. The base model year is established as the model year 
in which direct manufacturing costs were assessed (with learning factor 
of 1.00). With the aforementioned data on cumulative production volume 
for each technology and the assumption of a 0.89 progress ratio for all 
automotive technologies, we can solve for an implied cost for the first 
unit produced. For some technologies, we used modestly different 
progress ratios to match detailed cost projections if available from 
another source (for instance, batteries for plug-in hybrids and battery 
electric vehicles).
    This approach produces reasonable estimates for technologies 
already in production, and some additional steps are required to set 
appropriate learning rates for technologies not yet in production. 
Specifically, for technologies not yet in production in MY 2017, the 
cumulative production volume in MY 2017 is zero, because manufacturers 
have not yet produced the technologies. For pre-production cost 
estimates in previous CAFE rulemakings, we often relied on confidential 
business information sources to predict future costs. Many sources for 
pre-production cost estimates include significant learning effects, 
often providing cost estimates assuming high volume production, and 
often for a timeframe late in the first production generation or early 
in the second generation of the technology. Rapid doubling and re-
doubling of a low cumulative volume base with Wright's learning curves 
can provide unrealistic cost estimates. In addition, direct 
manufacturing cost projections can vary depending on the initial 
production volume assumed. Accordingly, we carefully examined direct 
costs with learning, and made adjustments to the starting point for 
those technologies on the learning curve to better align with the 
assumptions used for the initial direct cost estimate.
(4) Cost Learning Applied in the CAFE Model
    For this analysis, we apply learning effects to the incremental 
cost over the null technology state on the applicable technology tree. 
After this step, we calculate year-by-year incremental costs over 
preceding technologies on the tech tree to create the CAFE Model 
inputs.\160\ The shift from incremental cost accounting to absolute 
cost accounting in recent CAFE analyses made cost inputs more 
transparently relatable to detailed model output, and relevant to this 
discussion, made it easier to apply learning curves in the course of 
developing inputs to the CAFE Model.
---------------------------------------------------------------------------

    \160\ These costs are located in the CAFE Model Technologies 
file.
---------------------------------------------------------------------------

    We group certain technologies, such as advanced engines, advanced 
transmissions, and non-battery electric components and assign them to 
the same learning schedule. While these grouped technologies differ in 
operating characteristics and design, we chose to group them based on 
their complexity, technology integration, and economies of scale across 
manufacturers. The low volume of certain advanced technologies, such as 
hybrid and electric technologies, poses a significant issue for 
suppliers and prevents them

[[Page 25777]]

from producing components needed for advanced transmissions and other 
technologies at more efficient high scale production. The technology 
groupings consider market availability, complexity of technology 
integration, and production volume of the technologies that can be 
implemented by manufacturers and suppliers. The details of these 
technologies are discussed in Section III.D.
    In addition, we expanded model inputs to extend the explicit 
simulation of technology application through MY 2050. Accordingly, we 
updated the learning curves for each technology group to cover MYs 
through 2050. For MYs 2017-2032, we expect incremental improvements in 
all technologies, particularly in electrification technologies because 
of increased production volumes, labor efficiency, improved 
manufacturing methods, specialization, network building, and other 
factors. While these and other factors contribute to continual cost 
learning, we believe that many fuel economy-improving technologies 
considered in this rule will approach a flat learning level by the 
early 2030s. Specifically, older, and less complex internal combustion 
engine technologies and transmissions will reach a flat learning curve 
sooner when compared to electrification technologies, which have more 
opportunity for improvement. For batteries and non-battery 
electrification components, we estimated a steeper learning curve that 
will gradually flatten after MY 2040. For a more detailed discussion of 
the electrification learning curves, see Section III.D.3.
    Each technology in the CAFE Model is assigned a learning schedule 
developed from the methodology explained previously. For example, the 
following chart shows learning rates for several technologies 
applicable to midsize sedans, demonstrating that while we estimate that 
such learning effects have already been almost entirely realized for 
engine turbocharging (a technology that has been in production for many 
years), we estimate that significant opportunities to reduce the cost 
of the greatest levels of mass reduction (e.g., MR5) remain, and even 
greater opportunities remain to reduce the cost of batteries for HEVs, 
PHEVs, BEVs. In fact, for certain advanced technologies, we determined 
that the results predicted by the standard learning curves progress 
ratio was not realistic, based on unusual market price and production 
relationships. For these technologies, we developed specific learning 
estimates that may diverge from the 0.89 progress rate. As shown in 
Figure III-6, these technologies include: Turbocharging and downsizing 
level 1 (TURBO1), variable turbo geometry electric (VTGE), aerodynamic 
drag reduction by 15 percent (AERO15), mass reduction level 5 (MR5), 20 
percent improvement in low-rolling resistance tire technology (ROLL20) 
over the baseline, and belt integrated starter/generator (BISG).
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TR02MY22.063


[[Page 25778]]


BILLING CODE 4910-59-C
    CFA noted that the inputs we use for learning rates produce less 
optimistic results than those used by EPA. They cite these differing 
results as evidence that NHTSA should use the EPA values. CFA states 
that, ``EPA's benefit cost ratios are much higher affirming that their 
analysis is more appropriate.'' \161\ CFA provided no new data or 
discussion to justify a conclusion that their preferred values are 
justified empirically, and NHTSA continues to believe that the 
appropriate values to use in estimating the impacts of CAFE standards 
are those most justified by empirical evidence and research, consistent 
with E.O. 12866, without reference to the outcomes they produce. We 
have provided a full description of the basis for choosing the learning 
values that we use in Chapter 2.6.4 of the TSD accompanying this final 
rule, as well as in the FRIA accompanying the 2020 final rule.
---------------------------------------------------------------------------

    \161\ CFA, at p. 5.
---------------------------------------------------------------------------

(e) Cost Accounting
    To facilitate specification of detailed model inputs and review of 
detailed model outputs, the CAFE Model continues to use absolute cost 
inputs relative to a known base component cost, such that the estimated 
cost of each technology is specified relative to a common reference 
point for the relevant technology pathway. For example, the cost of a 
7-speed transmission is specified relative to a 5-speed transmission, 
as is the cost of every other transmission technology. Conversely, in 
some earlier versions of the CAFE Model, incremental cost inputs were 
estimated relative to the technology immediately preceding on the 
relevant technology pathway. For our 7-speed transmission example, the 
incremental cost would be relative to a 6-speed transmission. This 
change in the structure of cost inputs does not, by itself, change 
model results, but it does make the connection between these inputs and 
corresponding outputs more transparent. The CAFE Model Documentation 
accompanying our analysis presents details of the structure for model 
cost inputs.\162\ The individual technology sections in Section III.D 
provide a detailed discussion of cost accounting for each technology.
---------------------------------------------------------------------------

    \162\ CAFE Model Documentation, S4.7.
---------------------------------------------------------------------------

7. Manufacturer's Credit Compliance Positions
    This rule involves a variety of provisions regarding ``credits'' 
and other compliance flexibilities. Some regulatory provisions allow a 
manufacturer to earn ``credits'' that will be counted toward a 
vehicle's rated CO2 emissions level, or toward a fleet's 
rated average CO2 or CAFE level, without reference to 
required levels for these average levels of performance. Such 
flexibilities effectively modify emissions and fuel economy test 
procedures or methods for calculating fleets' CAFE and average 
CO2 levels. Other provisions (for CAFE, statutory 
provisions) allow manufacturers to earn credits by achieving CAFE or 
average CO2 levels beyond required levels; these provisions 
may hence more appropriately be termed ``compliance credits.'' We 
described in the 2020 final rule how the CAFE Model simulates these 
compliance credit provisions for both the CAFE program and for EPA's 
CO2 standards.\163\ For this analysis, we modeled the No-
Action and Action Alternatives as a set of CAFE standards in place 
simultaneously with EPA's 2020 final rule CO2 
standards,\164\ related CARB agreements with five manufacturers, and 
ZEV mandates in place in California and some other states. The modeling 
of CO2 standards and standard-like contractual obligations 
includes our representation of applicable credit provisions.
---------------------------------------------------------------------------

    \163\ See 85 FR 24174, 24303 (April 30, 2020).
    \164\ The baseline for this analysis is the set of standards in 
place when NHTSA initiated this rulemaking.
---------------------------------------------------------------------------

    EPCA has long provided that, by exceeding the CAFE standard 
applicable to a given fleet in a given model year, a manufacturer may 
earn corresponding ``credits'' that the same manufacturer may, within 
the same regulatory class, apply toward compliance in a different model 
year. EISA amended these provisions by providing that manufacturers 
may, subject to specific statutory limitations, transfer compliance 
credits between regulatory classes and trade compliance credits with 
other manufacturers. Under the CAA, EPA has broad standard-setting 
authority and has long provided for averaging, banking, and trading 
programs in certain circumstances, and in particular for GHGs.
    EPCA also specifies that NHTSA may not consider the availability of 
CAFE credits (for transfer, trade, or direct application) toward 
compliance with new standards when establishing the standards 
themselves.\165\ Therefore, this analysis excludes MYs 2024-2026 from 
those in which carried-forward or transferred credits can be applied 
for the CAFE program.
---------------------------------------------------------------------------

    \165\ 49 U.S.C. 32902(h)(3).
---------------------------------------------------------------------------

    The ``unconstrained'' perspective acknowledges that these 
flexibilities exist as part of the program and, while not considered by 
NHTSA in setting standards, are nevertheless important to consider when 
attempting to estimate the real impact of any alternative. Under the 
``unconstrained'' perspective, credits may be earned, transferred, and 
applied to deficits in the CAFE program throughout the full range of 
model years in the analysis. The Final SEIS accompanying this rule 
presents ``unconstrained'' modeling results. Also, consistent with the 
program EPA established under the CAA, this analysis includes 
simulation of carried-forward and transferred CO2 credits in 
all model years.
    The CAFE Model, therefore, does provide means to simulate 
manufacturers' potential application of some compliance credits, and 
both the analysis of CO2 standards and the NEPA analysis of 
CAFE standards do make use of this aspect of the model. On the other 
hand, 49 U.S.C. 32902(h) prevents NHTSA from, in its standard setting 
analysis, considering the potential that manufacturers could use 
compliance credits in model years for which the agency is establishing 
maximum feasible CAFE standards. Further, as discussed below, we also 
continue to find it appropriate for the analysis largely to refrain 
from simulating two of the mechanisms allowing the use of compliance 
credits.
    The CAFE Model's approach to simulating compliance decisions 
accounts for the potential to earn and use CAFE credits as provided by 
EPCA/EISA. The model similarly accumulates and applies CO2 
credits when simulating compliance with EPA's standards. Like past 
versions, the current CAFE Model can simulate credit carry-forward 
(i.e., banking) between model years and transfers between the passenger 
car and light truck fleets but not credit carry-back (i.e., borrowing) 
from future model years or trading between manufacturers.
    While NHTSA's ``unconstrained'' evaluation can consider the 
potential to carry back compliance credits from later to earlier model 
years, past examples of failed attempts to carry back CAFE credits 
(e.g., a MY 2014 carry back default leading to a civil penalty payment) 
underscore the riskiness of such ``borrowing.'' Recent evidence 
indicates manufacturers are disinclined to take such risks, and we find 
it reasonable and prudent to refrain from attempting to simulate such 
``borrowing'' in rulemaking analysis.
    Like the previous version, the current CAFE Model provides a basis 
to specify (in model inputs) CAFE credits available from model years 
earlier than

[[Page 25779]]

those being explicitly simulated. For example, with this analysis 
representing MYs 2020-2050 explicitly, credits earned in the MY 2015 
are made available for use through the MY 2020 (given the current five-
year limit on carry-forward of credits). The banked credits are 
specific to both the model year and fleet in which they were earned.
    To increase the realism with which the model transitions between 
the early model years (MYs 2020-2023) and the later years that are the 
subject of this action, we have accounted for the potential that some 
manufacturers might trade credits earned prior to 2020 to other 
manufacturers. However, the analysis refrains from simulating the 
potential that manufacturers might continue to trade credits during and 
beyond the model years covered by this action. In 2018 and 2020, the 
analysis included idealized cases simulating ``perfect'' (i.e., wholly 
unrestricted) trading of CO2 compliance credits by treating 
all vehicles as being produced by a single manufacturer. Even for 
CO2 compliance credit trading, these scenarios were not 
plausible, because it is exceedingly unlikely that some pairs of 
manufacturers would trade compliance credits. NHTSA did not include 
such cases for CAFE compliance credits, because EPCA provisions (such 
as the minimum domestic passenger car standard requirement) make such 
scenarios impossible. At this time, we remain concerned that any 
realistic simulation of such trading would require assumptions 
regarding which specific pairs of manufacturers might trade compliance 
credits, and the evidence to date makes it clear that the credit market 
is far from fully ``open.'' \166\
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    \166\ See, Automotive Innovators, NHTSA-2021-0053-1492, at p. 
73.
---------------------------------------------------------------------------

    We also remain concerned that to set standards based on an analysis 
that presumes the use of program flexibilities risks making the 
corresponding actions mandatory. Some flexibilities--credit carry-
forward (banking) and transfers between fleets in particular--involve 
little risk because they are internal to a manufacturer and known in 
advance. As discussed above, credit carry-back involves significant 
risk because it amounts to borrowing against future improvements, 
standards, and production volume and mix. Similarly, credit trading may 
also involve significant risk, because the ability of manufacturer A to 
acquire credits from manufacturer B depends not just on manufacturer B 
actually earning the expected amount of credit, but also on 
manufacturer B being willing to trade with manufacturer A, and on 
potential interest by other manufacturers. Manufacturers' compliance 
plans have already evidenced cases of compliance credit trades that 
were planned and subsequently aborted, reinforcing our judgment that, 
like credit borrowing, credit trading involves too much risk to be 
included in an analysis that informs decisions about the stringency of 
future standards. NHTSA will continue to carefully monitor 
manufacturers' practices regarding use of credit trading and other 
flexibilities to ensure that future analyses appropriately account for 
realistic market conditions and statutory requirements as applicable.
    As discussed in the CAFE Model Documentation, the model's default 
logic attempts to maximize credit carry-forward--that is, to ``hold 
on'' to credits for as long as possible. If a manufacturer needs to 
cover a shortfall that occurs when insufficient opportunities exist to 
add technology to achieve compliance with a standard, the model will 
apply credits. Otherwise, the manufacturer carries forward credits 
until they are about to expire, at which point it will use them before 
adding technology that is not considered cost-effective. The model 
attempts to use credits that will expire within the next three years as 
a means to smooth out technology applications over time to avoid both 
compliance shortfalls and high levels of over-compliance that can 
result in a surplus of credits. Although it remains impossible 
precisely to predict the manufacturer's actual earning and use of 
compliance credits, and this aspect of the model may benefit from 
future refinement as manufacturers and regulators continue to gain 
experience with these provisions, this approach is generally consistent 
with manufacturers' observed practices.
    NHTSA introduced the CAFE Public Information Center (PIC) to 
provide public access to a range of information regarding the CAFE 
program,\167\ including manufacturers' credit balances. However, there 
is a data lag in the information presented on the CAFE PIC that may not 
capture credit actions across the industry for as much as several 
months. Furthermore, CAFE credits that are traded between manufacturers 
are adjusted to preserve the gallons saved that each credit 
represents.\168\ The adjustment occurs at the time of application 
rather than at the time the credits are traded. This means that a 
manufacturer who has acquired credits through trade, but has not yet 
applied them, may show a credit balance that is either considerably 
higher or lower than the real value of the credits when they are 
applied. For example, a manufacturer that buys 40 million credits from 
Tesla may show a credit balance in excess of 40 million. However, when 
those credits are applied, they may be worth only \1/10\ as much--
making that manufacturer's true credit balance closer to 4 million than 
40 million (e.g., when another manufacturer uses credits acquired from 
Tesla, the manufacturer may only be able to offset a 1 mpg compliance 
shortfall, even though the credits' ``face value'' suggests the 
manufacturer could offset a 10-mpg compliance shortfall).
---------------------------------------------------------------------------

    \167\ CAFE Public Information Center, https://one.nhtsa.gov/cafe_pic/home (accessed: March 6, 2022).
    \168\ CO2 credits for EPA's program are denominated 
in metric tons of CO2 rather than gram/mile compliance 
credits and require no adjustment when traded between manufacturers 
or fleets.
---------------------------------------------------------------------------

    Specific inputs accounting for manufacturers' accumulated 
compliance credits are discussed in TSD Chapter 2.
    In addition to the inclusion of these existing credit banks, the 
CAFE Model also updated its treatment of credits in the rulemaking 
analysis. EPCA requires that NHTSA set CAFE standards at maximum 
feasible levels for each model year without consideration of the 
program's credit mechanisms. However, as recent CAFE rulemakings have 
evaluated the effects of standards over longer time periods, the early 
actions taken by manufacturers required more nuanced representation. 
Accordingly, the CAFE Model now provides means to exclude the simulated 
application of CAFE compliance credits only from specific model years 
for which standards are being set (for this analysis, 2024-2026), while 
allowing CAFE credits to be applied in other model years.
    In addition to more rigorous accounting of CAFE and CO2 
compliance credits, the model also accounts for air conditioning 
efficiency and off-cycle adjustments. NHTSA's program considers those 
adjustments in a manufacturer's compliance calculation starting in MY 
2017, and specific estimates of each manufacturer's reliance on these 
adjustments are discussed above in Section III.C.2.a). Because air 
conditioning efficiency and off-cycle adjustments are not credits in 
NHTSA's program, but rather adjustments to compliance fuel economy, 
they may be included under either a ``standard setting'' or 
``unconstrained'' analysis perspective.

[[Page 25780]]

    The manner in which the CAFE Model treats the EPA and CAFE AC 
efficiency and off-cycle credit programs is similar, but the model also 
accounts for AC leakage (which is not part of NHTSA's program). When 
determining the compliance status of a manufacturer's fleet (in the 
case of EPA's program, PC and LT are the only fleet distinctions), the 
CAFE Model weighs future compliance actions against the presence of 
existing (and expiring) CO2 credits resulting from over-
compliance with earlier years' standards, AC efficiency credits, AC 
leakage credits, and off-cycle credits.
    The model currently accounts for any off-cycle adjustments 
associated with technologies that are included in the set of fuel-
saving technologies simulated explicitly (for example, start-stop 
systems that reduce fuel consumption during idle or active grille 
shutters that improve aerodynamic drag at highway speeds) and 
accumulates these adjustments up to levels defined in the Market Data 
file. As discussed further in Section III.D.8, this analysis considers 
that some manufacturers may apply up to 15.0 g/mi of off-cycle credit 
by MY 2032. We considered the potential to model the application of 
off-cycle technologies explicitly. However, doing so would require data 
regarding which vehicle models already possess these improvements as 
well as the cost and expected value of applying them to other models in 
the future. Such data are currently too limited to support explicit 
modeling of these technologies and adjustments.
    When establishing maximum feasible fuel economy standards, NHTSA is 
prohibited from considering the availability of alternatively fueled 
vehicles,\169\ and credit provisions related to AFVs that significantly 
increase their fuel economy for CAFE compliance purposes. Under the 
``standard setting'' perspective, these technologies (pure battery 
electric vehicles and fuel cell vehicles \170\) are not available in 
the compliance simulation to improve fuel economy. Under the 
``unconstrained'' perspective, such as is documented in the Final SEIS, 
the CAFE Model considers these technologies in the same manner as other 
available technologies and may apply them if they represent cost-
effective compliance pathways. However, under both perspectives, the 
analysis continues to include dedicated AFVs that could be produced in 
response to CAFE standards outside the model years for which standards 
are being set, or for other reasons (e.g., ZEV mandates, as accounted 
for in this analysis).
---------------------------------------------------------------------------

    \169\ 49 U.S.C. 32902(h).
    \170\ Dedicated compressed natural gas (CNG) vehicles should 
also be excluded in this perspective but are not considered as a 
compliance strategy under any perspective in this analysis.
---------------------------------------------------------------------------

    EPCA also provides that CAFE levels may, subject to limitations, be 
adjusted upward to reflect the sale of flexible fuel vehicles (FFVs). 
Because these adjustments ended in MY 2020, this analysis assumes no 
manufacturer will earn FFV credits within the modeling horizon.
    In contrast, the CAA allows consideration of alternative fuels, and 
EPA has provided that manufacturers selling PHEVs, BEVs, and FCVs may, 
when calculating fleet average CO2 levels, ``count'' each 
unit of production as more than a single unit. The CAFE Model accounts 
for these ``multipliers.''
    There were no natural gas vehicles in the baseline fleet, and the 
analysis did not apply natural gas technology due to cost 
effectiveness. The application of production multipliers for natural 
gas vehicles for MY 2022 would have no impact on the analysis because 
given the state of natural gas vehicle refueling infrastructure, the 
cost to equip vehicles with natural gas tanks, the outlook for 
petroleum prices, and the outlook for battery prices, we have little 
basis to project more than an inconsequential response to this 
incentive in the foreseeable future.

D. Technology Pathways, Effectiveness, and Cost

    Vehicle manufacturers meet increasingly stringent fuel economy 
standards by applying additional fuel-economy-improving technologies to 
their vehicles. To assess what increases in fuel economy standards 
could be achievable at what cost, we first need accurate 
characterizations of fuel-economy-improving technologies. We collected 
data on over 50 fuel-economy-improving technologies that manufacturers 
could apply to their vehicles to meet future stringency levels. This 
includes determining technology effectiveness values, technology costs, 
and how we realistically expect manufacturers could apply the 
technologies in the rulemaking timeframe. The characterizations of 
these fuel-economy-improving technologies are built on work performed 
by DOT, EPA, NAS, and other Federal and state government agencies 
including the Department of Energy's Argonne National Laboratory and 
the California Air Resources Board.
    In the NPRM we described spending approximately a decade refining 
the technology pathways, effectiveness, and cost assumptions used in 
successive CAFE Model analyses. We discussed developing guiding 
principles to ensure the CAFE Model reasonably simulates manufacturers' 
possible real-world compliance behavior. These guiding principles are 
as follows:
    The fuel economy improvement from any individual technology must be 
considered in conjunction with any other fuel-economy-improving 
technologies applied to the vehicle. Certain technologies will have 
complementary or non-complementary interactions with the full vehicle 
technology system. For example, there is an obvious fuel economy 
benefit that results from converting a vehicle with a traditional 
internal combustion engine to a battery electric vehicle; however, the 
benefit of the electrification technology depends on the other road 
load reducing technologies (i.e., mass reduction, aerodynamic, and 
rolling resistance) on the vehicle.
    Technologies added in combination to a vehicle will not result in a 
simply additive fuel economy improvement from each individual 
technology. As discussed in Section III.C.4, full vehicle modeling and 
simulation provides the required degree of accuracy to project how 
different technologies will interact in the vehicle system. For 
example, as discussed further in Sections III.D.1 and III.D.3, a 
parallel hybrid architecture powertrain improves fuel economy, in part, 
by allowing the internal combustion engine to spend more time operating 
at efficient engine speed and load conditions. This reduces the 
advantage of adding advanced internal combustion engine technologies, 
which also improve fuel economy, by broadening the range of speed and 
load conditions for the engine to operate at high efficiency. This 
redundancy in fuel savings mechanism results in a reduced effectiveness 
improvement when the technologies are added to each other.
    The effectiveness of a technology depends on the type of vehicle 
the technology is being applied to. For example, applying mass 
reduction technology results in varying effectiveness as the absolute 
mass reduced is a function of the starting vehicle mass, which varies 
across vehicle technology classes. See Section III.D.4 for more 
details.
    The cost and effectiveness values for each technology should be 
reasonably representative of what can be achieved across the entire 
industry. Each technology model employed in the analysis is designed to 
be representative of a wide range of specific technology applications 
used in industry. Some vehicle manufacturer's systems may

[[Page 25781]]

perform better and cost less than our modeled systems and some may 
perform worse and cost more. However, employing this approach will 
ensure that, on balance, the analysis captures a reasonable level of 
costs and benefits that would result from any manufacturer applying the 
technology.
    The baseline for cost and effectiveness values must be identified 
before assuming that a cost or effectiveness value could be employed 
for any individual technology. For example, as discussed further in 
Section III.D.1.d) below, this analysis uses a set of engine map models 
that were developed by starting with a small number of baseline engine 
configurations, and then, in a very systematic and controlled process, 
adding specific well-defined technologies to create a new map for each 
unique technology combination.
    Historically, we have received comments concerned with specific 
technology assumptions, such as technology effectiveness or cost, or 
how we applied adoption features. In response to this proposal, 
however, commenters instead focused on broader portions of our modeling 
approach. Specifically, we received comments about the range of 
technologies considered on the advanced engine technology pathway and 
hybrid/electric pathway, considering the potential future of light duty 
vehicle fuel economy and greenhouse gas emissions regulations. We did 
still receive some comments regarding specific technology values, but 
fewer than previous rules.\171\
---------------------------------------------------------------------------

    \171\ Comments regarding specific technology modeling values, 
such as battery cost, strong hybrid electric vehicle costs, and high 
compression ratio engine adoptions features are addressed under 
their respective paragraphs below.
---------------------------------------------------------------------------

    Vehicle manufacturers emphasized the diminishing returns to 
investing in advanced internal combustion engine technologies, and a 
current trend of shifting resources from ICE development into 
electrification technologies. Ford Motor Company (Ford) commented that 
``[t]he transformation of the light-duty fleet toward electrification 
will require unprecedented levels of ingenuity and investment to 
succeed. Over the last 10 years, rapid improvements in internal 
combustion engine (ICE) fuel efficiency and criteria emissions 
performance have been accomplished. Further improvements are possible, 
but will be marginal, and will come at high cost.'' \172\ Similarly, 
Volkswagen Group of America (Volkswagen) commented that they have 
``publicly stated that investments into combustion technologies will 
wane with a point in the next several years where there will be no new 
combustion engine families developed for the Group. Volkswagen 
recognizes that remaining combustion models will continue to be sold in 
high volume for the next several years and that it is important to 
preserve the fuel economy of remaining ICEs as electrification volumes 
increase. As noted earlier, Volkswagen's remaining ICE engines will 
[sic]primary focus on evolutions of existing downsized, charged engines 
to incorporate incremental hardware and software improvements.'' \173\ 
Toyota Motor North America, Inc. (Toyota) also commented that ``data 
has consistently documented that even advanced ICE-only powertrains 
will fall short of the proposed standards and that while future 
advancements are possible, a point of diminishing returns is in part 
driving the transition to electrified powertrains, including 
conventional hybrids.'' \174\
---------------------------------------------------------------------------

    \172\ Ford, Docket No. NHTSA-2021-0053-1545-A1, at p. 1.
    \173\ Volkswagen, Docket No. NHTSA-2021-0053-1548-A1, at pp. 21-
22.
    \174\ Toyota, Docket No. NHTSA-2021-0053-1568, at p. 2.
---------------------------------------------------------------------------

    In contrast, Union of Concerned Scientists (UCS) acknowledged that 
``given automaker investments and future product plans, it is likely 
that manufacturers' compliance strategies will include increased 
electrification. However, there are significant opportunities for 
improvements to internal combustion engine vehicles as well.'' \175\ 
Similarly, ICCT provided examples of vehicle technologies that can 
``boost ICE efficiency well beyond even HCR2 efficiency levels,'' 
including technologies that are not modeled in the analysis like 
negative valve overlap (NVO) fuel reforming, passive prechamber 
engines, and high energy ignition systems.\176\ Borg Warner also 
provided hydrogen combustion as ``an advanced technology that has been 
under development for some time and could be more rapidly deployed in 
high volumes to make an impact.'' \177\
---------------------------------------------------------------------------

    \175\ UCS, Docket No. NHTSA-2021-0053-1567-A1, at p. 6.
    \176\ ICCT, Docket No. NHTSA-2021-0053-1581-A1, at p. 2.
    \177\ BorgWarner Inc. (BorgWarner), Docket No. NHTSA-2021-0053-
1473, at p. 2.
---------------------------------------------------------------------------

    First and foremost, we want to emphasize that the purpose of this 
regulation is to set maximum feasible CAFE standards for passenger cars 
and light trucks that improve energy conservation, and not to advocate 
for specific technology solutions. We acknowledge that the industry is 
not going to quickly abandon ICE technologies and we anticipate 
improvements in those vehicles for years to come; however, we also 
acknowledge that many manufacturers have announced significant shifts 
in product line-up, moving toward electrification technologies and 
likely slowing the rate of new ICE technology introduction.\178\ That 
said, we agree with comments urging us to staying abreast of the 
feasibility of advanced engine and other powertrain technologies. For 
this analysis we evaluated over 50 different technologies for 
effectiveness and cost and continue to research the feasibility of 
additional technology models. However, we also agree with comments 
regarding constraining some advanced technology options as an 
acknowledgment of the realities of limited investment resources. 
Accordingly, we expect an actual pathway to compliance in the 
rulemaking timeframe to fall somewhere between the extremes suggested 
by the commenters above. This expectation is discussed further in the 
results/legal justification section \179\ and in the engine technology 
section.\180\
---------------------------------------------------------------------------

    \178\ ``Mercedes-Benz Prepares to Go All-Electric,'' Mercedes-
Benz Media Newsroom USA (Jul. 22, 2021), https://media.mbusa.com/releases/release-ee5a810c1007117e79e1c871354679e4-mercedes-benz-prepares-to-go-all-electric (accessed: February 16, 2022). 
``Investments into combustion engines and plug-in hybrid 
technologies will drop by 80% between 2019 and 2026.''; Hannah Lutz, 
``Shifting into E,'' Automotive News (Jul. 26, 2021). ``Some 
existing vehicles, such as the Chevy Malibu and Camaro, won't stick 
to the standard cadence of face-lifts and redesigns. Instead, 
they'll ride out the current generation before making way for EVs.'' 
Jordyn Grzelewski, ``Ford Slated to Spend More On EVs Than On 
Internal Combustion Engine Vehicles in 2023,'' The Detroit News 
(Aug. 2, 2021).; Lindsay Chappell, ``All-In On EVs,'' Automotive 
News (May 17, 2021). ``Mini will become an all-electric brand by 
early 2030, and the British marque will roll out its last new 
combustion engine variant in 2025.'' (Emphasis added); Bibhu 
Pattnaik, ``Audi Will Not Introduce ICE Vehicles After 2026, No 
Hybrid Vehicles Either,'' Benzinga (Jun. 19, 2021), https://finance.yahoo.com/news/audi-not-introduce-ice-vehicles-160320055.html (accessed February 16, 2022); Mike Colias, ``Gas 
Engines, and the People Behind Them, Are Cast Aside for Electric 
Vehicles,'' The Wall Street Journal (Jul. 23, 2021). ``Auto 
executives have concluded, to varying degrees, that they can't meet 
tougher tailpipe-emission rules globally by continuing to improve 
gas or diesel engines . . . Over the past several decades, auto 
makers in most years rolled out between 20 and 70 new engines 
globally, according to research firm IHS Markit. That number will 
fall below 10 this year, and then essentially go to zero, the 
research firm said.''
    \179\ See Section VI.
    \180\ See Section III.D.1.
---------------------------------------------------------------------------

    As a result, we believe the range of technologies modeled on the 
advanced engine technologies and hybrid/electric pathways appropriately 
represent the range of technologies that will be available in the 
rulemaking time frame. The technologies in our analysis are

[[Page 25782]]

based on guidance from NAS \181\ and align with technologies considered 
by the EPA as part of their final rulemaking for MYs 2023-2026.\182\
---------------------------------------------------------------------------

    \181\ 2021 NAS Report.
    \182\ For detailed discussions on all the technologies used in 
this analysis see TSD Chapter 3, For more detailed discussion of the 
comments discussed here see Section III.D.1.
---------------------------------------------------------------------------

    However, the CAFE Model is a tool that offers many ways to evaluate 
a cost-effective technology pathway for vehicle manufacturers to reach 
given levels of CAFE standards, based on user-provided inputs and 
constraints. As a result of the concerns expressed in the comments 
above, we included a sensitivity analysis with inputs assuming that 
vehicle manufacturers would no longer deploy advanced engine 
technologies.\183\ The sensitivity analysis demonstrates a technology 
path where manufacturers choose to stop applying additional ICE 
improvements and only invest in partial or full electrification 
technologies going forward.\184\ Our ``no advanced engines'' 
sensitivity analysis shows a modest increase in strong hybrid (SHEV) 
and plug-in hybrid (PHEV) technology adoption compared to the reference 
analysis. This modest increase, about 5-6 percent increased technology 
penetration of SHEVs and PHEVs, enables the manufacturers to meet more 
stringent standards without the adoption of additional advanced ICE 
technology. The ``no advanced engine'' technology pathway increases the 
estimated average vehicle costs by $25 over the reference analysis by 
MY 2029.\185\
---------------------------------------------------------------------------

    \183\ See TSD Chapter 3.1 for a definition of advanced engine 
technologies.
    \184\ See FRIA Chapter 7.1 for more details; the sensitivity 
case ``conv-tech-imprlimited'' is referred to as ``no advanced 
engine'' in this discussion.
    \185\ Effects of standards on the fleet out to MY 2029 are 
considered to account for years the regulation covers, and years of 
potential carry back credit use.
---------------------------------------------------------------------------

    In consideration of comments received on the NPRM analysis and the 
results of additional sensitivity analysis, we believe that the 
technologies included in the CAFE Model's technology tree are currently 
appropriate, and we have made no changes in the technology tree for the 
analysis supporting this final rule. We believe the selected 
technologies provide a realistic representation of options that 
manufacturers have to comply with standards in the rulemaking 
timeframe.
    We made changes to just three technology inputs from the NPRM to 
this final rule. The changes are discussed in detail in the respective 
technology sections, and include:
     Decreased eCVT and cable costs associated with strong 
hybrid electric vehicle technologies;
     Decreased start/stop micro hybrid battery costs; and
     Correction of the high compression ratio with cylinder 
deactivations setting in the Technologies input file.
    The following sections discuss the engine, transmission, 
electrification, mass reduction, aerodynamic, tire rolling resistance, 
and other vehicle technologies considered in this analysis. Each 
section discusses how we define the technology in the CAFE Model,\186\ 
how we assign the technology to vehicles in the MY 2020 analysis fleet 
used as a starting point for this analysis, any adoption features that 
we apply to the technology so the analysis better represents 
manufacturers' real-world decisions, the technology effectiveness 
values, and technology cost. In addition, each section discusses the 
comments received for that technology pathway, and the changes made to 
input values because of comments.
---------------------------------------------------------------------------

    \186\ Note, due to the diversity of definitions industry uses 
for technology terms, or in describing the specific application of 
technology, the terms defined here may differ from how the 
technology is defined in the industry.
---------------------------------------------------------------------------

    Please note that the following technology effectiveness sections 
provide examples of the range of effectiveness values that a technology 
could achieve when applied to the entire vehicle system, in conjunction 
with the other fuel-economy-improving technologies already in use on 
the vehicle.\187\ To see the incremental effectiveness values for any 
particular vehicle moving from one technology key to a more advanced 
technology key, see the FE_1 and FE_2 Adjustments files that are 
integrated in the CAFE Model executable file. Similarly, the technology 
costs provided in each section are examples of absolute costs seen in 
specific model years (MYs 2020, 2025, and 2030 for most technologies), 
for specific vehicle classes.\188\ Please refer to the Technologies 
file to see all absolute technology costs used in the analysis across 
all model years.
---------------------------------------------------------------------------

    \187\ This serves as a visual example of the conditional 
effectiveness of adding `one technology at a time' discussed in the 
guiding principles above.
    \188\ The values shown serve as examples of cost origins and how 
cost values were treated to account for changes due to learning or 
time value of money.
---------------------------------------------------------------------------

1. Engine Paths
    We classified the extensive variety of light duty vehicle internal 
combustion (IC) engine technologies into discrete engine technology 
paths for this analysis. These engine technology paths model the most 
representative characteristics, costs, and performance of the fuel-
economy improving technologies likely available during the rulemaking 
time frame. It is our intent that the technology paths be 
representative of the range of potential performance levels for each of 
the technologies. We also acknowledge that some new and pre-production 
technologies are not part of this analysis because of uncertainties in 
the cost and capabilities of these emerging technologies. As a result, 
we did not include technologies unlikely to be feasible in the 
rulemaking timeframe, technologies unlikely to be compatible with U.S. 
fuels, or technologies where there were not appropriate data available 
to allow the simulation of effectiveness across all vehicle technology 
classes in this analysis.
    We briefly discuss IC engine technologies considered in this 
analysis, the CAFE Model's general engine technology categories, and 
how we assign engine technologies in the analysis fleet in the 
following sections. We also touch on engine technologies' adoption 
features, costs, and effectiveness when used as part of a full vehicle 
model. For a complete discussion on all of these topics please see the 
TSD.\189\
---------------------------------------------------------------------------

    \189\ See TSD Chapter 3.1.
---------------------------------------------------------------------------

(a) Engine Modeling in the CAFE Model
    Engine modeling in the CAFE Model involves the application of 
internal combustion engine technologies that manufacturers use to 
improve fuel economy. Of the engine technologies we model, some can be 
incorporated into existing engines with minor or moderate changes, but 
many require an entirely new engine architecture. As a result, we 
divide engine technologies into two categories, ``basic engine 
technologies'' and ``advanced engine technologies.'' ``Basic engine 
technologies'' refer to technologies adaptable to an existing engine 
with minor or moderate changes to the engine. ``Advanced engine 
technologies'' refer to technologies that generally require significant 
changes or an entirely new engine architecture.
    We do not intend for the words ``basic'' and ``advanced'' to confer 
any information about the level of sophistication of the technology or 
to indicate relative cost. Many advanced engine technology definitions 
include some basic engine technologies in their design, and these basic 
technologies are accounted for in the costs and effectiveness values of 
the advance engine. Figure III-7 shows how we organize the engine 
technologies pathways evaluated in the compliance simulation. We 
briefly describe each

[[Page 25783]]

engine technology below. It is important to note the ``Basic Engine 
Path'' shows that every engine starts with VVT and can add one, some, 
or all of the technologies in the dotted box, as discussed in Section 
III.D.1.a)(1).
[GRAPHIC] [TIFF OMITTED] TR02MY22.064

    In response to our proposal, some commenters, particularly in the 
automotive industry, commented in support of the number of advanced 
engine technologies in the engine tree especially in light of 
forthcoming electrification investments. Other commenters, in 
particular some environmental groups, commented with examples of 
advanced engine technologies that they believed we should consider in 
the analysis.
    More specifically, the automotive industry believes that the future 
of ICE technology is very limited, as manufacturers turn their focus to 
the electrification of the fleet. The new focus would result in 
limitation or even removal of resources dedicated to further ICE 
development. Major manufacturers provided information indicating that 
they will not develop advanced engine technologies beyond the current 
generation. Commenters who provided information suggesting engine 
technology may stagnate as manufacturers dedicate resources to 
electrification technology included Ford, Toyota, Volkswagen, and the 
Auto Innovators.
    Ford stated:

    Over the last 10 years, rapid improvements in internal 
combustion engine (ICE) fuel efficiency and criteria emissions 
performance have been accomplished. Further improvements are 
possible, but will be marginal, and will come at high cost. Ford 
requests that the agencies carefully weigh these considerations in 
the current and future rulemakings to ensure that resources and 
investment are not diverted from our primary objective: Fulfilling 
President Biden's goal of achieving 40-50 [percent] ZEV sales by 
2030.\190\
---------------------------------------------------------------------------

    \190\ Ford, Docket No. NHTSA-2021-0053-1545-A1, at p. 1.

---------------------------------------------------------------------------
    Toyota stated:

    Toyota has provided extensive information, in public comments 
and under CBI, on the effectiveness of [CO2] reduction 
technologies including those for advanced gasoline engines.\191\ The 
data has consistently documented that even advanced ICE-only 
powertrains will fall short of the proposed standards and that while 
future advancements are possible, a point of diminishing returns is 
in part driving the transition to electrified powertrains, including 
conventional hybrids. EPA notes manufacturer plans and announcements 
of ``a rapidly growing shift in investment away from internal-
combustion technologies and toward high levels of electrification.'' 
192 193
---------------------------------------------------------------------------

    \191\ Toyota comments on: Draft Technical Assessment Report on 
2022-2025 Model Year Light-Duty Vehicle Greenhouse Gas Emission 
Standards and Corporate Average Fuel Economy Standards, EPA-420-D-
16-900 pp. 2-5 and Appendix 1; Proposed Determination on the 
Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle 
Greenhouse Gas Emissions Standards under the Midterm Evaluation, 
EPA-420-R-16-020, pp. 3-8; Request for Comment on Reconsideration of 
the Final Determination of the Mid-Term Evaluation of Greenhouse Gas 
Emissions Standards for Model Year 2022-2025 Light-Duty Vehicles; 
Request for Comment on Model Year 2021 Greenhouse Gas Emissions 
Standards, EPA-HQ-OAR-2015-0827, pp. 3-9; Safer Affordable Fuel-
Efficient (SAFE) Vehicles Rule For Model Years 2020-2026 Model Year 
Passenger Cars and Light Trucks, NHTSA-2018-0067; EPA-HQ-OAR-2018-
0283, pp. 2-9 and Appendices A-C.
    \192\ U.S. EPA. Revised 2023 and Later Model Year Light-Duty 
Vehicle GHG Emissions Standards, EPA-HQ-OAR-2021-0208, August 2021, 
at p. 43766.
    \193\ Toyota, Docket No. NHTSA-2021-0053-1568, at p. 2.

---------------------------------------------------------------------------
    Volkswagen stated:

    As noted earlier, Volkswagen has implemented a capital spending 
plan and technology roadmap that primary focuses on electrification 
as our main pathway for achieving deep decarbonization and petroleum 
reduction goals. In parallel with increasing consumer demand for 
electrification, the increase in States with ZEV mandates and the 
emergence and recent passage of State legislation banning 
combustion, it is unlikely that OEMs will invest significant 
resources in researching new combustion technologies or developing 
all new powertrains.
    Engine development programs are long-lead time, often requiring 
5 years to fully design and validate new engines. Powertrain 
production is also capital intensive, and the

[[Page 25784]]

high upfront costs often consider 10 plus years of steady volume to 
amortize the production and development costs. The effects have been 
studied extensively by NHTSA and the National Academies and are 
reflected in such factors as Retail Price Equivalency (RPE) values. 
However, with the shift to legislative and regulatory programs that 
are reducing and eliminating future market volumes for combustion 
technologies, it is unlikely that OEMs will make significant 
investments in this space.
    Volkswagen has publicly stated that investments into combustion 
technologies will wane with a point in the next several years where 
there will be no new combustion engine families developed for the 
Group. Volkswagen recognizes that remaining combustion models will 
continue to be sold in high volume for the next several years and 
that it is important to preserve the fuel economy of remaining ICEs 
as electrification volumes increase. As noted earlier, Volkswagen's 
remaining ICE engines will primarily focus on evolutions of existing 
downsized, charged engines to incorporate incremental hardware and 
software improvements.\194\
---------------------------------------------------------------------------

    \194\ Volkswagen, Docket No. NHTSA-2021-0053-1548-A1, at pp. 21-
22.

---------------------------------------------------------------------------
    Auto Innovators stated:

    Manufacturers are also already announcing plans to reduce or 
eliminate investments in ICEs. Some automotive executives are saying 
that they no longer intend to develop new ICEs, are no longer 
setting aside significant money for new ICEs, or that ICEs will only 
get incremental work. Others, such as policymakers, may suggest that 
little or no investment is needed in ICE technologies because they 
are ``off-the-shelf'' or present in the fleet today. This view 
ignores that technologies can't simply be ``bolted on'' to existing 
engines. Instead, they must be carefully integrated into existing 
designs, requiring engineering resources, and in many cases, new 
engine designs. A new engine design can cost as much as $1 
billion.\195\
---------------------------------------------------------------------------

    \195\ Auto Innovators, Docket No. NHTSA-2021-0053-0021-A1, at 8 
(citing ``Mercedes-Benz Prepares to Go All-Electric,'' Mercedes-Benz 
Media Newsroom USA (Jul. 22, 2021), https://media.mbusa.com/releases/release-ee5a810c1007117e79e1c871354679e4-mercedes-benz-prepares-to-go-all-electric (accessed: February 16, 2022). 
``Investments into combustion engines and plug-in hybrid 
technologies will drop by 80% between 2019 and 2026.''; Hannah Lutz, 
``Shifting into E,'' Automotive News (Jul. 26, 2021). ``Some 
existing vehicles, such as the Chevy Malibu and Camaro, won't stick 
to the standard cadence of face-lifts and redesigns. Instead, 
they'll ride out the current generation before making way for 
EVs.''; Jordyn Grzelewski, ``Ford Slated to Spend More On EVs Than 
On Internal Combustion Engine Vehicles in 2023,'' The Detroit News 
(Aug. 2, 2021).; Lindsay Chappell, ``All-In On EVs,'' Automotive 
News (May 17, 2021). ``Mini will become an all-electric brand by 
early 2030, and the British marque will roll out its last new 
combustion engine variant in 2025.'' (Emphasis added.); Bibhu 
Pattnaik, ``Audi Will Not Introduce ICE Vehicles After 2026, No 
Hybrid Vehicles Either,'' Benzinga (Jun. 19, 2021), https://finance.yahoo.com/news/audi-not-introduce-ice-vehicles-160320055.html (accessed: February 16, 2022), Mike Colias, ``Gas 
Engines, and the People Behind Them, Are Cast Aside for Electric 
Vehicles,'' The Wall Street Journal (Jul. 23, 2021). ``Auto 
executives have concluded, to varying degrees, that they can't meet 
tougher tailpipe-emission rules globally by continuing to improve 
gas or diesel engines . . . Over the past several decades, auto 
makers in most years rolled out between 20 and 70 new engines 
globally, according to research firm IHS Markit. That number will 
fall below 10 this year, and then essentially go to zero, the 
research firm said.'').

    These comments reflect an increasing industry trend to divest from 
internal combustion engine technology, to increase investments in 
alternative powertrains such as electrification or fuel cells. The 
provided comments also support NAS's finding: ICE technology 
advancements are seeing diminishing returns, with future gains 
requiring significant investment, driving manufacturers to alternative 
technology development in place of further ICE development, such as 
electrification.\196\
---------------------------------------------------------------------------

    \196\ 2021 NAS Report, Finding 4.7, at p. 70.
---------------------------------------------------------------------------

    On the other hand, some commenters were concerned that our modeled 
technology paths do not adequately keep pace with potential significant 
improvements in ICE technologies that manufacturers will continue to 
make. ICCT and UCS suggested that additional advanced versions of 
modeled technologies as well as additional technologies should be added 
to the engine technology paths. Both commenters provided information on 
emerging technologies currently in the research phase, and the 
commenters stated these new technologies should be included in the 
engine technology path options.
    ICCT stated, ``two recent reports demonstrate that further 
technology improvements are coming that can boost ICE efficiency well 
beyond even HCR2 efficiency levels.'' \197\ ICCT further stated, 
``Indeed, it appears that no technology improvements or cost reductions 
from EPA's independent evaluations or from any comments submitted to 
NHTSA or new studies over the last 5 years were included in the 
proposed rule, beyond the additional of DEAC to HCR1. This basis for 
NHTSA's analysis is an overly conservative assessment of the costs of 
the standards.''
---------------------------------------------------------------------------

    \197\ ICCT, Docket No. NHTSA-2021-0053-1581-A1, at 2 (citing AVL 
Webinar on Passenger Car powertrain 4.x--Fuel Consumption, 
Emissions, and Cost on June 2, 2020 https://www.avl.com/-/passenger-car-powertrain-4.x-fuel-consumption-emissions-and-cost plus slides 
are attached to these comments (AVL 2020); Roush report on Gasoline 
Engine Technologies for Improved Efficiency (Roush 2021 LDV) https://www.regulations.gov/comment/EPA-HQ-OAR-2021-0208-0210).
---------------------------------------------------------------------------

    UCS also provided a comment suggesting the need for more advanced 
engine technology models:

    Given automaker investments and future product plans, it is 
likely that manufacturers' compliance strategies will include 
increased electrification. However, there are significant 
opportunities for improvements to internal combustion engine 
vehicles as well. The importance of both strategies is evident in 
our own modeling. Internal combustion engine vehicles will continue 
to improve in the timeframe considered under this rule and show no 
sign of exhausting their potential. While our modeling suggests that 
manufacturers will deploy a significant number of EVs due to the 
improvement they can make in a fleet's performance, this is by no 
means the only path available, as indicated by the relatively low 
levels of vehicle technology modeled as being deployed in the 
remaining gasoline-powered fleet, which leave many other options 
open.\198\
---------------------------------------------------------------------------

    \198\ UCS, Docket No. NHTSA-2021-0053-1567-A1, at 6 (citing 
Murphy, John. 2021. ``US Automotive Product Pipeline: Car Wars 2022-
2025 (Electric Vehicles shock the product pipeline).'' Media 
briefing, June 10, 2021, on behalf of Bank of America Securities. 
https://s3-prod.autonews.com/2021-06/BofA%20Global%20Research%20Car%20Wars.pdf).

    For this final rule analysis, the agency has made no changes to the 
Engine technology pathway.\199\ While we agree with the potential of 
the technologies as they are described in the provided comments,\200\ 
we do not believe that the application of the technologies is feasible 
in the rulemaking timeframe. As stated in the NPRM and discussed above, 
we did not include technologies unlikely to be feasible in the 
rulemaking timeframe, technologies unlikely to be compatible with U.S. 
fuels, or technologies for which there were not appropriate data 
available to allow the simulation of effectiveness across all vehicle 
technology classes used in the analysis. For example, ICCT recommended 
the inclusion of passive prechamber combustion in our analysis. 
Currently, the technology is under development by two vendors, but 
neither vendor has indicated the system has progressed past the 
technology demonstration phase, or the technology is currently only 
used for specialty purposes.201 202
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    \199\ See TSD Chapter 3.1 for a detailed discussion of the 
engine technology pathways used in the final rule analysis.
    \200\ ICCT comments at pp. 8-10.
    \201\ https://www.iav.com/en/what-moves-us/pre-chamber-ignition-small-spark-great-effect/--Accessed 10DEC2021.
    \202\ https://www.mahle-powertrain.com/en/experience/mahle-jet-ignition/--Accessed 10DEC2021.
---------------------------------------------------------------------------

    In light of the comments provided by manufacturers, such as 
Volkswagen's comment above, it is very unlikely that major 
manufacturers will introduce these technologies in the time frame of 
the regulation.203 204 We also believe this

[[Page 25785]]

approach is in agreement with the assessments on ICE technologies 
provided by NAS, discussed above.\205\
---------------------------------------------------------------------------

    \203\ Volkswagen, at 21-22 (``Engine development programs are 
long-lead time, often requiring 5 years to fully design and validate 
new engines. Powertrain production is also capital intensive and the 
high upfront costs often consider 10 plus years of steady volume to 
amortize the production and development costs.'').
    \204\ Auto Innovators, at 8 (``Others, such as policymakers, may 
suggest that little or no investment is needed in ICE technologies 
because they are ``off-the-shelf'' or present in the fleet today. 
This view ignores that technologies can't simply be ``bolted on'' to 
existing engines. Instead, they must be carefully integrated into 
existing designs, requiring engineering resources, and in many 
cases, new engine designs. A new engine design can cost as much as 
$1 billion.'').
    \205\ 2021 NAS Report, at 369 (``Internal combustion engines 
(ICEs) will continue to play a significant role in the new vehicle 
fleet in MY 2025-2035 in ICE-only vehicles, as well as in hybrid 
electric vehicles (HEVs) from mild hybrids to plug-in hybrids, but 
will decrease in number with increasing battery electric vehicle 
(BEV) and fuel cell electric vehicle penetration. In this period, 
manufacturers will continue to develop and deploy technologies to 
further improve the efficiency of conventional powertrains, for ICE-
only vehicles and as implemented in HEVs. Developments in the ICE 
for hybrids will advance toward engines optimized for a limited 
range of engine operating conditions, with associated efficiency 
benefits. Major automakers are on differing paths, with some 
focusing their research and development and advanced technology 
deployment more squarely on BEVs, and others more focused on 
advanced HEVs to maximize ICE efficiency.'').
---------------------------------------------------------------------------

(1) Basic Engines
    We applied basic engine technologies individually or in combination 
with other basic engine technologies in the CAFE Model. The basic 
engine technologies we used include variable valve timing (VVT), 
variable valve lift (VVL), stoichiometric gasoline direct injection 
(SGDI), and cylinder deactivation. The cylinder deactivation 
technologies we used includes a basic level (DEAC) and an advanced 
level (ADEAC). DOT applies the basic engine technologies across two 
engine architectures: Dual over-head camshaft (DOHC) engine 
architecture and single over-head camshaft (SOHC) engine architecture.
    VVT: Variable valve timing is a family of valve-train designs that 
dynamically adjusts the timing of the intake valves, exhaust valves, or 
both, in relation to piston position. VVT can reduce pumping losses, 
provide increased engine torque and horsepower over a broad engine 
operating range, and allow unique operating modes, such as Atkinson 
cycle operation, to further enhance efficiency.\206\ VVT is nearly 
universally used in the MY 2020 fleet. VVT enables more control of in-
cylinder air flow for exhaust scavenging and combustion relative to 
fixed valve timing engines. Engine parameters such as volumetric 
efficiency, effective compression ratio, and internal exhaust gas 
recirculation (iEGR) can all be enabled and controlled by a VVT system.
---------------------------------------------------------------------------

    \206\ 2015 NAS Report, at p. 31.
---------------------------------------------------------------------------

    VVL: Variable valve lift dynamically adjusts the distance a valve 
travels from the valve seat. The dynamic adjustment can optimize 
airflow over a broad range of engine operating conditions. The 
technology can increase effectiveness by reducing pumping losses and by 
affecting the fuel and air mixture motion and combustion in-
cylinder.\207\ VVL is less common in the MY 2020 fleet than VVT, but 
still prevalent. Some manufacturers have implemented a limited, 
discrete approach to VVL. The discrete approach allows only limited 
(e.g., two) valve lift profiles versus allowing a continuous range of 
lift profiles.
---------------------------------------------------------------------------

    \207\ 2015 NAS Report, at p. 32.
---------------------------------------------------------------------------

    SGDI: Stoichiometric gasoline direct injection sprays fuel at high 
pressure directly into the combustion chamber, which provides cooling 
of the in-cylinder charge via in-cylinder fuel vaporization to improve 
spark knock tolerance and enable an increase in compression ratio and/
or more optimal spark timing for improved efficiency.\208\ SGDI is 
common in the MY 2020 fleet, and the technology is used in many 
advanced engines as well.
---------------------------------------------------------------------------

    \208\ 2015 NAS Report, at p. 34.
---------------------------------------------------------------------------

    DEAC: Basic cylinder deactivation disables intake and exhaust 
valves and turns off fuel injection for the deactivated cylinders 
during light load operation. DEAC is characterized by a small number of 
discrete operating configurations.\209\ The engine runs temporarily as 
though it were a smaller engine, reducing pumping losses and improving 
efficiency. DEAC is present in the MY 2020 baseline fleet.
---------------------------------------------------------------------------

    \209\ 2015 NAS Report, at p. 33.
---------------------------------------------------------------------------

    ADEAC: Advanced cylinder deactivation systems, also known as 
rolling or dynamic cylinder deactivation systems, allow a further 
degree of cylinder deactivation than the base DEAC. ADEAC allows the 
engine to vary the percentage of cylinders deactivated and the sequence 
in which cylinders are deactivated, essentially providing 
``displacement on demand'' for low load operations. A small number of 
vehicles have ADEAC in the MY 2020 baseline fleet.
    Section III.D.1.d) contains additional information about each basic 
engine technology used in this analysis, including information about 
the engine map models used in the full vehicle technology effectiveness 
modeling.
(2) Advanced Engines
    We define advanced engine technologies in the analysis as 
technologies that require significant changes in engine structure, or 
an entirely new engine architecture.\210\ Currently there are two types 
of advanced engine technologies, the application of alternate 
combustion cycles or application of forced induction to the engine. 
Each advanced engine technology has a discrete pathway for progression 
to improved versions of the technology, as seen above in Figure III-7. 
The advanced engine technology pathways include a turbocharged pathway, 
a high compression ratio (Atkinson) engine pathway, a variable turbo 
geometry (Miller Cycle) engine pathway, a variable compression ratio 
pathway, and a diesel engine pathway. Although the CAFE Model includes 
a compressed natural gas (CNG) pathway, that technology is a baseline-
only technology and was not included in the analysis; there are no 
dedicated CNG vehicles in the MY 2020 analysis fleet.
---------------------------------------------------------------------------

    \210\ Examples of this include but are not limited to changes in 
cylinder count, block geometry or combustion cycle changes.
---------------------------------------------------------------------------

    TURBO: Forced induction engines, or turbocharged downsized engines, 
are characterized by technology that can create greater-than-
atmospheric pressure in the engine intake manifold when higher output 
is needed. The raised pressure results in an increased amount of 
airflow into the cylinder supporting combustion, increasing the 
specific power of the engine. Increased specific power means the engine 
can generate more power per unit of cylinder volume. The higher power 
per cylinder volume allows the overall engine volume to be reduced, 
while maintaining performance. The overall engine volume decrease 
results in an increase in fuel efficiency by reducing parasitic loads 
associated with larger engine volumes.\211\
---------------------------------------------------------------------------

    \211\ 2015 NAS Report, at p. 34.
---------------------------------------------------------------------------

    Cooled exhaust gas recirculation is also part of the advanced 
forced induction technology path. The basic recycling of exhaust gases 
using VVT is called internal EGR (iEGR) and is included as part of the 
performance improvements provided by the VVT basic engine technology. 
Cooled EGR (cEGR) is a second method for diluting the incoming air that 
takes exhaust gases, passes them through a heat exchanger to reduce 
their temperature, and then mixes them with incoming air in the intake 
manifold.\212\ As discussed

[[Page 25786]]

in Section III.D.1.d), many advanced engine maps include EGR.
---------------------------------------------------------------------------

    \212\ 2015 NAS Report, at p. 35.
---------------------------------------------------------------------------

    Five levels of turbocharged engine downsizing technologies are 
considered in this analysis: A `basic' level of turbocharged downsized 
technology (TURBO1), an advanced turbocharged downsized technology 
(TURBO2), an advanced turbocharged downsized technology with cooled 
exhaust gas recirculation applied (cEGR), a turbocharged downsized 
technology with basic cylinder deactivation applied (TURBOD), and a 
turbocharged downsized technology with advanced cylinder deactivation 
applied (TURBOAD).
    HCR: Atkinson engines, or high compression ratio engines, represent 
a class of engines that achieve a higher level of fuel efficiency by 
implementing an alternate combustion cycle.\213\ Historically, the Otto 
combustion cycle has been used by most gasoline-based spark ignition 
engines. Increased research into improving fuel economy has resulted in 
the application of alternate combustion cycles that allow for greater 
levels of thermal efficiency. One such alternative combustion cycle is 
the Atkinson cycle. Atkinson cycle operation is achieved by allowing 
the expansion stroke of the engine to overextend, allowing the 
combustion products to achieve the lowest possible pressure before the 
exhaust stroke.214 215 216
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    \213\ See the 2015 NAS Report, Appendix D, for a short 
discussion on thermodynamic engine cycles.
    \214\ Otto cycle is a four-stroke cycle that has four piston 
movements over two engine revolutions for each cycle. First stroke: 
Intake or induction; seconds stroke: Compression; third stroke: 
Expansion or power stroke; and finally, fourth stroke: Exhaust.
    \215\ Compression ratio is the ratio of the maximum to minimum 
volume in the cylinder of an internal combustion engine.
    \216\ Expansion ratio is the ratio of maximum to minimum volume 
in the cylinder of an IC engine when the valves are closed (i.e., 
the piston is traveling from top to bottom to produce work).
---------------------------------------------------------------------------

    Descriptions of Atkinson cycle engines and Atkinson mode or 
Atkinson-enabled engine technologies have been used interchangeably in 
association with high compression ratio (HCR) engines, for past 
rulemaking analyses. Both technologies achieve a higher thermal 
efficiency than traditional Otto cycle-only engines, however, the two 
engine types operate differently. For purposes of this analysis, 
Atkinson technologies can be categorized into two groups to reduce 
confusion: (1) Atkinson-enabled engines and (2) Atkinson engines.
    Atkinson-enabled engines, or high compression ratio (HCR) engines, 
dynamically swing between an Otto cycle like behavior (very little 
expansion over-stroke) to a more Atkinson cycle intensive behavior 
(large expansion over-stroke) based on engine demand. During high loads 
the engine will reduce the Atkinson level behavior by increasing the 
dynamic compression ratio, reducing over-stroke, sacrificing efficiency 
for increased power density. While at low loads the engine will 
increase the Atkinson level behavior by reducing the dynamic 
compression ratio, increasing the over-stroke, improve efficiency but 
reduce power density. The hybrid combustion cycle can be used to 
address, but not eliminate, the low power density issues that can 
constrain the application of an Atkinson-only engine and allow for a 
wider application of the technology.
    The level of efficiency improvement experienced by a vehicle 
employing an Atkinson-enabled engine is directly related to how much of 
the engine's operation time is spent at high Atkinson levels. Vehicles 
that must maintain a high level of torque reserve, that experience 
operation at a high load for long portions of their operating cycle, or 
that have high base road loads, will see little to no benefit from this 
technology compared with other advanced engine technologies. This power 
density constraint results in manufacturers typically limiting the 
application of this technology to vehicles with a lower road load, and 
lower relative need for torque reserves.
    Three HCR or Atkinson-enabled engines are available in the 
analysis: (1) The baseline Atkinson-enabled engine (HCR0), (2) the 
enhanced Atkinson enabled engine (HCR1), and finally, (3) the enhanced 
Atkinson enabled engine with cylinder deactivation (HCR1D).
    Next, Atkinson engines (as opposed to Atkinson-enabled engines, 
discussed above) in this analysis are defined as engines that operate 
full-time in Atkinson cycle. The most common method of achieving 
Atkinson operation is the use of late intake valve closing. This method 
allows backflow from the combustion chamber into the intake manifold, 
reducing the dynamic compression ratio, and providing a higher over-
expansion ratio during the expansion stroke. The higher expansion ratio 
improves thermal efficiency but reduces power density. The low power 
density relegates these engines to hybrid vehicle (SHEVPS) applications 
only in this analysis. Coupling the engines to electric motors and 
significantly reducing road loads compensates for the lower power 
density and maintains desired performance levels for the vehicle.\217\ 
The Toyota Prius is an example of a vehicle that uses an Atkinson 
engine. The 2017 Toyota Prius achieved a peak thermal efficiency of 40 
percent.\218\
---------------------------------------------------------------------------

    \217\ Toyota. ``Under the Hood of the All-new Toyota Prius.'' 
Oct. 13, 2015. Available at https://global.toyota/en/detail/9827044. 
(Accessed: February 17, 2022)
    \218\ Matsuo, S., Ikeda, E., Ito, Y., and Nishiura, H., ``The 
New Toyota Inline 4 Cylinder 1.8L ESTEC 2ZR-FXE Gasoline Engine for 
Hybrid Car,'' SAE Technical Paper 2016-01-0684, 2016, https://doi.org/10.4271/2016-01-0684.
---------------------------------------------------------------------------

    VTG: The Miller cycle is another type of overexpansion combustion 
cycle, similar to the Atkinson cycle. The Miller cycle, however, 
operates in combination with a forced induction system that helps 
address the impacts of reduced power density during high load operating 
conditions. Miller cycle-enabled engines use a similar technology 
approach as seen in Atkinson-enabled engines to effectively create an 
expanded expansion stroke of the combustion cycle.
    In the analysis, the baseline Miller cycle-enabled engine includes 
the application of a variable turbo geometry technology (VTG). The 
advanced Miller cycle enabled system includes the application of a 48V-
based electronic boost system (VTGE). VTG technology allows the system 
to vary boost level based on engine operational needs. The use of a 
variable geometry turbocharger also supports the use of cooled exhaust 
gas recirculation.\219\ An electronic boost system has an electric 
motor added to assist a turbocharger at low engine speeds. The motor 
assist mitigates turbocharger lag and low boost pressure at low engine 
speeds. The electronic assist system can provide extra boost needed to 
overcome the torque deficits at low engine speeds.\220\
---------------------------------------------------------------------------

    \219\ 2015 NAS Report, at p. 116.
    \220\ 2015 NAS Report, at p. 62.
---------------------------------------------------------------------------

    ICCT provided comments regarding Miller Cycle technology as part of 
its comments about technologies that may not have been incorporated in 
NHTSA's proposal, stating that, ``VW is already using Miller Cycle 
engines as the base engine in the Passat, Arteon, Atlas, and Tiguan and 
a hybrid-specific version of this engine with cEGR and VGT is under 
development by VW that demonstrates a peak BTE of 41.5 percent. The 
fact that Miller cycle is already included on the standard engine for 
many of VW's most popular vehicles supports that Miller cycle is a 
cost-effective addition to turbocharged engines. Yet there are no 
Miller cycle applications in 2026 beyond the specific Mazda and Volvo 
models that already had Miller cycle in 2017.'' \221\
---------------------------------------------------------------------------

    \221\ ICCT, at p. 4.

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[[Page 25787]]

    NHTSA's NPRM used a MY 2020 fleet that appropriately characterized 
Volkswagen, Volvo, and Mazda engines with VTG and VTGe technology.\222\ 
We believe our use of the MY 2020 baseline fleet addresses some of the 
concerns expressed by ICCT. As far as additional application of the 
technology in the MY 2026 fleet results, we did not place any adoption 
restrictions on the use of VTG and VTGe technology and it can be 
applied to any basic and turbocharged engine. This means that while VTG 
and VTGe may be a cost-effective technology for some manufacturers in 
the real world--particularly for Volkswagen, a manufacturer that 
already has the technology refined for use on its vehicles--the CAFE 
Model did not consider it to be a cost-effective pathway to compliance 
for manufacturers in the analysis, that did not already use the 
technology in MY 2020. NHTSA does not have any alternative relative 
effectiveness \223\ data or cost estimates to consider that would 
affect the CAFE Model's compliance pathway. Therefore, we have made no 
changes to this engine technology's inputs in the final rule analysis 
from what was used in the NPRM. We will continue to follow any updates 
on the effectiveness and cost of VTG and VTGe technology for future 
actions.
---------------------------------------------------------------------------

    \222\ See Section III.C.2, The Market Data File.
    \223\ As a reminder, our analysis considers the relative 
technology effectiveness improvement from a previously applied 
technology. Therefore, while VW may be developing a hybrid version 
of its Miller engine technology with a peak BTE of 41.5 percent, the 
relevant data point for our analysis would be the relative 
effectiveness improvement from the previous version of the 
technology.
---------------------------------------------------------------------------

    VCR: Variable compression ratio (VCR) engines work by changing the 
length of the piston stroke of the engine to optimize the compression 
ratio and improve thermal efficiency over the full range of engine 
operating conditions. Engines using VCR technology are currently in 
production, but appear to be targeted primarily towards limited 
production, high performance applications. Nissan is the only 
manufacturer to use this technology in the MY 2020 baseline fleet. Few 
manufacturers and suppliers provided information about VCR 
technologies, and we reviewed several design concepts that could 
achieve a similar functional outcome. In addition to design concept 
differences, intellectual property ownership complicates the ability to 
define a VCR hardware system that could be widely adopted across the 
industry. Because of these issues, adoption of the VCR engine 
technology is limited to specific OEMs only.
    ADSL: Diesel engines have several characteristics that result in 
superior fuel efficiency over traditional gasoline engines. These 
advantages include reduced pumping losses due to lack of (or greatly 
reduced) throttling, high pressure direct injection of fuel, a more 
efficient combustion cycle,\224\ and a very lean air/fuel mixture 
relative to an equivalent-performance gasoline engine.\225\ However, 
diesel technologies require additional enablers, such as a 
NOX adsorption catalyst system or a urea/ammonia selective 
catalytic reduction system, for control of NOX emissions.
---------------------------------------------------------------------------

    \224\ Diesel cycle is also a four-stroke cycle like the Otto 
Cycle, except in the intake stroke no fuel is injected and fuel is 
injected late in the compression stroke at higher pressure and 
temperature.
    \225\ See the 2015 NAS Report, Appendix D, for a short 
discussion on thermodynamic engine cycles.
---------------------------------------------------------------------------

    DOT considered three levels of diesel engine technology: The 
baseline diesel engine technology (ADSL) is based on a standard 2.2L 
turbocharged diesel engine; the more advanced diesel engine (DSLI) 
starts with the ADSL system and incorporates a combination of low 
pressure and high pressure EGR, reduced parasitic loss, friction 
reduction, a highly integrated exhaust catalyst with low temp light off 
temperatures, and closed loop combustion control; and finally the most 
advanced diesel system (DSLIAD) is the DSLI system with advanced 
cylinder deactivation technology added.
    EFR: Engine friction reduction technology is a general engine 
improvement meant to represent future technologies that reduce the 
internal friction of an engine. EFR technology is not available for 
application until MY 2023. The future technologies do not significantly 
change the function or operation of the engine but reduce the energy 
loss due to the rotational or rubbing friction experienced in the 
bearings or cylinder during normal operation. These technologies can 
include improved surface coatings, lower-tension piston rings, roller 
cam followers, optimal thermal management and piston surface 
treatments, improved bearing design, reduced inertial loads, improved 
materials, or improved geometry.
(b) Engine Analysis Fleet Assignments
    As a first step in assigning baseline levels of engine technologies 
in the analysis fleet, DOT uses data for each manufacturer to determine 
which platforms share engines. Within each manufacturer's fleet, DOT 
assigns unique identification designations (engine codes) based on 
configuration, technologies applied, displacement, compression ratio, 
and power output. DOT uses power output to distinguish between engines 
that might have the same displacement and configuration but 
significantly different horsepower ratings.
    The CAFE Model identifies leaders and followers for a 
manufacturer's vehicles that use the same engine, indicated by sharing 
the same engine code. The model automatically determines which engines 
are leaders by using the highest sales volume row of the highest sales 
volume nameplate that is assigned an engine code. This leader-follower 
relationship allows the CAFE Model simulation to maintain engine 
sharing as more technology is applied to engines.
    DOT accurately represents each engine using engine technologies and 
engine technology classes. The first step is to assign engine 
technologies to each engine code. Technology assignment is based on the 
identified characteristics of the engine being modeled, and based on 
technologies assigned, the engine will be aligned with a technology key 
that most closely corresponds.
    The engine technology classes are a second identifier used to 
accurately account for engine costs. The engine technology class is 
formatted as number of cylinders followed by the letter C, number of 
banks followed by the letter B, and an engine head configuration 
designator, which is _SOHC for single overhead cam, _ohv for overhead 
valve, or blank for dual overhead cam. As an example, one variant of 
the GMC Acadia has a naturally aspirated DOHC inline 4-cylinder engine, 
so DOT assigned the vehicle to the `4C1B' engine technology class and 
assigned the technology VVT and SGDI. Table III-7 shows examples of 
observed engines with their corresponding assigned engine technologies 
as well as engine technology classes.

[[Page 25788]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.065

    The cost tables for a given engine class include downsizing (to an 
engine architecture with fewer cylinders) when turbocharging technology 
is applied, and therefore, the turbocharged engines observed in the 
2020 fleet (that have already been downsized) often map to an engine 
class with more cylinders. For instance, an observed TURBO1 V6 engine 
would map to an 8C2B (V8) engine class, because the turbo costs on the 
8C2B engine class worksheet assume a V6 (6C2B) engine architecture. 
Diesel engines map to engine technology classes that match the observed 
cylinder count since naturally aspirated diesel engines are not found 
in new light duty vehicles in the U.S. market. Similarly, as indicated 
above, the TURBO1 I3 in the Ford Escape maps to the 4C1B_L (I4) engine 
class, because the turbo costs on the 4C1B_L engine class worksheet 
assume a I3 (3C1B) engine architecture. Some instances can be more 
complex, including low horsepower variants for 4 cylinder engines, and 
are shown in Table III-8.
    For this analysis, we allow additional downsizing beyond what has 
been previously modeled in prior rulemaking analyses. We allow enhanced 
downsizing because manufacturers have downsized low output naturally 
aspirated engines to turbo engines with smaller architectures than 
traditionally observed.226 227 228 To capture this new level 
of turbo downsizing we created a new category of low output naturally 
aspirated engines, which is only applied to 4-cylinder engines in the 
MY 2020 fleet. These engines use the costing tabs in the Technologies 
file with the `L' designation and are assumed to downsize to 
turbocharged 3-cylinder engines for costing purposes. We sought comment 
regarding the expected further application of this technology to larger 
cylinder count engines, such as 8-cylinder engines that may be turbo 
downsized to 4-cylinder engines. We also sought comment on how to 
define the characteristic of an engine that may be targeted for 
enhanced downsizing. We received no additional comments regarding 
enhanced downsizing.
---------------------------------------------------------------------------

    \226\ Richard Truett, ``GM Bringing 3-Cylinder back to North 
America.'' Automotive News, December 01, 2019. https://www.autonews.com/cars-concepts/gm-bringing-3-cylinder-back-na. 
(Accessed: February 17, 2022)
    \227\ Stoklosa, Alexander, ``2021 Mini Cooper Hardtop.'' Car and 
Driver, December 2, 2014. https://www.caranddriver.com/reviews/a15109143/2014-mini-cooper-hardtop-manual-test-review/. (Accessed: 
February 17, 2022)
    \228\ Leanse, Alex, ``2020 For Escape Options: Hybrid vs. 3-
Cylinder EcoBoost vs. 4-Cylinder EcoBoost.'' MotorTrend, Sept 24, 
2019. https://www.motortrend.com/news/2020-ford-escape-engine-options-pros-and-cons-comparison/. (Accessed: February 17, 2022)

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[[Page 25789]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.066

    TSD Chapter 3.1.2 includes more details about baseline engine 
technology assignment logic, and details about the levels of engine 
technology penetration in the MY 2020 fleet.
(c) Engine Adoption Features
    We defined engine adoption features through a combination of (1) 
refresh and redesign cycles, (2) technology path logic, (3) phase-in 
capacity limits, and (4) SKIP logic. Figure III-7 above shows the 
technology paths available for engines in the CAFE Model. Engine 
technology development and application typically results in an engine 
design moving from the basic engine tree to one of the advanced engine 
trees. Once an engine design moves to the advanced engine tree it is 
not allowed to move to alternate advanced engine trees. Specific path 
logic, phase-in caps, and SKIP logic applied to each engine technology 
are discussed by engine technology, in turn.
    Refresh and redesign cycles dictate when we apply engine 
technology. Technologies applicable only during a platform redesign can 
be applied during a platform refresh if another vehicle platform that 
shares engine codes (uses the same engine) has already applied the 
technology during a redesign. For example, models of the GMC Acadia and 
the Cadillac XT4 use the same engine (assigned engine code 112011 in 
the Market Data file); if the XT4 adds a new engine technology during a 
redesign, then the Acadia may also add the same engine technology 
during the next refresh or redesign. This allows the model to maintain 
engine sharing relationships while also maintaining refresh and 
redesign schedules.\229\ For engine technologies, DOHC, OHV, VVT, and 
CNG engine technologies are baseline only, while all other engine 
technologies can only be applied at a vehicle redesign.
---------------------------------------------------------------------------

    \229\ See Section III.C.2.a) for more discussion on platform 
refresh and redesign cycles.
---------------------------------------------------------------------------

    Basic engine technologies in the CAFE Model are represented by four 
technologies: VVT, VVL, SGDI, and DEAC. DOT assumes that 100 percent of 
basic engine platforms use VVT as a baseline, based on wide 
proliferation of the technology in the U.S. fleet. The remaining three 
technologies, VVL, SGDI, and DEAC, can all be applied individually or 
in any combination of the three. An engine can jump from the basic 
engines path to any other engine path except the Alternative Fuel 
Engine Path.
    Turbo downsizing allows manufacturers to maintain vehicle 
performance characteristics while reducing engine displacement and 
cylinder count. Any basic engine can adopt one of the turbo engine 
technologies (TURBO1, TURBO2, and CEGR1). Vehicles that have 
turbocharged engines in the baseline fleet will stay on the turbo 
engine path to prevent unrealistic engine technology change in the 
short timeframe considered in the rulemaking analysis. Turbo technology 
is a mutually exclusive technology in that it cannot be adopted for 
HCR, diesel, ADEAC, or CNG engines.
    Non-HEV Atkinson enabled engines are a collection of engines in the 
HCR engine pathway (HCR0, HCR1, HCR1D, and HCR2). Atkinson enabled 
engines excel in lower power applications for lower load conditions, 
such as driving around a city or steady state highway driving without 
large payloads. As a result, their adoption is more limited than some 
other technologies. We expanded the availability of HCR technology 
compared to the 2020 final rule because of new observed applications in 
the market.\230\ However, there are three categories of adoption 
features specific to the HCR engine pathway: \231\
---------------------------------------------------------------------------

    \230\ For example, the Hyundai Palisade and Kia Telluride have a 
291 hp V6 HCR1 engine. The specification sheets for these vehicles 
are located in the docket for this action.
    \231\ See Section III.D.1.d)(1) (Engine Maps), for a discussion 
of why HCR2 and P2HCR2 were not used in the central analysis. 
``SKIP'' logic was used to remove this engine technology from 
application, however as discussed below, we maintain HCR2 and P2HCR2 
in the model architecture for sensitivity analysis and for future 
engine map model updates.
---------------------------------------------------------------------------

     We currently do not allow vehicles with 405 or more 
horsepower to adopt HCR engines due to their prescribed duty cycle 
being more demanding and likely not supported by the lower power 
density found in HCR-based engines.\232\
---------------------------------------------------------------------------

    \232\ Heywood, John B. Internal Combustion Engine Fundamentals. 
McGraw-Hill Education, 2018. Chapter 5.
---------------------------------------------------------------------------

     Pickup trucks and vehicles that share engines with pickup 
trucks are currently excluded from receiving HCR engines; the duty 
cycle for these heavy vehicles, particularly the need for large torque 
reserves, results in an engine calibration that minimizes the advantage 
of Atkinson cycle use.\233\
---------------------------------------------------------------------------

    \233\ This is based on CBI conversation with manufacturers that 
currently employ HCR-based technology but saw no benefit when the 
technology was applied to truck platforms in their fleet.
---------------------------------------------------------------------------

     HCR engine application is also currently restricted for 
some manufacturers that are heavily

[[Page 25790]]

performance-focused and have demonstrated a significant commitment to 
power dense technologies such as turbocharged downsizing.\234\
---------------------------------------------------------------------------

    \234\ There are three manufacturers that met the criteria (near 
100 percent turbo downsized fleet, and future hybrid systems are 
based on turbo-downsized engines) described and were excluded: BMW, 
Daimler, and Jaguar Land Rover.
---------------------------------------------------------------------------

    Advanced cylinder deactivation technology (ADEAC), or dynamic 
cylinder deactivation (e.g., Dynamic Skip Fire), can be applied to any 
engine with basic technology. This technology represents a naturally 
aspirated engine with ADEAC. Additional technology can be applied to 
these engines by moving to the Advanced Turbo Engine Path.
    Miller cycle (VTG and VTGe) engines can be applied to any basic and 
turbocharged engine. VTGe technology is enabled by the use of a 48V 
system that presents an improvement from traditional turbocharged 
engines, and accordingly VTGe includes the application of a mild hybrid 
(BISG) system.
    VCR engines can be applied to basic and turbocharged engines, but 
the technology is limited to specific OEMs.\235\ VCR technology 
requires a complete redesign of the engine, and in the analysis fleet, 
only two platforms had incorporated this technology. The agency does 
not believe any other manufacturers will invest to develop and market 
this technology in their fleet in the rulemaking time frame.
---------------------------------------------------------------------------

    \235\ Nissan and Mitsubishi are strategic partners and members 
of the Renault-Nissan-Mitsubishi Alliance.
---------------------------------------------------------------------------

    Advanced turbo engines are becoming more prevalent as the 
technologies mature. TURBOD combines TURBO1 and DEAC technologies and 
represents the first advanced turbo. TURBOAD combines TURBO1 and ADEAC 
technologies and is the second and last level of advanced turbos. 
Engines from either the Turbo Engine Path or the ADEAC Engine Path can 
adopt these technologies.
    Any basic engine technologies (VVT, VVL, SGDI, and DEAC) can adopt 
ADSL and DSLI engine technologies. Any basic engine and diesel engine 
can adopt DSLIAD technology in this analysis; however, we applied a 
phase in cap and year for this technology at 34 percent and MY 2023, 
respectively. In our engineering judgement, this is a rather complex 
and costly technology to adopt and it would take significant investment 
for a manufacturer to develop. For more than a decade, diesel engine 
technologies have been used in less than one percent of the total 
light-duty fleet production and have been found mostly on medium and 
heavy-duty vehicles.
    Finally, we allow the CAFE Model to apply EFR to any engine 
technology except for DSLI and DSLIAD. DSLI and DSLIAD inherently have 
incorporated engine friction technologies from ADSL. In addition, 
friction reduction technologies that apply to gasoline engines cannot 
necessarily be applied to diesel engines due to the higher temperature 
and pressure operation in diesel engines.
    We sought comment on the appropriateness of engine adoption 
features, specifically for the HCR engines, and received feedback. Some 
commenters felt the constraints on application of HCR technology in the 
CAFE Model were too strict. Specifically, comments on this issue were 
received from ICCT, California Air Resources Board (CARB), a coalition 
of States and Cities, and a joint group of non-governmental 
organizations.236 237 238 239 240 ICCT described NHTSA's 
characterization of HCR with respect to the duty cycle requirements of 
high horsepower or high towing vehicles as ``backwards and wrong,'' 
stating that:
---------------------------------------------------------------------------

    \236\ ICCT, at p. 11.
    \237\ CARB, Docket No. NHTSA-2021-0053-1521-A2, at pp. 6-8.
    \238\ States of California, Colorado, Connecticut, Delaware, 
Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New 
Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, 
Vermont, Washington, and Wisconsin; the Commonwealths of 
Massachusetts and Pennsylvania; the District of Columbia; the Cities 
and Counties of Denver and San Francisco; and the Cities of Los 
Angeles, New York, Oakland, and San Jose (NHTSA-2021-0053-1499) 
(California Attorney General et al.), Docket No. NHTSA-2021-0053-
1499-A1, at p. 33.
    \239\ Natural Resources Defense Council (NRDC), Docket No. 
NHTSA-2021-0053-1572-A1, at p. 7.
    \240\ NRDC, A2, at pp. 46-47.

engines in pickup trucks and high-performance vehicles are sized and 
powered to handle higher peak loads and, thus, operate at lower 
loads relative to their maximum capacity. According to supplemental 
tables for the 2020 EPA FE Trends report found online, pickups have 
18 [percent] to 19 [percent] higher power to weight than both cars 
and truck SUVs, which means that pickup trucks and high-performance 
vehicles will spend more time in Atkinson Cycle operation than lower 
performance vehicles on both the test cycles and in the real world, 
not less. Any need for ``additional torque reserve'' is met by 
switching to Otto cycle. The one exception is towing, which does 
impose constant high loads on the engine. However, Strategic Vision 
data finds that ``percent of [pickup] truck owners use their truck 
for towing one time a year or less''. The large majority of pickup 
trucks spend the vast majority of driving at low loads relative to 
the engine's capability, where Atkinson Cycle engines are very 
effective. Thus, all restrictions on HCR engines should be 
removed.\241\
---------------------------------------------------------------------------

    \241\ ICCT, at p. 11.

    We disagree with ICCT's and other comments regarding the 
appropriateness of the HCR technology constraints. Current HCR engines 
achieve the effects of a longer expansion stroke, necessary for 
Atkinson operation, using continuous variable valve timing. The timing 
of the intake valve closure is based on the current load demand on the 
engine. Under higher loads, the intake values will close sooner in the 
cycle, increasing the dynamic compression ratio and decreasing the 
over-stroke of the expansion cycle, decreasing thermal efficiency, and 
increasing torque. This causes the engine to operate closer to an Otto 
combustion cycle than an Atkinson cycle. However, under these 
conditions, the engine is not able to completely achieve a traditional 
Otto cycle due to knock limitations and maintains a minimum of over-
expansion behavior. While under lower loads the engine decreases the 
dynamic compression ratio, closing the intake valve later, and 
increasing the over-stroke of the expansion stroke reducing torque 
while increasing efficiency. Having the ability to continuously adjust 
the shape of the combustion cycle significantly improves the engine 
efficiency but does not give the engine the functional flexibility 
suggested by ICCT's interpretation of the technology description.
    This is exemplified by Toyota's comment to the 2018 CAFE NPRM on 
the application of the HCR-based engine to the Tacoma platform, where 
Toyota stated that:

    Tacoma has a greater coefficient of drag from a larger frontal 
area, greater tire rolling resistance from larger tires with a more 
aggressive tread, and higher driveline losses from 4WD. Similarly, 
the towing, payload, and off-road capability of pick-up trucks 
necessitate greater emphasis on engine torque and horsepower over 
fuel economy. This translates into engine specifications such as a 
larger displacement and a higher stroke-to-bore ratio. Tacoma's 
higher road load and more severe utility requirements push engine 
operation more frequently to the less efficient regions of the 
engine map and limit the level of Atkinson operation.\242\
---------------------------------------------------------------------------

    \242\ Toyota, Docket No. NHTSA-2018-0067-12376-A1, at pp. 8-9.

    In addition to operating issues, comments such as those provided by 
the Auto Innovators, also to the 2018 NPRM (83 FR 42986, Aug. 24, 
2018), highlight packaging issues that make the application of HCR in 
high horsepower/high torque applications less practical. Specifically, 
the Alliance of Automobile

[[Page 25791]]

Manufacturer's \243\ comments to the 2018 NPRM stated that ``[t]he 
Alliance agrees with the more restrained application of HCR1 in the 
Proposed Rule,'' and agreed with the agencies' rationale for the 
restrictions that included ``[p]ackaging and emission constraints 
associated with intricate exhaust manifolds needed to mitigate high 
load/low revolutions per minute knock'' and ``Inherent performance 
limitations of Atkinson cycle engines.'' \244\ Ford echoed this 
concern, stating that ``Ford supports the more restrained application 
of HCR1 in the Proposed Rule, an approach that recognizes the 
investment, packaging, performance and emissions factors that will 
limit penetration of this technology.'' \245\
---------------------------------------------------------------------------

    \243\ Now Alliance for Automotive Innovation, also referred to 
as Auto Innovators.
    \244\ Auto Innovators, Docket No. NHTSA-2018-0067-12073-A1, at 
p. 139.
    \245\ Ford, Docket No. NHTSA-2018-0067-11928-A1, at p. 8.
---------------------------------------------------------------------------

    Based on this discussion, and previously provided data, we have 
kept the HCR adoptions features used in the NPRM for the final rule, 
except for a correction to the HCR1D application. Keeping the 
constraints in place also aligns us with the most recent EPA rulemaking 
analysis.\246\ We do intend to continue research into the 
appropriateness of HCR technology applications in future analysis, as 
we look at timeframes beyond the current rulemaking.
---------------------------------------------------------------------------

    \246\ See U.S. EPA, ``Revised 2023 and Later Model Year Light-
Duty Vehicle GHG Emissions Standards: Regulatory Impact Analysis.'' 
December 2021. EPA-420-R-21-028. https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1013ORN.pdf. (Accessed: March 9, 2022)
---------------------------------------------------------------------------

    Regarding the application of the HCR1D technology, a joint group of 
NGO comments, and others, pointed out an error in the CAFE Model input 
files used in the NPRM. The HCR1D technology was not set to `true' for 
the central analysis.\247\ We agree the setting was left blank in error 
and is correctly assigned a `true' value in the technology input file 
for the final rule analysis.
---------------------------------------------------------------------------

    \247\ NRDC, at pp. 46-47.
---------------------------------------------------------------------------

(d) Engine Effectiveness Modeling
    Engine effectiveness values used for engine technologies in two 
ways. The values are either calculated based on the difference in full 
vehicle simulation results created using the Autonomie modeling tool, 
or determined by the effectiveness values using an alternate 
calculation method, including analogous improvement or fuel economy 
improvement factors.
(1) Engine Maps
    Effectiveness values used as inputs for the CAFE Model are 
determined by comparing results of full vehicle simulations using the 
Autonomie simulation tool. For a full discussion about how Autonomie 
was used, see Section III.C.4 and TSD Chapter 2.4, in addition to the 
Autonomie model documentation. Engine map models are the primary inputs 
used to simulate the effects of different engine technologies in the 
Autonomie full vehicle simulations.
    Engine maps provide a three-dimensional representation of engine 
performance characteristics at each engine speed and load point across 
the operating range of the engine. Engine maps have the appearance of 
topographical maps, typically with engine speed on the horizontal axis 
and engine torque, power, or brake mean effective pressure (BMEP) \248\ 
on the vertical axis. A third engine characteristic, such as brake-
specific fuel consumption (BSFC),\249\ is displayed using contours 
overlaid across the speed and load map. The contours provide the values 
for the third characteristic in the regions of operation covered on the 
map. Other characteristics typically overlaid on an engine map include 
engine emissions, engine efficiency, and engine power. The engine maps 
developed to model the behavior of the engines used in this analysis 
are referred to as engine map models.
---------------------------------------------------------------------------

    \248\ Brake mean effective pressure is an engineering measure, 
independent of engine displacement, which indicates the actual work 
an engine performs.
    \249\ Brake-specific fuel consumption is the rate of fuel 
consumption divided by the power being produced.
---------------------------------------------------------------------------

    The engine map models used in this analysis are representative of 
technologies that are currently in production or are expected to be 
available in the rulemaking timeframe. The engine map models are 
developed to be representative of the performance achievable across 
industry for a given technology and are not intended to represent the 
performance of a single manufacturer's specific engine. The broadly 
representative performance level was targeted because the same 
combination of technologies produced by different manufacturers will 
have differences in performance, due to manufacturer-specific designs 
for engine hardware, control software, and emissions calibration.
    Accordingly, we expect that the engine maps developed for this 
analysis will differ from engine maps for manufacturers' specific 
engines. However, we intend and expect that the incremental changes in 
performance modeled for this analysis, due to changes in technologies 
or technology combinations, will be similar to the incremental changes 
in performance observed in manufacturers' engines for the same changes 
in technologies or technology combinations.
    The analysis never applies absolute BSFC levels from the engine 
maps to any vehicle model or configuration for the rulemaking analysis. 
The absolute fuel economy values from the full vehicle Autonomie 
simulations are used only to determine incremental effectiveness for 
switching from one technology to another technology. The incremental 
effectiveness is applied to the absolute fuel economy of vehicles in 
the analysis fleet, which are based on CAFE compliance data. For 
subsequent technology changes, incremental effectiveness is applied to 
the absolute fuel economy level of the previous technology 
configuration. Therefore, for a technically sound analysis, it is most 
important that the differences in BSFC among the engine maps be 
accurate, and not the absolute values of the individual engine maps.
    For this analysis, we use a small number of baseline engine 
configurations with well-defined BSFC maps, and then, in a very 
systematic and controlled process, add specific well-defined 
technologies to create a BSFC map for each unique technology 
combination. This can theoretically be done using engine or vehicle 
testing, but testing would need to be conducted on a single engine, and 
each configuration would require physical parts and associated engine 
calibrations to assess the impact of each technology configuration, 
which is impractical for the rulemaking analysis because of the 
extensive design, prototype part fabrication, development, and 
laboratory resources that are required to evaluate each unique 
configuration. Modeling is an approach used by industry to assess an 
array of technologies with more limited testing. Modeling offers the 
opportunity to isolate the effects of individual technologies by using 
a single or small number of baseline engine configurations and 
incrementally adding technologies to those baseline configurations. 
This provides a consistent reference point for the BSFC maps for each 
technology and for combinations of technologies that enables the 
differences in effectiveness among technologies to be carefully 
identified and quantified.

[[Page 25792]]

    The Autonomie model documentation provides a detailed discussion on 
how the engine map models were used as inputs to the full vehicle 
simulations performed using the Autonomie tool. The Autonomie model 
documentation contains the engine map model topographic figures, and 
additional engine map model data can be found in the Autonomie input 
files.\250\
---------------------------------------------------------------------------

    \250\ See additional Autonomie supporting materials in docket 
number NHTSA-2021-0053 for this rule.
---------------------------------------------------------------------------

    We received a comment from the High Octane Low Carbon Fuel Alliance 
regarding the potential use of high octane fuels. The High Octane Low 
Carbon Fuel Alliance stated, ``Higher octane enables greater engine 
efficiency and improved vehicle performance through higher compression 
ratios and/or more aggressive turbocharging and downsizing--also 
facilitated by ethanol's cylinder ``charge cooling'' effect due to its 
high heat of vaporization.\251\ Raising the engine's compression ratio 
from 10:1 to 12:1 could increase vehicle efficiency by 5 to 7 
percent.'' 252 253
---------------------------------------------------------------------------

    \251\ J.E. Anderson et al., ``High octane number ethanol-
gasoline blends: Quantifying the potential benefits in the United 
States,'' Fuel (2012): 97: pp. 585-594: https://www.sciencedirect.com/science/article/pii/S0016236112002268. 
(Accessed: February 17, 2022)
    \252\ David S. Hirshfeld et al., ``Refining Economics of U.S. 
Gasoline: Octane Ratings and Ethanol Content,'' Environmental 
Science & Technology (2014): 48(19): pp. 11064-11071: https://pubs.acs.org/doi/pdf/10.1021/es5021668. (Accessed: February 17, 
2022)
    \253\ Thomas G. Leone et al., ``The Effect of Compression Ratio, 
Fuel Octane Rating, and Ethanol Content on Spark- Ignition Engine 
Efficiency,'' Environmental Science & Technology (2015): 49(18): pp. 
10778-10789: https://pubs.acs.org/doi/abs/10.1021/acs.est.5b01420. 
(Accessed: February 17, 2022)
---------------------------------------------------------------------------

    We agree with the data provided; however, we simulate the use of 
Tier 3 fuel in our engine technology models to represent the fuel 
available and most commonly used by consumers.\254\ If we assumed that 
high octane fuel was used in the engine map models, we would be 
assuming a greater fuel economy benefit than would actually be achieved 
in the real world, which would overestimate the benefits of more 
stringent standards. Moreover, to date, vehicle manufacturers do not 
appear to be pursuing this technology path. As we have stated 
previously, regulation of fuels is also outside of the scope of NHTSA's 
authority. Accordingly, we made no updates to the fuel assumed used in 
the engine map models.
---------------------------------------------------------------------------

    \254\ See TSD Chapter 3.1 for a detailed discussion on engine 
map model assumptions.
---------------------------------------------------------------------------

(a) IAV Engine Map Models
    Most of the engine map models used in this analysis were developed 
by IAV GmbH (IAV) Engineering. IAV is one of the world's leading 
automotive industry engineering service partners with an over 35-year 
history of performing research and development for powertrain 
components, electronics, and vehicle design.\255\ The primary outputs 
of IAV's work for this analysis are engine maps that model the 
operating characteristics of engines equipped with specific 
technologies.
---------------------------------------------------------------------------

    \255\ IAV Automotive Engineering, https://www.iav.com/en/. 
(Accessed: February 17, 2022)
---------------------------------------------------------------------------

    The generated engine maps are validated against IAV's global 
database of benchmarked data, engine test data, single cylinder test 
data, prior modeling studies, technical studies, and information 
presented at conferences.\256\ The effectiveness values from the 
simulation results are also validated against detailed engine maps 
produced from Argonne engine benchmarking programs, as well as 
published information from industry and academia, ensuring reasonable 
representation of simulated engine technologies.\257\ The engine map 
models used in this analysis and their specifications are shown in 
Table III-9.
---------------------------------------------------------------------------

    \256\ Friedrich, I., Pucher, H., and Offer, T., ``Automatic 
Model Calibration for Engine-Process Simulation with Heat-Release 
Prediction,'' SAE Technical Paper 2006-01-0655, 2006, https://doi.org/10.4271/2006-01-0655. (Accessed: February 17, 2022) Rezaei, 
R., Eckert, P., Seebode, J., and Behnk, K., ``Zero-Dimensional 
Modeling of Combustion and Heat Release Rate in DI Diesel Engines,'' 
SAE Int. J. Engines 5(3):874-885, 2012, https://doi.org/10.4271/2012-01-1065. (Accessed: February 17, 2022) Multistage Supercharging 
for Downsizing with Reduced Compression Ratio (2015). MTZ Rene 
Berndt, Rene Pohlke, Christopher Severin and Matthias Diezemann IAV 
GmbH. Symbiosis of Energy Recovery and Downsizing (2014). September 
2014 MTZ Publication Heiko Neukirchner, Torsten Semper, Daniel 
Luederitz and Oliver Dingel IAV GmbH.
    \257\ Bottcher, L., Grigoriadis, P. ``ANL--BSFC map prediction 
Engines 22-26.'' IAV (April 30, 2019). https://lindseyresearch.com/wp-content/uploads/2021/09/NHTSA-2021-0053-0002-20190430_ANL_Eng-22-26-20190430_ANL_Eng22-26Updated_Docket.pdf. (Accessed: February 17, 
2022)
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BILLING CODE 4910-59-P

[[Page 25793]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.067

BILLING CODE 4910-59-C
    We received a comment from ICCT regarding the validity of the 
continued use of the IAV engine map models. ICCT stated that ``[t]he 
engine maps that are

[[Page 25794]]

included in the agency modeling are severely outdated. For example, all 
base naturally aspirated engine maps are based on an unidentified 2013 
or older vehicle, all turbo (non-Miller cycle) maps are based on a 
vehicle whose specifications match that of the 2011 MINI R56 N18/BMW 
N13 engine, the hybrid Atkinson cycle map (for PS and PHEV) is based on 
the 2010 Toyota Prius, and the HCR1 map is based on the 2014 Mazda 
SkyActiv 2.0L engine. Essentially, NHTSA is assuming there will be no 
efficiency improvements in any of these technologies through at least 
2026, or for 12 to 16 years from the model year of the vehicle used to 
generate the maps.'' \258\
---------------------------------------------------------------------------

    \258\ ICCT, at p. 3.
---------------------------------------------------------------------------

    We disagree with statements that the IAV engine maps are outdated. 
Many of the engine maps were developed specifically to support analysis 
for the current rulemaking time frame. The engine map models encompass 
engine technologies that are present in the analysis fleet and 
technologies that could be applied in the rulemaking timeframe. In many 
cases those engine technologies are mainstream today and will continue 
to be during the rulemaking timeframe. For example, the engines on some 
MY 2020 vehicles in the analysis fleet have technologies that were 
initially introduced ten or more years ago. Having engine maps 
representative of those technologies is important for the analysis. The 
most basic engine technology levels also provide a useful baseline for 
the incremental improvements for other engine technologies. The 
timeframe for the testing or modeling is unimportant because time by 
itself doesn't impact engine map data. A given engine or model will 
produce the same BSFC map regardless of when testing or modeling is 
conducted. Simplistic discounting of engine maps based on temporal 
considerations alone could result in discarding useful technical 
information.
    If we did use a mix of engine maps from engine modeling and from 
benchmarking data, no common reference for measuring impacts of adding 
specific technological improvements would exist. Additionally, 
manufacturers often implement multiple fuel-saving technologies 
simultaneously when redesigning a vehicle and it is not possible to 
isolate the effect of individual technologies by using laboratory 
measurements of a single production engine or vehicle with a 
combination of technologies.\259\ Because so many vehicle and engine 
changes are involved, it is not possible to attribute effectiveness 
improvements accurately for benchmarked engines to specific technology 
changes. Further, while two or more different manufacturers may produce 
engines with the same high level technologies (such as a DOHC engine 
with VVT and SGDI), each manufacturer's engine will have unique 
component designs that cause its version of the engine to have a unique 
engine map. For example, engines with the same high level technologies 
have unique intake manifold and exhaust manifold runners, cylinder head 
ports and combustion chamber geometry that impact charge motion, 
combustion and efficiency, as well as unique valve control, compression 
ratios, engine friction, cooling systems, and fuel injector spray 
characteristics, among other factors. All of these differences lead to 
potential overcounting or undercounting technology effectiveness per 
cost. As described above, our approach allows the analysis to isolate 
the effects of individual technologies by incrementally adding 
individual technologies to baseline engine configurations. We selected 
this approach for the NPRM and final rule and discuss it in detail in 
the TSD.\260\
---------------------------------------------------------------------------

    \259\ See e.g., Toyota Supplemental Comments to the 2018 NPRM, 
Docket No. NHTSA-2018-0067-12431 (``Atkinson-cycle operation is just 
one of several measures responsible for the 2.5L Dynamic Force 
engine achieving a world-best 40 percent thermal efficiency. The 
Late Intake Valve Closing (LIVC) of the Atkinson cycle reduces low-
load pumping losses and supports the 13:1 CR by suppressing engine 
knock. However, the engine's increased stroke-to-bore ratio (S/B 
ratio) and improved cooling, engine warmup, friction reduction, and 
exhaust system play an equally important role. For example, the 1.18 
S/B ratio preserves stable combustion under high EGR flow rates 
which improves thermal efficiency as much as the longer effective 
expansion ratio from the Atkinson cycle. The increased S/B ratio 
also compliments intake port, valve timing (VVT-iE) and piston 
enhancements resulting in greater tumble intensity of the charge-air 
intake, higher speed combustion, and increased thermal efficiency. 
Greater detail on factors contributing to the thermal efficiency of 
the 2018 Camry 2.5L engine can be found in Toyota SAE paper 2017-01-
1021 contained in Appendix 1 of this submission.'').
    \260\ See TSD Chapter 3.1.
---------------------------------------------------------------------------

    As a result, it should not be expected that any of our engine maps 
would necessarily align with a specific manufacturer's engine, unless 
of course the engine map was developed from that specific engine. We do 
not agree that comparing an engine map used for the rulemaking analysis 
to a single specific benchmarked engine has technical relevance, beyond 
serving as a general corroboration for the engine map. When a vehicle 
is benchmarked, the resulting data are dictated by the unique 
combination of technologies and design constraints for the whole 
vehicle system.
    ICCT further stated: ``As just two examples of how absurd it is to 
assume no improvements in any of these engine technologies for at least 
12 years, the turbocharged engine introduced by Honda in 2016 was 
significantly more efficient than the engine used to generate all the 
turbocharged maps in the proposed rule and the 2018 Camry hybrid 
improved fuel economy by 15 (XLE/SE) to 25 percent (LE) compared to the 
2017 Camry hybrid. And these (unincorporated) improvements were already 
in the market by 2016 and 2018--still 8 to 10 years before 2026. For 
additional information see UCS Reconsideration Petition pages 68-72.'' 
\261\ ICCT also stated ``EPA added a 2nd generation turbocharged 
downsized engine package based on EPA benchmark testing of the Honda 
L15B7 1.5L turbocharged, direct-injection engine to its 2018 MTE, which 
was not used in NHTSA's proposed rule.'' \262\
---------------------------------------------------------------------------

    \261\ ICCT, at p. 4.
    \262\ Id.
---------------------------------------------------------------------------

    Our effectiveness data, including engine map models, is not used in 
the rulemaking analysis in the manner described in ICCT's comments. Our 
analysis does not apply absolute BSFC levels from the engine maps to 
any vehicle model or configuration for the rulemaking analysis. The 
absolute fuel economy values from the full vehicle Autonomie 
simulations are used only to determine incremental effectiveness for 
switching from one technology to another technology. The incremental 
effectiveness is applied to the absolute fuel economy of vehicles in 
the analysis fleet, which are based on CAFE compliance data. For 
subsequent technology changes, incremental effectiveness is applied to 
the absolute fuel economy level of the previous technology 
configuration. Therefore, for a technically sound analysis, it is most 
important that the differences in BSFC among the engine maps be 
accurate, and not the absolute values of the individual engine maps.
    This comment also mirrors a similar ICCT comment to the 2018 
NPRM.\263\ In the 2020 final rule, we compared two IAV engine maps to 
the EPA's benchmarked Toyota 2017 2.5L naturally aspirated engine and 
Honda's 2016 1.5L turbocharged downsized engine for predicted 
effectiveness improvements. The IAV engines were modeled and simulated 
in a midsize non-performance vehicle with an automatic transmission and 
the same

[[Page 25795]]

road load technologies, MR0, ROLL0 and AERO0, to isolate for the 
benefits associated with the specific engine maps.\264\ Eng 12, a 1.6L, 
4-cylinder, turbocharged, SGDI, DOHC, dual cam VVT, VVL engine was 
selected as the closest engine configuration to the Honda 1.5L.\265\ 
Eng 22b, a 2.5L, 4 cylinder, VVT Atkinson cycle engine, was selected as 
the closest engine configuration to the Toyota 2.5L.\266\ Both the 
Toyota 2.5L naturally aspirated engine and Honda's 1.5L engine have 
incorporated a number of fuel saving technologies, including improved 
accessories and engine friction reduction. To assure an ``apples-to-
apples'' comparison, both IACC and EFR technologies were applied to the 
IAV engine maps. IACC technology provides an additional 3.6 percent 
incremental improvement and EFR provides an additional 1.4 percent 
incremental improvement beyond the IAV engine maps for midsize non-
performance vehicles.
---------------------------------------------------------------------------

    \263\ ICCT, Attachment 3, Docket No. NHTSA-2018-0067-11741, at 
p. I-49.
    \264\ See TSD Chapter 3.4, TSD Chapter 3.5, and TSD Chapter 3.6 
for more information on road load modeling.
    \265\ See TSD Chapter 3.1 for more discussion on modeled engine 
technologies.
    \266\ See TSD Chapter 3.1 for more discussion on modeled engine 
technologies.
---------------------------------------------------------------------------

    The comparison shows that the relative effectiveness of the IAV 
engine maps are in line with the Honda 1.5L and the Toyota 2.5L 
benchmarked engines. Figure III-8 below shows the effectiveness 
improvements for the EPA benchmarked engines and the corresponding IAV 
engine maps incremental to a baseline vehicle. Accordingly, we believe 
that the methodology used in this analysis, and the engine maps and 
incremental effectiveness values used, are in line with benchmarking 
data and are reasonable for the rulemaking analysis. We believe the 
approach used in this rulemaking analysis appropriately allows us to 
account for a wide array of engine technologies that could be adopted 
during the rulemaking timeframe. Declining to use manufacturer-specific 
engines allows us to ensure that all effectiveness and cost 
improvements due to the incremental addition of fuel economy improving 
technologies are appropriately accounted for.
[GRAPHIC] [TIFF OMITTED] TR02MY22.068

(b) Other Engine Map Models
    Two of the engine map models we show in Table III-9, Eng24 and 
Eng25, were not developed as part of the IAV modeling effort and we 
only used Eng24 in this analysis. The Eng24 and Eng25 engine maps are 
equivalent to the ATK and ATK2 engine map models developed for the 2016 
Draft TAR, EPA Proposed Determination, and Final Determination.\267\ 
The ATK1 engine model is based directly on the 2.0L 2014 Mazda 
SkyActiv-G (ATK) engine. The ATK2 represents an Atkinson engine concept 
based on the Mazda engine, adding cEGR, cylinder deactivation, and an 
increased compression ratio (14:1). In this analysis, Eng24 and Eng25 
correspond to the HCR1 and HCR2 technologies.
---------------------------------------------------------------------------

    \267\ Ellies, B., Schenk, C., and Dekraker, P., ``Benchmarking 
and Hardware-in-the-Loop Operation of a 2014 MAZDA SkyActiv 2.0L 
13:1 Compression Ratio Engine,'' SAE Technical Paper 2016-01-1007, 
2016, doi:10.4271/2016-01-1007.
---------------------------------------------------------------------------

    We used the same HCR2 engine map model application in this analysis 
as we used in the 2020 final rule.\268\ The agency believes the use of 
HCR0, HCR1, and the new addition of HCR1D reasonably represents the 
application of Atkinson Cycle engine technologies within the current 
light-duty fleet and the anticipated applications of Atkinson Cycle 
technology in the MY 2024-2026 timeframe. We sought comment on whether 
and how to change our engine maps for HCR2 in the analysis for the 
final rule.
---------------------------------------------------------------------------

    \268\ 85 FR 24425-27 (April 30, 2020).

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

[[Page 25796]]

    ICCT, among others supported the use of the HCR2 engine map model 
stating that: 269 270 271 272
---------------------------------------------------------------------------

    \269\ NRDC, at p. 47.
    \270\ UCS, at p. 6.
    \271\ CARB, at p. 4.
    \272\ California Attorney General et al., A2, at p. 33.

    Not only does EPA's proposed rule allow HCR2 technology to be 
used in their modeling, but comments previously submitted and 
previous EPA documentation provide extensive justification for HCR 
technology benefits beyond just HCR1D. Also, both cooled EGR and 
cylinder deactivation have been in production since 2018. Thus, it 
is not credible to assume no further advances in HCR technology 
prior to 2027. Further, the manufacturer claim of ``diminishing 
returns to additional conventional engine technology improvements'' 
is also not credible, given the discussion in the Appendix Section 1 
of extensive engine technologies under development that can reduce 
GHG emissions by over 30 [percent]. ICCT certainly supports 
developing an updated family of HCR engine map models that 
incorporate many of the technologies discussed in Section 1 for 
future rulemakings. But in the interim, HCR2 should be allowed in 
the Final Rule using EPA's engine map for HCR2 developed in the 
Technical Support Documents for EPA's Proposed and 2017 Final 
Determination.\273\
---------------------------------------------------------------------------

    \273\ ICCT, at p. 11.

    Other commenters were opposed to the use of the HCR2 engine map 
model in the analysis. Toyota provided comment on both the NHTSA and 
---------------------------------------------------------------------------
EPA analysis, stating that:

    HCR2 Atkinson engine technology has returned to EPA's compliance 
modeling. EPA now defines HCR2 as ``the addition of dynamic cylinder 
deactivation and cooled EGR within non-HEV Atkinson Cycle engine 
applications''. However, the cost, technology effectiveness, and 
underlying engine map used for modeling HCR2 technology appears 
identical to that used for the SAFE 2 Final Rule which is 
represented by the simulated and experimental effectiveness of the 
2014 2.0L SKYACTIV engine with the addition of cooled Exhaust Gas 
Recirculation (cEGR), 14:1 compression ratio (CR), and cylinder 
deactivation. There is still no U.S. production vehicle that 
incorporates this definition of HCR2 technology because the 14:1 CR 
requires higher octane than currently available in U.S. regular 
grade gasoline. Further, there are more cost-effective pathways than 
combining cylinder deactivation with Atkinson cycle engines which 
have inherently low pumping loss characteristics.
    EPA compliance modeling applies HCR2 engine technology to over 
40 percent of Toyota's fleet by 2026 model year. For example, Camry 
receives HCR2 along with engine friction reduction (EFR) in 2024 
model year. The resulting 51.7 mpg fuel economy is about a 9 
[percent] improvement over Toyota's current generation Camry powered 
by a 2.5L Atkinson engine which has a world-best 40 [percent] 
thermal efficiency. The modeled [CO2] and fuel economy 
are closer to hybrid Camry performance and are unreasonably large 
for the technologies involved. First, cylinder deactivation is the 
only practical distinction between HCR2 and Toyota's 2.5L Dynamic 
Force Atkinson engine. NHTSA's evaluation has determined applying 
only cylinder deactivation to Atkinson cycle engines (HCR1) nets an 
incremental improvement of roughly 2 percent. Second, the 2.5L 
Dynamic Force engine already encompasses EFR as explained in past 
comments under CBI. Finally, IACC and EFR benefits appear to be 
double counted on top of ERF already being included in the Camry 
2.5L Atkinson engine. This is because IACC and EFR are both fully 
included in the simulated HCR2 engine map, yet both technologies are 
added again in the CAFE Model runs.
    EPA modeling sequentially adds enhanced technology to a 2017 
baseline fleet until compliance with the proposed standards is 
achieved. The 2017 model year fleet is outdated because it fails to 
capture more recent state-of-the-art technologies in the U.S. fleet 
and requires the [CO2] reduction effectiveness of those 
technologies to be assumed or simulated. An example is Toyota's 2.5L 
Atkinson engine technology which has been in the market since 2018 
model year. The Camry example above could largely be avoided using a 
more recent baseline. A 2020 model year baseline fleet is more 
appropriate and provides a more accurate performance assessment, and 
with fewer product redesign cycles available, there is less chance 
for technology effectiveness errors to propagate through the fleet. 
The 2017 baseline has resulted in more Atkinson technology being 
assumed in the 2018 through 2021 model year fleets than really 
exists in the market.

    Toyota further stated,

    For compliance modeling of gasoline powertrains, EPA is 
extensively relying on the HCR2 classification of Atkinson engine 
technology for which the assumed efficacy remains unproven and 
highly unlikely as previously explained. NHTSA effectively deploys 
only to the HCR1 level of Atkinson engines which better reflects the 
state of technology in the fleet today and identifies HCR1D as a 
more advanced future pathway that while not cost-effective has a 
considerably more reasonable assumed technology effectiveness than 
HCR2.\274\
---------------------------------------------------------------------------

    \274\ Toyota, at pp. 3-4.

    The Auto Innovators also provided information and comment on the 
---------------------------------------------------------------------------
HCR2 engine map model:

    In the GHG NPRM [86 FR 43726, August 10, 2021], EPA resurrected 
highly optimistic effectiveness estimates for future Atkinson cycle 
engines based on a speculative engine map, and used the results as 
``HCR2'' technology. The use of this technology package can diminish 
the integrity of the analysis and distort discussions of 
technological feasibility and economic practicability of future 
standards. We recommend against the inclusion of this technology 
package in the CAFE Model at this time.
    While some organizations have asserted that EPA's 2016 
characterization of HCR2 is a reasonable characterization of engines 
in the market today, like Toyota's 2.5L on the Camry and RAV4, or 
Mazda's 2.5L on the CX-5, history has shown that the HCR2 
assumptions used in EPA's analysis significantly and unreasonably 
overestimate the real-world fuel saving capability of state-of-the-
art Atkinson engine technology in these applications. The EPA HCR2 
engine map assumes engine accessory drive improvements (``IACC'') 
and engine friction reduction (``EFR'') have already been used to 
the maximum extent possible, so reapplying these technologies again 
in the modeling (as the EPA analysis does) incorrectly double counts 
the potential effectiveness of these technologies. EPA incorrectly 
states that HCR2 technology, as modeled, exists in the fleet and is 
widely available for adoption.\275\
---------------------------------------------------------------------------

    \275\ Auto Innovators, at pp. 49-51.

    After review of the comments provided, we continue to believe HCR 
engine technology shows promise for future ICE fuel economy 
improvements and we continue with testing and validation for the IAV-
generated HCR engine map model family so that those engine map models 
can be used in future analyses. However, we also believe that this 
specific engine map model presents several problems when considered in 
the context of this analysis. First, we believe that the technology 
combination modeled by the HCR2 engine map is unlikely to be utilized 
in the rulemaking timeframe based on comments received from the 
industry leaders in HCR technology application. Second, as illustrated 
by the Auto Innovators, this specific engine map model provides an 
excessive jump in effectiveness when compared to the other IAV-based 
engine map models used in this analysis. As a result, we have decided 
to continue to exclude the HCR2 engine map model from our central 
analysis. We will continue to expand the HCR engine map model family of 
technologies in future analyses. This is consistent with EPA's current 
assessment of their own model and choice to exclude the HCR2 engine in 
their final rule analysis.\276\
---------------------------------------------------------------------------

    \276\ See U.S. EPA, ``Revised 2023 and Later Model Year Light-
Duty Vehicle GHG Emissions Standards: Regulatory Impact Analysis.'' 
December 2021. EPA-420-R-21-028. https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1013ORN.pdf. (Accessed: March 9, 2022)
---------------------------------------------------------------------------

(2) Analogous Engine Effectiveness Improvements and Fuel Economy 
Improvement Values
    For some technologies, the effectiveness for applying an 
incremental engine technology is determined by using the effectiveness 
values for applying the same engine technology to a reasonably similar 
base

[[Page 25797]]

engine. An example of this can be seen in the determination of the 
application of SGDI to the baseline SOHC engine. Currently there is no 
engine map model for the SOHC+VVT+SGDI engine configuration. To create 
the effectiveness data required as an input to the CAFE Model, first, a 
pairwise comparison between technology configurations that included the 
DOHC+VVT engine (Eng1) and the DOHC+VVT+SGDI (Eng18) engine was 
conducted. Then, the results of that comparison were used to generate a 
data set of emulated performance values for adding the SGDI technology 
to the SOHC+VVT engine (Eng5b) systems.
    The pairwise comparison is performed by finding the difference in 
fuel consumption performance between every technology configuration 
using the analogous base technology (e.g., Eng1) and every technology 
configuration that only changes to the analogous technology (e.g., 
Eng18). The individual changes in performance between all the 
technology configurations are then added to the same technology 
configurations that use the new base technology (e.g., Eng5b) to create 
a new set of performance values for the new technology (e.g., 
SOHC+VVT+SGDI). Table III-10 shows the engine technologies where 
analogous effectiveness values were used.
[GRAPHIC] [TIFF OMITTED] TR02MY22.069

    The agency received a comment about the use of analogous estimation 
from ICCT. ICCT stated,

    The modeled benefit of adding cylinder deactivation to 
turbocharged and HCR1 vehicles is only about 25 [percent] of the 
benefit from adding DEAC or ADEAC to a basic engine. While adding 
DEAC to a turbocharged or HCR1 engine has smaller pumping loss 
reductions than for base naturally aspirated engines, DEAC still has 
significant pumping loss reductions and has the additional benefit 
of enabling the engine to operate in a more thermal efficient region 
of the engine fuel map. The agencies also failed to provide even the 
most basic information supporting their effectiveness estimates for 
TURBOD. Further compounding the problem, NHTSA based the 
effectiveness of adding DEAC to HCR engines on the TURBOD estimate, 
without any further justification.\277\
---------------------------------------------------------------------------

    \277\ ICCT, at pp. 4-5.

    We disagree with ICCT's characterization of the TURBOD engine map 
model as ``not having information supporting its creation.'' A 
discussion of the creation of the TURBOD engine map model, along with 
all the engine map models, is provided in Chapter 3.1.3.1 of the TSD. 
Furthermore, as discussed in Chapter 3.1.3.2.1 of the TSD, the HCR1D 
effectiveness values are based on application of the DEAC technology to 
a similar technology model (TURBO1) where there is a reduced pumping 
loss benefit. Additionally, commenters did not indicate what 
effectiveness values they would consider reasonable or plausible, and 
NHTSA has no new data to support the ICCT position. As a result, we 
will continue to use the effectiveness values from the NPRM for the 
final rule analysis.
    We also developed a static fuel efficiency improvement factor to 
simulate applying an engine technology for some technologies where 
there is either, no appropriate analogous technology, or there are not 
enough data to create a full engine map model. The improvement factors 
are developed based on a literature review or confidential business 
information (CBI) provided by stakeholders. Table III-11 provides a 
summary of the technology effectiveness values simulated using 
improvement factors, and the value and rules for how the improvement 
factors are applied. Advanced cylinder deactivation (ADEAC, TURBOAD, 
DSLIAD), advanced diesel engines (DSLIA) and engine friction reduction 
(EFR) are the three technologies modeled using improvement factors.
    The application of the advanced cylinder deactivation is 
responsible for three of the five technologies using an improvement 
factor in this analysis. The initial review of the advanced cylinder 
deactivation technology is based on a technical publication that used a 
MY 2010 SOHC VVT basic engine.\278\ Additional information about the 
technology effectiveness came from a benchmarking analysis of pre-
production 8-cylinder OHV prototype systems.\279\ However, at the time 
of the

[[Page 25798]]

analysis no studies of production versions of the technology are 
available, and the only available technology effectiveness came from 
existing studies, not operational information. Thus, only estimates of 
effect can be developed and not a full model of operation. No engine 
map model can be developed, and no other technology pairs are 
analogous.
---------------------------------------------------------------------------

    \278\ Wilcutts, M., Switkes, J., Shost, M., and Tripathi, A., 
``Design and Benefits of Dynamic Skip Fire Strategies for Cylinder 
Deactivated Engines,'' SAE Int. J. Engines 6(1):278-288, 2013, 
available at https://doi.org/10.4271/2013-01-0359 (Accessed: 
February 17, 2022); Eisazadeh-Far, K. and Younkins, M., ``Fuel 
Economy Gains through Dynamic-Skip-Fire in Spark Ignition Engines,'' 
SAE Technical Paper 2016-01-0672, 2016, available at https://doi.org/10.4271/2016-01-0672. (Accessed: February 17, 2022).
    \279\ EPA, 2018. ``Benchmarking and Characterization of a Full 
Continuous Cylinder Deactivation System.'' Presented at the SAE 
World Congress, April 10-12, 2018. Retrieved from https://www.regulations.gov/document?D=EPA-HQ-OAR-2018-0283-0029. (Accessed: 
February 17, 2022).
---------------------------------------------------------------------------

    To model the effects of advanced cylinder deactivation, an 
improvement factor is determined based on the information referenced 
above and applied across the engine technologies. The effectiveness 
values for naturally aspirated engines are predicted by using full 
vehicle simulations of a basic engine with DEAC, SGDI, VVL, and VVT, 
and adding 3 percent or 6 percent improvement based on engine cylinder 
count: 3 percent for engines with 4 cylinders or less and 6 percent for 
all other engines. Effectiveness values for turbocharged engines are 
predicted using full vehicle simulations of the TURBOD engine and 
adding 1.5 percent or 3 percent improvement based on engine cylinder 
count: 1.5 percent for engines with 4 cylinders or less and 3 percent 
for all other engines. For diesel engines, effectiveness values are 
predicted by using the DSLI effectiveness values and adding 4.5 percent 
or 7.5 percent improvement based on vehicle technology class: 4.5 
percent improvement is applied to small and medium non-performance 
cars, small performance cars, and small non-performance SUVs. 7.5 
percent improvement is applied to all other vehicle technology classes.
    The analysis models advanced engine technology application to the 
baseline diesel engine by applying an improvement factor to the ADSL 
engine technology combinations. A 12.8 percent improvement factor is 
applied to the ADSL technology combinations to create the DSLI 
technology combinations. The improvement in performance is based on the 
application of a combination of low pressure and high pressure EGR, 
reduced parasitic loss, advanced friction reduction, incorporation of 
highly integrated exhaust catalyst with low temp light off 
temperatures, and closed loop combustion 
control.280 281 282 283
---------------------------------------------------------------------------

    \280\ 2015 NAS Report, at p. 104.
    \281\ Hatano, J., Fukushima, H., Sasaki, Y., Nishimori, K., 
Tabuchi, T., Ishihara, Y. ``The New 1.6L 2-Stage Turbo Diesel Engine 
for HONDA CR-V.'' 24th Aachen Colloquium--Automobile and Engine 
Technology 2015.
    \282\ Steinparzer, F., Nefischer, P., Hiemesch, D., Kaufmann, 
M., Steinmayr, T. ``The New Six-Cylinder Diesel Engines from the BMW 
In-Line Engine Module.'' 24th Aachen Colloquium--Automobile and 
Engine Technology 2015.
    \283\ Eder, T., Weller, R., Spengel, C., B[ouml]hm, J., Herwig, 
H., Sass, H. Tiessen, J., Knauel, P. ``Launch of the New Engine 
Family at Mercedes-Benz.'' 24th Aachen Colloquium--Automobile and 
Engine Technology 2015.
---------------------------------------------------------------------------

    As discussed above, the application of the EFR technology does not 
simulate the application of a specific technology, but the application 
of an array of potential improvements to an engine. All reciprocating 
and rotating components in the engine are potential candidates for 
friction reduction, and small improvements in several components can 
add up to a measurable fuel economy 
improvement.284 285 286 287 Because of the incremental 
nature of this analysis, a range of 1-2 percent improvement was 
identified initially, and narrowed further to a specific 1.39 percent 
improvement. The final value is likely representative of a typical 
value industry may be able to achieve in future years.
---------------------------------------------------------------------------

    \284\ ``Polyalkylene Glycol (PAG) Based Lubricant for Light- & 
Medium-Duty Axles,'' 2017 DOE Annual Merit Review. Ford Motor 
Company, Gangopadhyay, A., Ved, C., Jost, N. https://energy.gov/sites/prod/files/2017/06/f34/ft023_gangopadhyay_2017_o.pdf.
    \285\ ``Power-Cylinder Friction Reduction through Coatings, 
Surface Finish, and Design,'' 2017 DOE Annual Merit Review. Ford 
Motor Company. Gangopadhay, A. Erdemir, A. https://energy.gov/sites/prod/files/2017/06/f34/ft050_gangopadhyay_2017_o.pdf. (Accessed: 
February 17, 2022).
    \286\ ``Nissan licenses energy-efficient engine technology to 
HELLER,'' https://newsroom.nissan-global.com/releases/170914-01-e?lang=en-US&rss&la=1&downloadUrl=%2Freleases%2F170914-01-e%2Fdownload (accessed: February 17, 2022).
    \287\ ``Infiniti's Brilliantly Downsized V-6 Turbo Shines,'' 
https://wardsauto.com/engines/infiniti-s-brilliantly-downsized-v-6-turbo-shines (accessed: February 17, 2022).
[GRAPHIC] [TIFF OMITTED] TR02MY22.070

(3) Engine Effectiveness Values
    The effectiveness values for the engine technologies, for all ten 
vehicle technology classes, are shown in Figure III-8. Each of the 
effectiveness values shown are representative of the improvements seen 
for upgrading only the listed engine technology for a given combination 
of other technologies. In other words, the range of effectiveness 
values seen for each specific technology (e.g., TURBO1) represents the 
addition of the TURBO1 technology to every technology combination that 
could select the addition of TURBO1. See Table III-12 for several 
specific examples. It must be emphasized, the change in fuel 
consumption values between entire technology keys are

[[Page 25799]]

used,\288\ and not the individual technology effectiveness values. 
Using the change between whole technology keys captures the 
complementary or non-complementary interactions among technologies.
---------------------------------------------------------------------------

    \288\ Technology key is the unique collection of technologies 
that constitutes a specific vehicle, see Section III.C.4.c).
[GRAPHIC] [TIFF OMITTED] TR02MY22.071

    Some of the advanced \289\ engine technologies have values that 
indicate seemingly low effectiveness. Investigation of these values 
shows the low effectiveness is a result of applying the advanced 
engines to existing SHEVP2 architectures. This effect is expected and 
illustrates the importance of using the full vehicle modeling to 
capture interactions between technologies and capture instances of both 
complimentary technologies and non-complimentary technologies. In this 
instance, the SHEVP2 powertrain improves fuel economy, in part, by 
allowing the engine to spend more time operating at efficient engine 
speed and load conditions. This reduces the advantage of adding 
advanced engine technologies, which also improve fuel economy, by 
broadening the range of speed and load conditions for the engine to 
operate at high efficiency. This redundancy in fuel savings mechanism 
results in a lower effectiveness when the technologies are added to 
each other.
---------------------------------------------------------------------------

    \289\ The full data set we used to generate this example can be 
found in the FE_1 Improvements file.

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

[[Page 25800]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.072

(e) Engine \290\ Costs
---------------------------------------------------------------------------

    \290\ The box shows the inner quartile range (IQR) of the 
effectiveness values and whiskers extend out 1.5 x IQR. The dots 
outside this range show effectiveness values outside those 
thresholds. The data used to create this figure can be found in the 
FE_1 Improvements file.
---------------------------------------------------------------------------

    We consider both cost and effectiveness in the CAFE Model when 
selecting any technology changes. As discussed in detail in TSD Chapter 
3.1.8, the engine costs we use in this analysis build on estimates from 
the 2015 NAS Report, from agency-funded teardown studies, and from work 
performed by non-government organizations.\291\
---------------------------------------------------------------------------

    \291\ FEV prepared several cost analysis studies for EPA on 
subjects ranging from advanced 8-speed transmissions to belt 
alternator starters or start/stop systems. NHTSA contracted 
Electricore, EDAG, and Southwest Research for teardown studies 
evaluating mass reduction and transmissions. The 2015 NAS Report 
also evaluated technology costs developed based on these teardown 
studies.
---------------------------------------------------------------------------

    We use the absolute costs of the engine technology in this 
analysis, instead of relative costs used prior to the 2020 final rule. 
We use absolute costs to ensure the full cost of the IC engine is 
removed when electrification technologies are applied, specifically for 
transition to BEVs. In this analysis, we model the cost of adopting BEV 
technology by first removing the costs associated with IC powertrain 
systems, then applying the BEV systems costs. Relative costs can still 
be determined through comparison of the absolute costs for the initial 
technology combination and the new technology combination.
    As discussed in detail in TSD Chapter 3.1.8, we assigned engine 
costs based on the number of cylinders in the engine and whether the 
engine is naturally aspirated or turbocharged and downsized. Table III-
13 below shows an example of absolute costs for engine technologies in 
2018$. The example costs are shown for a straight 4-cylinder DOHC 
engine and V-6-cylinder DOHC engine. The table shows costs declining 
across successive years due to the learning rate we applied to each 
engine technology. For a full list of all absolute engine costs we used 
in the analysis across all model years, see the Technologies file.

[[Page 25801]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.073

    We received several comments regarding engine technology costs. 
ICCT provided several cost comments for technologies including direct 
injection, cool exhaust gas recirculation, cylinder deactivation and 
turbo charging, that all took issue with the agency for not using cost 
data from a 2015 FEV teardown study.\292\
---------------------------------------------------------------------------

    \292\ FEV 2015--David Blanco-Rodriguez, 2025 Passenger car and 
light commercial vehicle powertrain technology analysis. FEV GmbH. 
September 2015. https://theicct.org/sites/default/files/publications/PV-LCV-Powertrain-Tech-Analysis_FEV-ICCT_2015.pdf. 
(Accessed: February 16, 2022).
---------------------------------------------------------------------------

    As we explained in the 2020 final rule, we do not believe that the 
FEV report referenced by ICCT is an appropriate source to use for this 
analysis for a few reasons. First, the primary focus of the FEV study 
``is the European Market according to the EU6b regulation as well as 
the consideration of emissions under both the NEDC and WLTP test 
procedures.'' Components designed for use in Europe will have alternate 
constraints from parts designed for use in the U.S., such as octane 
limits, which can result in different designs and costs. This final 
rule analysis specifically considered the U.S. automotive market during 
the rulemaking timeframe based on U.S.-specific regulatory test cycles. 
Accordingly, the costs reflect incremental technology effectiveness for 
achieving improvements as measured through U.S. regulatory test 
methods. We discuss these test cycles and methods further in Section 
III.C.4.
    Second, FEV did not conduct original teardown studies for this 
report, as indicated by project tasks, but rather used engineering 
judgement and external studies in assessing incremental costs.\293\ The 
FEV report did not provide sources for each individual cost and it is 
unclear how costs in many scenarios were developed since no teardowns 
were used. Note that for this final rule analysis, we used previously 
conducted FEV cost teardown studies and the referenced 2015 NAS costs 
that also references FEV teardowns. As a result of this assessment we 
are not concluding that FEV as a whole is a source on which NHTSA 
should not rely, but we do want to make sure the baseline assumptions 
of costing data, and how they are collected, are consistent with the 
baseline assumptions of our analysis.
---------------------------------------------------------------------------

    \293\ FEV EU Costs Tasks: ``Definition of reference hardware or 
description made by experience of development and design engineers 
as well as additional research as base for cost analysis (no 
purchase of hardware).''
---------------------------------------------------------------------------

    Finally, the cost for different vehicle classes identified by the 
FEV study does not line up with the vehicle classes discussed in the 
NPRM and this final rule analysis. FEV stated specifically, ``the 
configuration of the vehicles has not been optimized for the [U.S.] 
market and may not be representative of this market.'' \294\ We have 
discussed the importance of aligning the CAFE vehicle models with the 
U.S. market earlier in

[[Page 25802]]

Sections III.C.2 and III.C.4. All of these factors make it difficult to 
compare directly our estimates and estimates presented in the FEV 
report cited by ICCT in their comments.
---------------------------------------------------------------------------

    \294\ Id. at p. 141.
---------------------------------------------------------------------------

    ICCT's comment regarding the cost of the HCR engine technology 
costs, unlike the costs discussed above, did not originate with the 
2015 FEV report. ICCT stated that ``DMC costs for HCR in the SAFE rule, 
which are unchanged in NHTSA's proposed rule, were about $200 more than 
in EPA's 2016 TAR. This is a clear case where the agencies appear to 
have not used the best available data from EPA.''
    We used the same DMCs established by the 2015 NAS Report for the 
Atkinson cycle technologies in both the NPRM analysis and the final 
rule analysis. However, because there are many various engine 
configurations in the market, we do not use the same fixed costs that 
were set for each type of vehicle described in the 2015 NAS Report, 
such as pickup and sedan. We have expanded costs by considering the 
type of technology in the baseline, like SGDI, and the configuration of 
the engine, such as SOHC versus DOHC. In addition, the cost used in the 
NPRM also included updated dollar year, learning rate, and RPE in 
comparison to the 2016 TAR. Although EPA also used costs from the 2015 
NAS Report for the Proposed Determination analysis, they used a 
different approach to account for components.
    After review of the provided comments, we continue to rely on the 
costs developed from the data provided by NAS and used for the NPRM 
analysis. Engine technology costs often exist as a range of values 
across manufacturers, and we work to try and find the best 
representative value of that range, avoiding either maximum or minimum 
values.
Transmission Paths
    For this analysis, we classify all light duty vehicle transmission 
technologies into discrete transmission technology paths. We use these 
paths to model the most representative characteristics, costs, and 
performance of the fuel-economy improving transmissions most likely 
available during the rulemaking time frame, MYs 2024-2026.
    In the following sections we discuss how we define transmission 
technologies in this analysis, the general technology categories we use 
in the CAFE Model, and the transmission technologies' relative 
effectiveness and costs. In the following sections we also provide an 
overview of how we assign transmission technologies to the baseline 
fleet, as well as the adoption features, we apply to the transmission 
technologies.
    We only received comments regarding the costs assigned to eCVT 
technology for power-split strong hybrid (i.e., SHEVPS) systems. Our 
model only uses the eCVT technology as part of the SHEVPS technology 
package, and the eCVT is not modeled as a standalone transmission 
technology. As a result, we have responded to comments on eCVT costs in 
Section III.D.3. For all other transmission technologies, we use the 
same NPRM transmission technologies inputs and costs for the final rule 
analysis.
(a) Transmission Modeling in the CAFE Model
    We model two categories of transmissions for this analysis: 
Automatic and manual. We characterize automatic transmissions as 
transmissions that automatically select and shift between transmission 
gears for the driver during vehicle operation. We further subdivide 
automatic transmissions into four subcategories: Traditional automatic 
transmissions (AT), dual clutch transmissions (DCT), continuously 
variable transmissions (CVT), and direct drive transmissions (DD).
    We model both the DD transmission and eCVT as part of electrified 
powertrain technology packages, and not as independently selectable 
technologies. As a result, we do not explicitly include either 
technology in the transmission paths, and the technologies are 
discussed further in Section III.D.3.
    We employ different levels of high efficiency gearbox (HEG) 
technology in the ATs and CVTs. HEG improvements for transmissions 
represent incremental advancement in technology that improve 
efficiency, such as reduced friction seals, bearings and clutches, 
super finishing of gearbox parts, and improved lubrication. These 
advancements are aimed at reducing frictional and other parasitic loads 
in transmissions, to improve efficiency. We consider three levels of 
HEG improvements in this analysis, based on 2015 NAS Report and CBI 
data.\295\ We apply HEG efficiency improvements to ATs and CVTs, 
because those transmissions inherently have higher friction and 
parasitic loads related to hydraulic control systems and greater 
component complexity, compared to MTs and DCTs. We note HEG technology 
improvements in the transmission technology pathways by increasing 
``levels'' of a transmission technology; for example, the baseline 8-
speed automatic transmission is termed ``AT8'', while an AT8 with level 
2 HEG technology is ``AT8L2'' and an AT8 with level 3 HEG technology is 
``AT8L3.''
---------------------------------------------------------------------------

    \295\ 2015 NAS Report, at p. 191.
---------------------------------------------------------------------------

    AT: Conventional planetary gear automatic transmissions are the 
most popular transmission.\296\ ATs typically contain three or four 
planetary gear sets that provide the various gear ratios. Gear ratios 
are selected by activating solenoids which engage or release multiple 
clutches and brakes as needed. ATs are packaged with torque converters, 
which provide a fluid coupling between the engine and the driveline and 
provide a significant increase in launch torque. When transmitting 
torque through this fluid coupling, energy is lost due to the churning 
fluid. These losses can be eliminated by engaging the torque convertor 
clutch to directly connect the engine and transmission (``lockup''). 
For the Draft TAR and 2020 final rule, EPA and DOT surveyed automatic 
transmissions in the market to assess trends in gear count and 
purported fuel economy improvements.\297\ Based on that survey, and 
also EPA's 2021 Automotive Trends Report,\298\ we concluded that 
modeling ATs with a range of 5 to 10 gears, with three levels of HEG 
technology for this analysis was reasonable.
---------------------------------------------------------------------------

    \296\ 2021 EPA Automotive Trends Report, at pp. 62-66.
    \297\ Draft TAR at 5-50, 5-51; Final Regulatory Impact Analysis 
accompanying the 2020 final rule, at 549.
    \298\ 2021 EPA Automotive Trends Report, at pp. 62-66.
---------------------------------------------------------------------------

    CVT: Conventional continuously variable transmissions consist of 
two cone-shaped pulleys, connected with a belt or chain. Moving the 
pulley halves allows the belt to ride inward or outward radially on 
each pulley, effectively changing the speed ratio between the pulleys. 
This ratio change is smooth and continuous, unlike the step changes of 
other transmission varieties.\299\ We include two types of CVT systems 
in the selectable transmission paths, the baseline CVT and a CVT with 
HEG technology applied.
---------------------------------------------------------------------------

    \299\ 2015 NAS Report, at p. 171.
---------------------------------------------------------------------------

    DCT: Dual clutch transmissions, like automatic transmissions, 
automate shift and launch functions. DCTs use separate clutches for 
even-numbered and odd-numbered gears, allowing the next gear needed to 
be pre-selected, resulting in faster shifting. The use of multiple 
clutches in place of a torque converter results in lower parasitic

[[Page 25803]]

losses than ATs.\300\ Because of a history of limited 
appeal,301 302 we constrain application of additional DCT 
technology to vehicles already using DCT technology, and only model two 
types of DCTs in this analysis.
---------------------------------------------------------------------------

    \300\ 2015 NAS Report, at p. 170.
    \301\ 2020 EPA Automotive Trends Report, at p. 57.
    \302\ 2021 NAS Report, at 56.
---------------------------------------------------------------------------

    MT: Manual transmissions are transmissions that require direct 
control by the driver to operate the clutch and shift between gears. In 
a manual transmission, gear pairs along an output shaft and parallel 
layshaft are always engaged. Gears are selected via a shift lever, 
operated by the driver. The lever operates synchronizers, which speed 
match the output shaft and the selected gear before engaging the gear 
with the shaft. During shifting operations (and during idle), a clutch 
between the engine and transmission is disengaged to decouple engine 
output from the transmission. Automakers today offer a minimal 
selection of new vehicles with manual transmissions.\303\ As a result 
of reduced market presence, we only include three variants of manual 
transmissions in the analysis.
---------------------------------------------------------------------------

    \303\ 2020 EPA Automotive Trends Report, at p. 61.
---------------------------------------------------------------------------

    The transmission model paths used in this analysis are shown in 
Figure III-10. Baseline-only technologies (MT5, AT5, AT7L2, AT9L2, and 
CVT) are grayed and can only be assigned as initial vehicle 
transmission configurations. Further details about transmission path 
modeling can be found in TSD Chapter 3.2.
[GRAPHIC] [TIFF OMITTED] TR02MY22.074

(b) Transmission Analysis Fleet Assignments
    The wide variety of transmissions on the market are classified into 
discrete transmission technology paths for this analysis. These paths 
are used to model the most representative characteristics, costs, and 
performance of the fuel economy-improving technologies most likely 
available during the rulemaking time frame.
    To generate the analysis fleet, we gather data on transmissions 
from manufacturer mid-model year CAFE compliance submissions and 
publicly available manufacturer specification sheets. We use the data 
to assign transmissions in the analysis fleet and determine which 
platforms share transmissions.
    We specify transmission type, number of gears, and high-efficiency 
gearbox (HEG) level for the baseline fleet assignment. The number of 
gears in the assignments for automatic and manual transmissions usually 
match the number of gears listed by the data sources, with some 
exceptions. We did not model four-speed transmissions in Autonomie for 
this analysis due to their rarity and low likelihood of being used in 
the future, so we assigned MY 2020 vehicles with an AT4 or MT4 to an 
AT5 or MT5 baseline, respectively. Some dual-clutch transmissions were 
also an exception; dual-clutch transmissions with seven gears were 
assigned to DCT6.
    For automatic and continuously variable transmissions, the 
identification of the most appropriate transmission path model required 
additional steps; this is because high-efficiency gearboxes are 
considered in the analysis but identifying HEG level from specification 
sheets alone was not always straightforward. We conducted a review of 
the age of the transmission design, relative performance versus 
previous designs, and technologies incorporated and used the 
information obtained to assign an HEG level. No automatic transmissions 
in the analysis fleet were determined to be at HEG Level 3. In 
addition, no six-speed automatic transmissions were assigned HEG Level 
2. However, we found all 7-speed, all 9-speed, all 10-speed, and some 
8-speed automatic transmissions to be advanced transmissions operating 
at HEG Level 2 equivalence. Eight-speed automatic transmissions 
developed after MY 2017 are assigned HEG Level 2. All other 
transmissions are assigned to their respective transmission's baseline 
level. The baseline (HEG level 1) technologies available include AT6, 
AT8, and CVT.
    We assigned any vehicle in the analysis fleet with an electric 
powertrain a direct drive (DD) transmission. This designation is for 
informational purposes; if specified, the transmission will not be 
replaced or updated by the model. Similarly, we assigned any power-
split hybrid vehicle

[[Page 25804]]

an eCVT transmission. As with the direct drive (DD) transmission, this 
designation is for informational purposes.
    In addition to technology type, gear count, and HEG level, 
transmissions are characterized in the analysis fleet by drive type and 
vehicle architecture. Drive types considered in the analysis include 
front-, rear-, all-, and four-wheel drive. Our definition of drive 
types in the analysis does not always align with manufacturers' drive 
type designations; see the end of this subsection for further 
discussion. These characteristics, supplemented by information such as 
gear ratios and production locations, showed that manufacturers use 
transmissions that are the same or similar on multiple vehicle models. 
Manufacturers have told the agency they do this to control component 
complexity and associated costs for development, manufacturing, 
assembly, and service. If multiple vehicle models share technology 
type, gear count, drive configuration, internal gear rations, and 
production location, the transmissions are treated as a single group 
for the analysis. Vehicles in the analysis fleet with the same 
transmission configuration adopt additional fuel-saving transmission 
technology together, as described in Section III.C.2.a).
    Shared transmissions are designated and tracked in the CAFE Model 
input files using transmission codes. Transmission codes are six-digit 
numbers that are assigned to each transmission and encode information 
about them. This information includes the manufacturer, drive 
configuration, transmission type, and number of gears. TSD Chapter 
3.2.4 includes more information on the transmission codes designated in 
the analysis fleet.
    We assigned different transmission codes to variants of a 
transmission that may have appeared to be similar based on the 
characteristics considered in the analysis but are not mechanically 
identical. We distinguish among transmission variants by comparing 
their internal gear ratios and production locations. For example, 
several Ford nameplates carry a rear-wheel drive, 10-speed automatic 
transmission. These nameplates comprise a wide variety of body styles 
and use cases, and so we assigned different transmission codes to these 
different nameplates. Because we assigned different transmission codes, 
we are not treating them as ``shared'' for the purposes of the analysis 
and the transmission models have the opportunity to adopt transmission 
technologies independently.
    Note that when we determine the drive type of a transmission, the 
assignment of all-wheel drive (AWD) versus four-wheel drive (4WD) is 
determined by vehicle architecture. Our assignment does not necessarily 
match the drive type used by the manufacturer in specification sheets 
and marketing materials. We assigned vehicles with a powertrain capable 
of providing power to all wheels and a transverse engine (front-wheel 
drive architecture), AWD. We assigned vehicles with power to all four 
wheels and a longitudinal engine (rear-wheel drive architecture), 4WD.
(c) Transmission Adoption Features
    We designated transmission technology pathways to prevent ``branch 
hopping''--changes in transmission type that would correspond to 
significant changes in transmission architecture--for vehicles that are 
relatively advanced on a given pathway. The CAFE Model prevents 
``branch hopping'' recognizing that stranded capital associated with 
moving from one transmission architecture to another is relevant and 
not entirely feasible when making technology selections. Stranded 
capital is discussed in Section III.C.6. For example, a vehicle with an 
automatic transmission with more than five gears cannot adopt a dual-
clutch transmission. For a more detailed discussion of path logic 
applied in the analysis, including technology supersession logic and 
technology mutual exclusivity logic, please see CAFE Model 
Documentation S4.5 Technology Constraints (Supersession and Mutual 
Exclusivity).
    Some technologies modeled in the analysis are not yet in 
production, and therefore are not assigned in the baseline fleet. 
Nonetheless, we made these technologies available for future adoption 
because, they are projected to be available in the analysis timeframe. 
For instance, we did not observe an AT10L3 in the baseline fleet, but 
it is plausible that manufacturers that employ AT10L2 technology may 
improve the efficiency of those AT10L2s in the rulemaking timeframe.
    In the following sections we discuss specific adoption features 
applied to each type of transmission technology.
    When we adopt electrification technologies, the transmissions 
associated with those technologies will supersede the existing 
transmission on a vehicle. We superseded the transmission technology 
when P2 hybrids, plug-in hybrids, or battery electric vehicle 
technologies are applied. For more information, see Section III.D.3.c).
    We preclude adoption of other transmission types once a platform 
progresses past an AT6 on the automatic transmission path. We use this 
restriction to avoid the significant level of stranded capital loss 
that could result from adopting a completely different transmission 
type shortly after adopting an advanced transmission, which would occur 
if a different transmission type were adopted after AT6 in the 
rulemaking timeframe.
    We do not allow vehicles that do not start with AT7L2 or AT9L2 
transmissions to adopt those technologies during simulation. We 
observed that MY 2020 vehicles with those technologies were primarily 
luxury performance vehicles and concluded that other vehicles would 
likely not adopt those technologies. We concluded that this was also a 
reasonable assumption for the analysis fleet because vehicles that have 
moved to more advanced automatic transmissions have overwhelmingly 
moved to 8-speed and 10-speed transmissions.\304\
---------------------------------------------------------------------------

    \304\ 2020 EPA Automotive Trends Report, at 64, figure 4.18.
---------------------------------------------------------------------------

    We limited CVT adoption by technology path logic. We do not allow 
CVTs to be adopted by vehicles that do not originate with a CVT or by 
vehicles with multispeed transmissions beyond AT6 in the baseline 
fleet. Once on the CVT path, we only allow the platform to apply 
improved CVT technologies. We restrict application of CVT technology on 
larger vehicles because of the higher torque (load) demands of those 
vehicles and CVT torque limitations based on durability constraints. 
Additionally, we use this restriction to avoid the loss of significant 
level of stranded capital.
    We allow vehicles in the baseline fleet that have DCTs to apply an 
improved DCT and allows vehicles with an AT5 to consider DCTs. 
Drivability and durability issues with some DCTs have resulted in a low 
relative adoption rate over the last decade; this is also broadly 
consistent with manufacturers' technology choices.\305\
---------------------------------------------------------------------------

    \305\ Ibid.
---------------------------------------------------------------------------

    We only allow vehicles with MTs to adopt more advanced manual 
transmissions for this analysis, because other transmission types do 
not provide a similar driver experience (utility). We do not allow 
vehicles with MTs to adopt ATs, CVTs, or DCT technologies under any 
circumstance. We do not allow vehicles with other transmissions to 
adopt MTs in recognition of the low

[[Page 25805]]

customer demand for manual transmissions.\306\
---------------------------------------------------------------------------

    \306\ Ibid.
---------------------------------------------------------------------------

 (d) Transmission Effectiveness Modeling
    For this analysis, we use the Autonomie full vehicle simulation 
tool to model the interaction between transmissions and the full 
vehicle system to improve fuel economy, and how changes to the 
transmission subsystem influence the performance of the full vehicle 
system. Our full vehicle simulation approach clearly defines the 
contribution of individual transmission technologies and separates 
those contributions from other technologies in the full vehicle system. 
Our modeling approach follows the recommendations of the 2015 NAS 
Report to use full vehicle modeling supported by application of 
collected improvements at the sub-model level.\307\ See TSD Chapter 
3.2.4 for more details on transmission modeling inputs and results.
---------------------------------------------------------------------------

    \307\ 2015 NAS Report, at p. 292.
---------------------------------------------------------------------------

    The only technology effectiveness results that were not directly 
calculated using the Autonomie simulation results were for the AT6L2. 
We determined the model for this specific technology was inconsistent 
with the other transmission models and overpredicted effectiveness 
results. Evaluation of the AT6L2 transmission model revealed an 
overestimated efficiency map was developed for the AT6L2 model. The 
high level of efficiency assigned to the transmission surpassed 
benchmarked advanced transmissions.\308\ To address the issue, we 
replaced the effectiveness values of the AT6L2 model. We replaced the 
effectiveness for the AT6L2 technology with analogous effectiveness 
values from the AT7L2 transmission model. For additional discussion on 
how analogous effectiveness values are determined please see Section 
III.D.1.d)(2).
---------------------------------------------------------------------------

    \308\ Autonomie model documentation, Chapter 5.3.4, Transmission 
Performance Data.
---------------------------------------------------------------------------

    The effectiveness values for the transmission technologies, for all 
ten vehicle technology classes, are shown in Figure III-11. Each of the 
effectiveness values shown is representative of the improvements seen 
for upgrading only the listed transmission technology for a given 
combination of other technologies. In other words, the range of 
effectiveness values we show for each specific technology, e.g., 
AT10L3, represents the addition of the AT10L3 technology to every 
technology combination that could select the addition of AT10L3. We 
must emphasize that the graph shows the change in fuel consumption 
values between entire technology keys,\309\ and not the individual 
technology effectiveness values. Using the change between whole 
technology keys captures the complementary or non-complementary 
interactions among technologies. In the graph, the box shows the inner 
quartile range (IQR) of the effectiveness values and whiskers extend 
out 1.5 x IQR. The dots outside of the whiskers show values for 
effectiveness that are outside these bounds.
---------------------------------------------------------------------------

    \309\ Technology key is the unique collection of technologies 
that constitutes a specific vehicle, see Section III.C.4.c).
---------------------------------------------------------------------------

BILLING CODE 4510-59-P
[GRAPHIC] [TIFF OMITTED] TR02MY22.075


[[Page 25806]]


    We also  want to note the effectiveness for the MT5, AT5, eCVT and 
DD technologies are not shown. The DD and eCVT do not have standalone 
effectiveness values because they are only implemented as part of 
electrified powertrains. The MT5 and AT5 also have no effectiveness 
values because both technologies are baseline technologies against 
which all other technologies are compared.
---------------------------------------------------------------------------

    \310\ The data used to create this figure can be found the FE_1 
Improvements file.
---------------------------------------------------------------------------

 (e) Transmission Costs
    We use transmission costs drawn from several sources, including the 
2015 NAS Report and NAS-cited studies for this analysis. TSD Chapter 
3.2.7 provides a detailed description of the cost sources used for each 
transmission technology. In Table III-14 we show an example of absolute 
costs for transmission technologies in 2018$ across select model years, 
which demonstrates how we applied cost learning to the transmission 
technologies over time. Note, because transmission hardware is often 
shared across vehicle classes, transmission costs are the same for all 
vehicle classes. For a full list of all absolute transmission costs 
used in the analysis across all model years, see the Technologies file.
[GRAPHIC] [TIFF OMITTED] TR02MY22.076

 3. Electrification Paths
    The electric paths include a large set of technologies that share 
the common element of using electrical power for certain vehicle 
functions that were traditionally powered mechanically by IC engines. 
Electrification technologies thus can range from electrification of 
specific accessories (for example, electric power steering to reduce 
engine loads by eliminating parasitic losses) to electrification of the 
entire powertrain (as in the case of a battery electric vehicle).
    The following subsections discuss how we define each 
electrification technology in the CAFE Model and the electrification 
pathways down which a vehicle can travel in the compliance simulation. 
The subsections also discuss how we assigned electrified vehicle 
technologies to vehicles in the analysis fleet, any limitations on 
electrification technology adoption, and the specific effectiveness and 
cost assumptions that we use in the Autonomie and CAFE Model analysis.
    We received many comments on electrification technologies, and 
specifically on technology costs. Commenters were generally supportive 
of our use of Argonne's BatPaC battery cost model to determine costs of 
batteries for different electrified powertrains.\311\ In contrast, we 
received several comments indicating that we overstated the cost for 
hybrid vehicles and batteries,\312\ in particular due to non-battery 
electrification component costs. These comments and our approach to 
addressing them for this final rule are discussed in the following 
sections.
---------------------------------------------------------------------------

    \311\ Auto Innovators, Docket No. NHTSA-2021-0053-0021, at 55; 
Kia, Docket No. NHTSA-2021-0053-1525, at p. 5.
    \312\ Tesla, Inc. (Tesla), Docket No. NHTSA-2021-0053-1480, at 
9-10; Toyota, Docket No. NHTSA-2021-0053-1568, at 7; ICCT, Docket 
No. NHTSA-2021-0053-1581, at p. 10.
---------------------------------------------------------------------------

    Electrification technologies are a complex set of systems that each 
manufacturer individually optimizes based on cost, performance, 
reliability, durability, customer acceptance and other metrics. We 
attempted to capture these complexities to provide a reasonable 
assessment of the costs and

[[Page 25807]]

benefits of more stringent fuel economy standards. We expect that there 
will be future opportunities to improve upon this work as more 
substantiated data on electrification technologies becomes available.
(a) Electrification Modeling in the CAFE Model
    The CAFE Model defines the technology pathway for each type of 
electrification grouping in a logical progression. Whenever the CAFE 
Model converts a vehicle model to one of the available electrified 
systems, both effectiveness and costs are updated according to the 
specific components' modeling algorithms. Additionally, all 
technologies on the electrification paths are mutually exclusive and 
are evaluated in parallel. For example, the model may evaluate PHEV20 
technology prior to having to apply SS12V or strong hybrid technology. 
The specific set of algorithms and rules are discussed further in the 
sections below, and more detailed discussions are included in the CAFE 
Model Documentation. The specifications for each electrification 
technology that we include in the analysis is discussed below.
    The technologies that we include on the three vehicle-level paths 
pertaining to the electrification and electric improvements defined 
within the modeling system are illustrated in Figure III-12. As shown 
in the Electrification path, the baseline-only CONV technology is 
grayed out. This technology is used to denote whether a vehicle comes 
in with a conventional powertrain (i.e., a vehicle that does not 
include any level of hybridization) and to allow the model to properly 
map to the Autonomie vehicle simulation database results. If multiple 
technologies from different pathways come together on single technology 
set, then those previous technology pathways are disabled. This avoids 
unrealistic adoption of legacy technologies as the simulation 
progresses from model year to model year. For example, in the Figure 
III-12 PHEVs converge on to BEVs then all the PHEVs are disabled from 
adoption.
[GRAPHIC] [TIFF OMITTED] TR02MY22.077


[[Page 25808]]


    SS12V: 12-volt stop-start (SS12V), sometimes referred to as start-
stop, idle-stop, or a 12-volt micro hybrid system, is the most basic 
hybrid system that facilitates idle-stop capability. In this system, 
the integrated starter generator is coupled to the internal combustion 
(IC) engine. When the vehicle comes to an idle-stop the IC engine 
completely shuts off, and, with the help of the 12-volt battery, the 
engine cranks and starts again in response to throttle to move the 
vehicle, application or release of the brake pedal to move the vehicle. 
The 12-volt battery used for the start-stop system is an improved unit 
compared to a traditional 12-volt battery, and is capable of higher 
power, increased life cycle, and capable of minimizing voltage drop on 
restart. This technology is beneficial to reduce fuel consumption and 
emissions when the vehicle frequently stops, such as in city driving 
conditions or in stop and go traffic. SS12V can be applied to all 
vehicle technology classes. As discussed further below, for this final 
rule analysis we lowered the cost of the battery used in the SS12V 
system to reflect a more widely utilized SS12V battery chemistry.
    Next, mild and strong hybrid systems, discussed in the following 
paragraphs, can be classified based on the location of the electric 
motor in the system. Depending on the location of the electric machine, 
the hybrid technologies are classified as follows:
     P0: Motor located at the primary side of the engine,
     P1: Motor located at the flywheel side of the engine,
     P2: Motor located between engine and transmission,
     P3: Motor located at the transmission output, and
     P4: Motor located on the axle.
    BISG: The belt integrated starter generator, sometimes referred to 
as a mild hybrid system or P0 hybrid, provides idle-stop capability and 
uses a higher voltage battery with increased energy capacity over 
conventional automotive batteries. These higher voltages allow the use 
of a smaller, more powerful, and efficient electric motor/generator to 
replace the standard alternator. In BISG systems, the motor/generator 
is coupled to the engine via belt (similar to a standard alternator). 
In addition, these motor/generators can assist vehicle braking and 
recover braking energy while the vehicle slows down (regenerative 
braking) and in turn can propel the vehicle at the beginning of launch, 
allowing the engine to be restarted later. Some limited electric assist 
is also provided during acceleration to improve engine efficiency. Like 
micro hybrids, BISG can be applied to all vehicles in the analysis 
except for Engine 26a (VCR). We assume all mild hybrids are fixed 
battery capacity 48-volt systems with engine belt-driven motor/
generators.
    ICCT commented that we should consider another type of mild hybrid 
system that has a higher power output, which leads to an increased 
efficiency compared to the 48V mild hybrid assumed in the NPRM 
analysis. The increased benefit from this higher power output mild 
hybrids is due to its placement in the powertrain in P1 and P2 
positions rather than P0.313 314
---------------------------------------------------------------------------

    \313\ ICCT, at p. 2.
    \314\ Autonomie assumes a P0 position for mild hybrid 48-volt 
systems.
---------------------------------------------------------------------------

    We agree with ICCT that mild hybrids in configurations other than 
the P0 position offer higher improvements compared to mild hybrids 
configured in the P0 position. However, this inherently increases the 
cost of the system and makes the system less cost effective compared to 
traditional strong hybrids for a few reasons. First, like a mild hybrid 
CISG system,\315\ non-P0 mild hybrid architecture requires significant 
changes to the area of the powertrain where the electric machine 
components are installed compared to P0 BISG systems. Second, these 
system's higher power output will also require a higher battery pack 
capacity, which could also increase costs. Separately, no manufacturer 
has indicated that they will adopt this type of mild hybrid 
configuration in the rulemaking time frame. For MYs 2024-2026, the CAFE 
Model estimates that a significant penetration of strong hybrids and 
plug-in hybrids is required to meet the analyzed alternatives. Similar 
to what we observed in past rulemakings with the CISG system, the non-
P0 mild hybrid is not a cost-effective way for manufacturers to meet 
standards in the rulemaking time frame. Accordingly, we did not add an 
additional mild hybrid technology for this final rule.
---------------------------------------------------------------------------

    \315\ We discuss challenges with CISG mild hybrids, a system 
that is similar to the P2 hybrid system, further in TSD Chapter 
3.3.1.2.
---------------------------------------------------------------------------

    SHEVP2/SHEVPS: A strong hybrid vehicle is a vehicle that combines 
two or more propulsion systems, where one uses gasoline (or diesel), 
and the other captures energy from the vehicle during deceleration or 
braking, or from the engine and stores that energy for later used by 
the vehicle. This analysis evaluated the following strong hybrid 
systems: hybrids with P2 parallel drivetrain architectures (SHEVP2), 
and hybrids with power-split architectures (SHEVPS). Both strong hybrid 
types provide start-stop or idle-stop functionality, regenerative 
braking capability, and vehicle launch assist. A SHEVPS has a higher 
potential for fuel economy improvement than a SHEVP2, although it costs 
more and has a lower power density.\316\
---------------------------------------------------------------------------

    \316\ Kapadia, J., Kok, D., Jennings, M., Kuang, M. et al., 
``Powersplit or Parallel--Selecting the Right Hybrid Architecture,'' 
SAE Int. J. Alt. Power. 6(1):2017, doi:10.4271/2017-01-1154.
---------------------------------------------------------------------------

    P2 parallel hybrids (SHEVP2) are a type of hybrid vehicle that use 
a transmission-integrated electric motor placed between the engine and 
a gearbox or CVT, with a clutch that allows decoupling of the motor/
transmission from the engine. Disengaging the clutch allows all-
electric operation and more efficient brake-energy recovery. Engaging 
the clutch allows coupling of the engine and electric motor and, when 
combined with a transmission, reduces gear-train losses relative to 
power-split or 2-mode hybrid systems. P2 hybrid systems typically rely 
on the internal combustion engine to deliver high, sustained power 
levels. Electric-only mode is used when power demands are low or 
moderate.
    An important feature of the SHEVP2 system is that it can be applied 
in conjunction with most engine technologies. Accordingly, once a 
vehicle is converted to a SHEVP2 powertrain in the compliance 
simulation, the CAFE Model allows the vehicle to adopt the conventional 
engine technology that is most cost effective, regardless of relative 
location of the existing engine on the engine technology path. This 
means a vehicle could adopt a lower technology engine when the CAFE 
Model converts it to a SHEVP2 strong hybrid. For example, a vehicle in 
the analysis fleet that starts with a TURBO2 engine could adopt a 
TURBO1 engine with the SHEVP2 system, if that TURBO1 engine allows the 
vehicle to meet fuel economy standards more cost effectively.
    The power-split hybrid (SHEVPS) is a more advanced electrified 
system than SHEVP2 hybrid. The SHEVPS electric drive replaces the 
traditional transmission with a single planetary gear set (the power-
split device) and a motor/generator.\317\
---------------------------------------------------------------------------

    \317\ For more discussion of SHEVPS operation and 
characteristics, see TSD Section 3.3.
---------------------------------------------------------------------------

    Table III-15 below shows the configuration of conventional engines 
and transmissions used with strong hybrids for this analysis. The 
SHEVPS powertrain configuration is paired with a planetary transmission 
(eCVT) and Atkinson engine (Eng26). This configuration is designed to 
maximize efficiency at the cost of reduced towing

[[Page 25809]]

capability and real-world acceleration performance.\318\ In contrast, 
SHEVP2 powertrains are paired with an advanced 8-speed automatic 
transmission (AT8L2) and can be paired with most conventional 
engines.\319\
---------------------------------------------------------------------------

    \318\ Kapadia, J., D, Kok, M. Jennings, M. Kuang, B. Masterson, 
R. Isaacs, A. Dona. 2017. Powersplit or Parallel--Selecting the 
Right Hybrid Architecture. SAE International Journal of Alternative 
Powertrains 6 (1): 68-76. https://doi.org/10.4271/2017-01-1154 
(accessed: Feb. 11, 2022).
    \319\ We did not model SHEVP2s with VTGe (Eng23c) and VCR 
(Eng26a).
[GRAPHIC] [TIFF OMITTED] TR02MY22.078

    PHEV: Plug-in hybrid  electric vehicles are hybrid electric 
vehicles with the means to charge their battery packs from an outside 
source of electricity (usually the electric grid). These vehicles have 
larger battery packs than strong HEVs with more energy storage and a 
greater capability to be discharged than other non-plug-in hybrid 
electric vehicles. PHEVs also generally use a control system that 
allows the battery pack to be substantially depleted under electric-
only or blended mechanical/electric operation and batteries that can be 
cycled in charge-sustaining operation at a lower state of charge than 
non-plug-in hybrid electric vehicles. These vehicles generally have a 
greater all-electric range than typical strong HEVs. Depending on how 
these vehicles are operated, they can use electricity exclusively, 
operate like a conventional hybrid, or operate in some combination of 
these two modes.
---------------------------------------------------------------------------

    \320\ Twenty-one different engines are evaluated with SHEVP2 
hybrid architecture: Engine 01, 02, 03, 04, 5b, 6a, 7a, 8a, 12, 12-
DEAC, 13, 14, 17, 18, 19, 20, 21, 22b, 23b, 24, 24-Deac. See Section 
III.D.1 for these engine specifications.
---------------------------------------------------------------------------

    There are four PHEV architectures included in this analysis that 
reflect combinations of two levels of all-electric range (AER) and two 
engine types. We use 20 miles AER and 50 miles AER to reasonably span 
the various PHEV AERs in the market, and their effectiveness and cost. 
We use an Atkinson engine and a turbocharged downsized engine to span 
the variety of engines available in the market.
    PHEV20/PHEV20H and PHEV50/PHEV50H are essentially a SHEVPS with a 
larger battery and the ability to drive with the engine turned off. In 
the CAFE Model, the designation ``H'' in PHEVxH could represent another 
type of engine configuration, but for this analysis we use the same 
effectiveness values as PHEV20 and PHEV50 to represent PHEV20H and 
PHEV50H, respectively. The PHEV20/PHEV20H represents a ``blended-type'' 
plug-in hybrid that can operate in all-electric (engine off) mode only 
at light loads and low speeds, and must blend electric motor and engine 
power together to propel the vehicle at medium or high loads and 
speeds. The PHEV50/PHEV50H represents an extended range electric 
vehicle (EREV) that can travel in all-electric mode even at higher 
speeds and loads. Engine sizing, batteries, and motors for these PHEVs 
are discussed further in Section III.D.3.d).
    PHEV20T and PHEV50T are 20 mile and 50 mile AER vehicles based on 
the SHEVP2 engine architecture. The PHEV versions of these 
architectures include larger batteries and motors to meet performance 
metrics in charge sustaining mode at higher speeds and loads as well as 
similar performance and range in all electric mode in city driving and 
at higher speeds and loads. For this analysis, the CAFE Model considers 
these PHEVs to have an advanced 8-speed automatic transmission (AT8L2) 
and TURBO1 (Eng12) in the powertrain configuration. Further discussion 
of engine sizing, batteries, and motors for these PHEVs is discussed in 
Section III.D.3.d).
    Table III-16 shows the different PHEV configurations used in this 
analysis.

[[Page 25810]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.079

    BEV: Battery electric vehicles are equipped with all-electric drive 
systems powered by energy-optimized batteries charged primarily by 
electricity from the grid. BEVs do not have a combustion engine or 
traditional transmission. Instead, BEVs rely on all electric 
powertrains with a single speed gear reduction in place of an advanced 
transmission. Battery electric vehicle range varies by vehicle and 
battery pack size.
    We simulate BEVs with ranges of 200, 300, 400 and 500 miles in the 
CAFE Model. BEV range is measured pursuant to EPA test procedures and 
guidance.\321\ The CAFE Model assumes a BEV direct drive transmission 
is unique to each vehicle (i.e., the transmissions are not shared by 
any other vehicle) and that no further improvements to the transmission 
are available.
---------------------------------------------------------------------------

    \321\ BEV electric ranges are determined per EPA guidance 
Document. ``EPA Test Procedure for Electric Vehicles and Plug-in 
Hybrids.'' https://fueleconomy.gov/feg/pdfs/EPA%20test%20procedure%20for%20EVs-PHEVs-11-14-2017.pdf. November 
14, 2017. (Accessed: May 3, 2021)
---------------------------------------------------------------------------

    An important note about the BEVs offered in this analysis is that 
the CAFE Model does not account for vehicle range when considering 
additional BEV technology adoption. That is, the CAFE Model does not 
have an incentive to build BEV 300, 400, and 500s, because the BEV200 
is just as efficient as those vehicles and counts the same toward 
compliance, but at a significantly lower cost because of the smaller 
battery.\322\ While manufacturers have been building 200-mile range 
BEVs, those vehicles have generally been passenger cars. Manufacturers 
have told us that greater range is important for meeting the needs of 
broader range of consumers and to increase consumer demand. More 
recently, there has been a trend towards manufacturers building higher 
range BEVs in the market, and manufacturers building CUV/SUV and pickup 
truck BEVs.\323\ To simulate the potential relationship of BEV range to 
consumer demand, we have included several adoption features for BEVs. 
These are discussed further in Section III.D.3.c).
---------------------------------------------------------------------------

    \322\ See section III.D.3.d Electrification Effectiveness 
Modeling for effectiveness of different rage BEVs.
    \323\ 2021 EPA Automotive Trends Report, at p. 58.
---------------------------------------------------------------------------

    FCEV: Fuel cell electric vehicles are equipped with an all-electric 
drivetrain, but unlike BEVs, FCEVs do not solely rely on batteries; 
rather, electricity to run the FCEV electric motor is mainly generated 
by an onboard fuel cell system. FCEV architectures are similar to 
series hybrids,\324\ but with the engine and generator replaced by a 
fuel cell. Commercially available FCEVs consume hydrogen to generate 
electricity for the fuel cell system, with most automakers using high 
pressure gaseous hydrogen storage tanks. FCEVs are currently produced 
in limited numbers and are available in limited geographic areas where 
hydrogen refueling stations are accessible. For reference, in MY 2020, 
only four FCEV models were offered for sale, and since 2014 only 12,081 
FCEVs have been sold.325 326 327
---------------------------------------------------------------------------

    \324\ Series hybrid architecture is a strong hybrid that has the 
engine, electric motor and transmission in series. The engine in a 
series hybrid drives a generator that charges the battery.
    \325\ Argonne National Laboratory, ``Light Duty Electric Drive 
Vehicles Monthly Sales Update.'' Energy Systems Division, https://www.anl.gov/es/light-duty-electric-drive-vehicles-monthly-sales-updates. (Accessed: Dec. 15, 2021)
    \326\ See the MY 2020 Market Data file. The four vehicles are 
the Honda Clarity, Hyundai Nexo and Nexo Blue, and Toyota Mirai.
    \327\ These are majority leased vehicles that are returned back 
to the manufacturer rather than resold as a used vehicle.
---------------------------------------------------------------------------

    For this analysis, the CAFE Model simulates a FCEV with a range of 
320 miles. Any powertrain type can adopt a FCEV powertrain; however, to 
account for limited market penetration and unlikely increased adoption 
in the rulemaking timeframe, technology phase in caps are used to 
control how many FCEVs a manufacturer can build. The details of this 
concept are further discussed in Section III.D.3.c).
(b) Electrification Analysis Fleet Assignments
    We use electrification technologies assigned in the baseline fleet 
as the starting point for regulatory analysis. These assignments are 
based on manufacturer-submitted CAFE compliance information, publicly 
available technical specifications, marketing brochures, articles from 
reputable media outlets, and data from Wards Intelligence.\328\
---------------------------------------------------------------------------

    \328\ ``U.S. Car and Light Truck Specifications and Prices, '20 
Model Year.'' Wards Intelligence, 3 Aug. 2020, 
wardsintelligence.informa.com/WI964244/US-Car-and-Light-Truck-Specifications-and-Prices-20-Model-Year (accessed: Feb. 11, 2022).
---------------------------------------------------------------------------

    Table III-17 gives the penetration rates of electrification 
technologies eligible to be assigned in the baseline fleet. Over half 
of the fleet had some level of electrification, with the vast majority 
of these being micro hybrids. PHEVs represented 0.5 percent of the MY 
2020 baseline fleet. BEVs represented less than 2 percent of MY 2020 
baseline fleet; BEV300 was the most common BEV technology, while no 
BEV500s were observed.

[[Page 25811]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.080

BILLING CODE 4910-59-C
    Micro and mild hybrids refer to the presence of SS12V and BISG, 
respectively. The data sources discussed above are used to identify the 
presence of these technologies on vehicles in the fleet. Vehicles are 
assigned one of these technologies only if its presence can be 
confirmed with manufacturer brochures or technical specifications.
    Strong hybrid technologies include SHEVPS and SHEVP2. Note that 
P2HCR0, P2HCR1, P2HCR1D, and P2HCR2 are not assigned in the fleet and 
are only available to be applied by the model. When possible, 
manufacturer specifications are used to identify the strong hybrid 
architecture type. In the absence of more sophisticated information, 
hybrid architecture is determined by number of motors. Hybrids with one 
electric motor are assigned P2, and those with two motors are assigned 
PS. We sought comment in the NPRM on additional ways the agency could 
perform initial hybrid assignments based on publicly available 
information or technical publications. We did not receive any 
substantive comments regarding baseline fleet strong hybrid 
assignments. Accordingly, this final rule analysis uses the same 
approach to assigning SHEVPS and SHEVP2 in the baseline fleet.
    Plug-in hybrid technologies PHEV20/20T and PHEV50/50T are assigned 
in the baseline fleet. PHEV20H and PHEV50H are not assigned in the 
fleet and are only available to be applied by the model. Vehicles with 
an electric-only range of 40 miles or less are assigned PHEV20; 
vehicles with a range above 40 miles are assigned PHEV50. They are 
respectively assigned PHEV20T/50T if the engine is turbocharged (i.e., 
if it would qualify for one of technologies on the turbo engine 
technology pathway). We also calculate baseline fuel economy values for 
PHEV technologies as part of the PHEV analysis fleet assignments; that 
process is described in detail in TSD Chapter 3.3.2.
    Battery electric vehicle and fuel cell technologies include BEV200/
300/400/500 and FCEV with a 320-mile range. The BEV technologies are 
assigned to vehicles based on range thresholds that best account for 
vehicles' existing range capabilities while allowing room for the model 
to potentially apply more advanced electrification technologies. 
Vehicles with all-electric powertrains that use hydrogen fuel are 
assigned FCEV.
    For more detail about the electrification analysis fleet assignment 
process, see TSD Chapter 3.3.2.
(c) Electrification Adoption Features
    Multiple types of adoption features apply to the electrification 
technologies. The hybrid/electric technology path logic dictates how 
different vehicle types can adopt different levels of electrification 
technology. Broadly speaking, more advanced levels of hybridization or 
electrification supersede all prior levels, with certain technologies 
within each level being mutually exclusive.
    As discussed further below, SKIP logic--restrictions on the 
adoption of certain technologies--apply to plug-in (PHEV) and strong 
hybrid vehicles (SHEV). Some technologies on these pathways are 
``skipped'' if a vehicle is high performance, requires high towing 
capabilities as a pickup truck, or belongs to certain manufacturers who 
have demonstrated that their future product plans will more than likely 
not include the technology. The specific criteria for SKIP logic for 
each applicable electrification technology is expanded on later in this 
section.
    This section also discusses the supersession of engines and 
transmissions on vehicles that adopt SHEV or PHEV powertrains. To 
manage the complexity of the analysis, these types of hybrid 
powertrains are modeled with several specific engines and 
transmissions, rather than in multiple configurations. Therefore, the 
cost and effectiveness values SHEV and PHEV technologies consider these 
specific engines and transmissions.
    Finally, phase-in caps limit the adoption rates of battery electric 
(BEV) and fuel cell electric vehicles (FCEV). We set the phase-in caps 
to account for current market share, scalability, and reasonable 
consumer adoption rates of each technology. TSD Chapter 3.3.3 discusses 
the electrification phase-in caps and the reasoning behind them in 
detail.

[[Page 25812]]

    The only adoption feature applicable to micro and mild hybrid 
technologies is path logic. The pathway consists of a linear 
progression starting with a conventional powertrain with no 
electrification at all, which is superseded by SS12V, which in turn is 
superseded by BISG. Vehicles can only adopt micro and mild hybrid 
technology if the vehicle does not already have a more advanced level 
of electrification.
    The adoption features that apply to strong hybrid technologies 
include path logic, powertrain substitution, and vehicle class 
restrictions. Per the defined technology pathways, SHEVPS, SHEVP2, and 
the P2HCR technologies are considered mutually exclusive. In other 
words, when the model applies one of these technologies, the others are 
immediately disabled from future application. However, all vehicles on 
the strong hybrid pathways can still advance to one or more of the 
plug-in hybrid technologies.
    When the model applies any strong hybrid technology to a vehicle, 
the transmission technology on the vehicle is superseded. Regardless of 
the transmission originally present, P2 hybrids adopt an 8-speed 
automatic transmission (AT8L2), and PS hybrids adopt an electronic 
continuously variable transmission (eCVT).
    When the model applies SHEVP2 technology, the model can consider 
various engine options to pair with the SHEVP2 architecture according 
to existing engine path constraints, considering relative cost 
effectiveness. For SHEVPS technology, the existing engine is replaced 
with Eng26, which is a full Atkinson cycle engine.
    SKIP logic is also used to constrain adoption for SHEVPS, P2HCR0, 
P2HCR1, and P2HCR1D. These technologies are ``skipped'' for vehicles 
with engines \329\ that met one of the following conditions:
---------------------------------------------------------------------------

    \329\ This refers to the engine assigned to the vehicle in the 
2020 baseline fleet.
---------------------------------------------------------------------------

    The engine belongs to an excluded manufacturer; \330\
---------------------------------------------------------------------------

    \330\ Excluded manufacturers included BMW, Daimler, and Jaguar 
Land Rover.
---------------------------------------------------------------------------

    The engine belongs to a pickup truck (i.e., the engine is on a 
vehicle assigned the ``pickup'' body style);
    The engine's peak horsepower is more than 405 HP; or if
    The engine is on a non-pickup vehicle but is shared with a pickup.
    No SKIP logic is applied to SHEVP2, however P2HCR2 is not used in 
this analysis, as discussed further in Section III.D.1.
    The reasons for these conditions are similar to those applied to 
HCR engine technologies, discussed in more detail above. In the real 
world, pickups and performance vehicles with certain powertrain 
configurations cannot adopt the technologies listed above and maintain 
vehicle performance without redesigning the entire powertrain. SKIP 
logic is put in place to prevent the model from pursuing compliance 
pathways that are ultimately unrealistic.
    Auto Innovators in their comments for the NPRM, also to the 2018 
NPRM, discussed issues with HCR technologies.\331\ Ford had similarly 
provided comments in opposition of high dependency on HCR 
technologies.\332\ For further discussion of HCR, see Section 
III.D.1.c).
---------------------------------------------------------------------------

    \331\ Auto Innovators, Docket No. NHTSA-2018-0067-12073-A1, at 
p. 139.
    \332\ Ford, Docket No. NHTSA-2018-0067-11928-A1, at p. 8.
---------------------------------------------------------------------------

    PHEV technologies supersede the micro, mild, and strong hybrids, 
and can only be replaced by full electric technologies. Plug-in hybrid 
technology paths are also mutually exclusive, with the PHEV20 
technologies able to progress to the PHEV50 technologies.
    The engine and transmission technologies on a vehicle are 
superseded when PHEV technologies are applied to a vehicle. For all 
plug-in technologies, the model applies an AT8L2 transmission. For 
PHEV20/50 and PHEV20H/50H, the vehicle receives a full Atkinson cycle 
engine, Eng26, and for PHEV20T/50T, the vehicle receives a TURBO1 
engine, Eng12.
    SKIP logic applies to PHEV20/20H and PHEV50/50H under the same four 
conditions listed for the strong hybrid technologies in the previous 
section, for the same reasons previously discussed.
    The adoption of BEVs and FCEVs is limited by both path logic and 
phase in caps. BEV200/300/400/500 and FCEV are applied as end-of-path 
technologies that superseded previous levels of electrification.
    The main adoption feature applicable to BEVs and FCEVs is phase-in 
caps, which are defined in the CAFE Model input files as percentages 
that represent the maximum rate of increase in penetration rate for a 
given technology. They are accompanied by a phase-in start year, which 
determines the first year the phase-in cap applies. Together, the 
phase-in cap and start year determine the maximum penetration rate for 
a given technology in a given year; the maximum penetration rate equals 
the phase-in cap times the number of years elapsed since the phase-in 
start year. Note that phase-in caps do not inherently dictate how much 
a technology is applied by the model. Rather, they represent how much 
of the fleet could have a given technology by a given year. Because 
BEV200 costs less and has higher effectiveness values than other 
advanced electrification technologies,\333\ the model will have 
vehicles adopt it first, until it is restricted by the phase-in cap.
---------------------------------------------------------------------------

    \333\ This is because BEV200 uses fewer batteries and weighs 
less than BEVs with greater ranges.
---------------------------------------------------------------------------

    Table III-18 shows the phase-in caps, phase-in year, and maximum 
penetration rate through 2050 for BEV and FCEV technologies. For 
comparison, the actual penetration rate of each technology in the 
baseline fleet is also listed in the fourth column from the left.

[[Page 25813]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.081

    The BEV200 phase-in cap is informed by manufacturers' tendency to 
move away from low-range vehicle offerings, in part because of consumer 
hesitancy to adopt this technology. The advertised range on most 
electric vehicles does not reflect extreme cold and hot real-world 
driving conditions that affect the utility of already low-range 
vehicles.\334\ Many manufacturers have told us that the portion of 
consumers willing to accept a vehicle with our lowest range model which 
is less than 250 miles of electric range is small, and many 
manufacturers do not plan to offer vehicles with less 250 miles of 
electric range.\335\
---------------------------------------------------------------------------

    \334\ AAA. ``AAA Electric Vehicle Range Testing.'' February 
2019. https://www.aaa.com/AAA/common/AAR/files/AAA-Electric-Vehicle-Range-Testing-Report.pdf (accessed: Feb. 11, 2022).
    \335\ See also, e.g., Baldwin, Roberto. ``Tesla Model Y Standard 
Range Discontinued; CEO Musk Tweets Explanation.'' Car and Driver, 
30 Apr. 2021, www.caranddriver.com/news/a35602581/elon-musk-model-y-discontinued-explanation. (Accessed: May 20, 2020)
---------------------------------------------------------------------------

    Furthermore, the average BEV range has steadily increased over the 
past decade,\336\ perhaps in part as batteries have become more cost 
effective. EPA observed in its 2021 Automotive Trends Report that ``the 
average range of new EVs has climbed substantially. In model year 2020 
the average new EV is projected to have a 286-mile range, or about four 
times the range of an average EV in 2011. This difference is largely 
attributable to higher production of new EVs with much longer ranges.'' 
\337\ The maximum growth rate for BEV200 in the model is set 
accordingly low to less than 0.1 percent per year. While this rate is 
significantly lower than that of the other BEV technologies, the BEV200 
phase-in cap allows the penetration rate of low-range BEVs to grow by a 
multiple of what is currently observed in the market.
---------------------------------------------------------------------------

    \336\ 2021 EPA Automotive Trends Report, at 56, figure 4.17.
    \337\ 2021 EPA Automotive Trends Report, at p. 58.
---------------------------------------------------------------------------

    For BEV300, 400, and 500, phase-in caps are intended to 
conservatively reflect potential challenges in the scalability of BEV 
manufacturing, and implementing BEV technology on many vehicle 
configurations, including larger vehicles. In the short term, the 
penetration of BEVs is largely limited by battery availability. For 
example, Tesla is not yet producing electric vans because of cell 
production constraints, and it remains a bottleneck in the company's 
expansion into new product lines.\338\ Incorporating battery packs that 
provide greater amounts of electric range into vehicles also poses its 
own engineering challenges. Heavy batteries and large packs may be 
difficult to integrate for many vehicle configurations, and require 
structural vehicle modifications. Pickup trucks and large SUVs, in 
particular, require higher levels of energy as the number of passengers 
and/or payload increases, for towing and other high-torque 
applications. The BEV400 and 500 phase-in caps reflect these 
transitional challenges.
---------------------------------------------------------------------------

    \338\ Hyatt, Kyle. ``Tesla Will Build an Electric Van 
Eventually, Elon Musk Says.'' Roadshow, CNET, 28 Jan. 2021, 
www.cnet.com/roadshow/news/tesla-electric-van-elon-musk/. (Accessed 
May 20, 2021)
---------------------------------------------------------------------------

    The phase-in cap for FCEVs is based on existing market share as 
well as historical trends in FCEV production. FCEV production share in 
the past five years has been extremely low, and we set the phase-in cap 
accordingly.\339\ As with BEV200, however, the phase-in cap still 
allows for the market share of FCEVs to grow several times over.
---------------------------------------------------------------------------

    \339\ 2020 EPA Automotive Trends Report, at 52, figure 4.13.
---------------------------------------------------------------------------

    We received limited comments on the NPRM referring to how we apply 
electrification adoption features for the analysis. In its comments to 
EPA's NPRM, submitted to our docket as a courtesy, Auto Innovators 
stated they expect that consumers are likely to be more accepting of 
longer BEV ranges,\340\ which generally agrees with our expectations 
and reasoning in support of why we set the BEV200 phase-in cap.
---------------------------------------------------------------------------

    \340\ Auto Innovators, at p. 56.
---------------------------------------------------------------------------

    In contrast, ICCT stated that ``there is no engineering or 
technical reason to limit application of strong hybrids in the fleet. 
Powersplit hybrids may have torque limits, but there is no limitation 
for parallel hybrid systems, whether P0, P1, P2, P3, or P4 
architecture, as the engine output is routed separately from the motor 
output. This is demonstrated by the 2021 Ford F150 pickup truck with a 
P2 strong hybrid and the upcoming 2022 Toyota Tundra full-size pickup 
truck with a strong hybrid and a conventional 10-speed automatic.'' 
\341\ ICCT also included examples of hybrid applications in support of 
its comment that all vehicles can benefit from hybrid technology that 
included the Porsche 918 plug-in hybrid, 2019 Dodge Ram 1500 pickup 
truck, and 2021 Ford F150 pickup truck. Similarly, Tesla stated that we 
artificially constrained the level of electrification, pointing to the 
phase-in caps placed on BEVs.
---------------------------------------------------------------------------

    \341\ ICCT, at p. 10.

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

[[Page 25814]]

    Regarding ICCT's comment, the NPRM analysis only limited adoption 
of SHEVPS and P2HCR combinations for a small number of applications 
like pickups, large SUVs that shared pickup engines, and performance-
oriented vehicles. All other conventional vehicles can adopt P2 hybrid 
powertrains; for example, the Toyota Tundra, which has a turbocharged 
engine paired with a 10-speed automatic transmission is allowed to 
adopt P2 hybrid. Additionally, most vehicles can adopt a PS hybrid 
system, like the Toyota Highlander. ICCT's other example, the Porsche 
918, an $845,000 4.6 liter V8 plug-in P2 hybrid with total 887 hp and 
944 lb.-ft of torque, is an example of a vehicle that we could model in 
our analysis as a SHEVP2 plug-in hybrid.\342\ However, it is unclear to 
what extent the hybrid technology on the Porsche 918 could apply to the 
mass market fleet. Other U.S. market Porsche plug-in hybrids, like the 
Cayenne E-Hybrid and Panamera E-Hybrid, are modeled as SHEVP2 plug-
hybrids in our analysis.\343\ In all cases, the examples provided by 
ICCT were modeled in accordance with their comments.344 345
---------------------------------------------------------------------------

    \342\ Porsche. ``The Super Sportscar.'' https://newsroom.porsche.com/en/products/918-spyder-10713.html. (Accessed: 
Dec. 17, 2021); Cnet Road and Show. ``Porsche 918 Spyder: Plug-in 
hybrid does 94mpg, 198mph.'' https://www.cnet.com/roadshow/pictures/porsche-918-spyder-plug-in-hybrid-does-94mpg-198mph/. (Accessed: 
Dec. 17, 2021)
    \343\ See the market_data file vehicle codes 4212003, 4212004, 
4212009, 4212010, 4222003, 4222004, 4222005, 4222015, 4222016, and 
4222017 in the vehicles tab.
    \344\ 2022 Toyota Tundra Product Information. 
2022_Toyota_Tundra_Product_Information_FINAL.pdf; Buchholz, K., 
``2022 Toyota Tundra: V8 out, twin-turbo hybrid takes over'', SAE. 
September 22, 2021. https://www.sae.org/news/2021/09/2022-toyota-tundra-gains-twin-turbo-hybrid-power. (Accessed: Dec. 20, 2021); 
Macaulay, S., ``Engineering the 2022 Toyota Tundra'', SAE. October 
10, 2021. https://www.sae.org/news/2021/10/engineering-the-2022-toyota-tundra. (Accessed: Dec. 20, 2021)
    \345\ ICCT, at p. 8.
---------------------------------------------------------------------------

    For both the NPRM and the final rule analysis, BEVs have phase-in 
cap limitations applied based on an analysis market availability, 
battery costs, and consumer acceptance in the rule making time 
frame.\346\ The BEV200 is limited to a greater extent than the BEV300 
and BEV400 to account for anticipated market demand for shorter-range 
BEVs. As discussed earlier, the 2021 EPA Trends Report that showed that 
the average range of BEVs has increased beyond 200 miles to an average 
of 286 miles. As such, 300-mile range BEVs and up will most likely 
become the status quo for the fleet in the rulemaking time frame.\347\ 
In addition, the BEV300 and BEV400 caps were not met in either the NPRM 
or this final rule analysis for any of the alternatives considered. 
This means that even with the market caps in place, the alternatives 
did not require manufacturers to increase BEV production because the 
standards were met with other cost-effective technologies. Accordingly, 
for the final rule analysis, we continued to use the same adoption 
features as used in the NPRM to reflect what we believe will 
foreseeably occur in the market in the rulemaking time frame.
---------------------------------------------------------------------------

    \346\ John Elkin, MIT finds that it might take a long time for 
EVs to be as affordable as you want, Digital Trends (November 23, 
2019), https://www.digitaltrends.com/cars/mit-study-finds-ev-market-will-stall-in-the-2020s/.
    \347\ 20210 EPA Automotive Trends Report, at 536, figure 4.174.
---------------------------------------------------------------------------

(d) Electrification Effectiveness Modeling
    For this analysis, we consider a range of electrification 
technologies which, when modeled, result in varying levels of 
effectiveness at reducing fuel consumption. As discussed above, the 
modeled electrification technologies include micro hybrids, mild 
hybrids, two different strong hybrids, two different plug-in hybrids 
with two separate all electric ranges, full battery electric vehicles, 
and fuel cell electric vehicles. Each electrification technology 
consists of many complex sub-systems with unique component 
characteristics and operational modes. As discussed further below, the 
systems that contribute to the effectiveness of an electrified 
powertrain in the analysis include the vehicle's battery, electric 
motors, power electronics, and accessory loads. Procedures for modeling 
each of these sub-systems are broadly discussed in this section and the 
Autonomie model documentation.
    Argonne uses data from their Advanced Mobility Technology 
Laboratory (AMTL) to develop Autonomie's electrified powertrain models. 
The modeled powertrains are not intended to represent any specific 
manufacturer's architecture but are intended to act as surrogates 
predicting representative levels of effectiveness for each 
electrification technology.
    Autonomie determines the effectiveness of each electrified 
powertrain type by modeling the basic components, or building blocks, 
for each powertrain, and then combining the components modularly to 
determine the overall efficiency of the entire powertrain. Autonomie 
identifies components for each electrified powertrain type, and then 
interlinks those components to create a powertrain architecture. 
Autonomie then models each electrified powertrain architecture and 
provides an effectiveness value for each. For example, Autonomie 
determines a BEV's overall efficiency by considering the efficiencies 
of the battery, the electric traction drive system (the electric 
machine and power electronics), and mechanical power transmission 
devices. Or, for a SHEVP2, Autonomie combines a very similar set of 
components to model the electric portion of the hybrid powertrain, and 
then also includes the combustion engine and related power for 
transmission components. See TSD Chapter 3.3.4 and the Autonomie model 
documentation for a complete discussion of electrification component 
modeling.
    As discussed earlier in Section III.C.4, Autonomie applies 
different powertrain sizing algorithms depending on the type of vehicle 
considered because different types of vehicles not only contain 
different powertrain components to be optimized, but they must also 
operate in different driving modes. While the conventional powertrain 
sizing algorithm must consider only the power of the engine, the more 
complex algorithm for electrified powertrains must simultaneously 
consider multiple factors, which could include the engine power, 
electric machine power, battery power, and battery capacity. Also, 
while the resizing algorithm for all vehicles must satisfy the same 
performance criteria, the algorithm for some electric powertrains must 
also allow those electrified vehicles to operate in certain driving 
cycles, like the US06 cycle, without assistance of the combustion 
engine, and ensure the electric motor/generator and battery can handle 
the vehicle's regenerative braking power, all-electric mode operation, 
and intended range of travel.
    To establish the effectiveness of the technology packages, 
Autonomie simulates the vehicles' performance on compliance test 
cycles, as discussed in Section III.C.4.348 349 350 The 
range of effectiveness for the electrification technologies in this 
analysis is a result of the interactions between the components listed 
above and how the modeled vehicle operates on its respective test 
cycle.
---------------------------------------------------------------------------

    \348\ See U.S. EPA, ``How Vehicles are Tested.'' https://www.fueleconomy.gov/feg/how_tested.shtml. (Accessed: May 6, 2021)
    \349\ See Autonomie model documentation, Chapter 6, Test 
Procedures and Energy Consumption Calculations.
    \350\ EPA Guidance Letter. ``EPA Test Procedures for Electric 
Vehicles and Plug-in Hybrids.'' Nov. 14, 2017. https://www.fueleconomy.gov/feg/pdfs/EPA%20test%20procedure%20for%20EVs-PHEVs-11-14-2017.pdf. (Accessed: May 6, 2021)

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[[Page 25815]]

This range of values will result in some modeled effectiveness values 
being close to real-world measured values, and some modeled values that 
will depart from real-world measured values, depending on the level of 
similarity between the modeled hardware configuration and the real-
world hardware and software configurations. This modeling approach 
comports with NAS's 2015 recommendation to use full vehicle modeling 
supported by application of lumped improvements at the sub-model 
level.\351\ In addition, the more recent 2021 NAS Report modeled 
electrification technologies with Argonne's Autonomie model using a 
similar approach to our analysis.\352\
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    \351\ 2015 NAS Report, at p. 292.
    \352\ 2021 NAS Report, at p. 189.
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    We received limited comments regarding electrification 
effectiveness modeling. ICCT commented that the agency's strong hybrid 
effectiveness data are outdated, because we rely on older powertrain 
data like engine maps from the 2010 Toyota Prius, and we do not allow 
this engine and other hybrid technologies to improve.\353\ Similarly, 
ICCT recommended that further research should be considered to improve 
hybrid power management and engines for strong hybrids.\354\ Another 
commenter, Walter Kreucher, stated that the electric ranges for 
electrified vehicles are lower than what we are modeling. Specifically, 
Mr. Kreucher stated that extreme cold, hot, and aggressive driving 
conditions have reduced all-electric range anywhere from 39 to 51 
percent, based on a study from AAA.\355\
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    \353\ ICCT, at p. 5.
    \354\ ICCT, in Appendices at p. 2.
    \355\ Walt Kreucher, Docket No. NHTSA-2021-0053-0015, at p. 6.
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    We disagree with ICCT that the electrification technology 
represented in this analysis is outdated. The majority of the 
technologies were developed specifically to support analysis for this 
rulemaking time frame. For example, the hybrid Atkinson engine peak 
thermal efficiency was updated based on 2017 Toyota Prius engine 
data.356 357 Toyota stated that their current hybrid engines 
achieve 41 percent thermal efficiency for their current product line up 
which aligns with our modeling.\358\ Similarly, the electric machine 
peak efficiency for FCEVs and BEVs is 98 percent and based on the 2016 
Chevy Bolt.\359\ Accordingly, we have made no changes to the electric 
machine efficiency maps for this final rule analysis.
---------------------------------------------------------------------------

    \356\ Atkinson Engine Peak Efficiency is based on 2017 Prius 
Peak Efficiency and scaled up to 41 percent. Autonomie Model 
Documentation at p. 138.
    \357\ Docketed supporting material. ANL--All 
Assumptions_Summary_NPRM_022021.xlsx, ANL--Summary of Main Component 
Performance Assumptions_NPRM_022021.xlsx, Argonne Autonomie Model 
Documentation_NPRM.pdf and ANL--Data Dictionary_NPRM_022021.XLSX.
    \358\ Carney, D. ``Toyota unveils more new gasoline ICEs with 
40% thermal efficiency''. SAE. April 4, 2018. https://www.sae.org/news/2018/04/toyota-unveils-more-new-gasoline-ices-with-40-thermal-efficiency. (Accessed Dec. 21, 2021)
    \359\ F. Momen, K. Rahman, Y. Son and P. Savagian, ``Electrical 
propulsion system design of Chevrolet Bolt battery electric 
vehicle,'' 2016 IEEE Energy Conversion Congress and Exposition 
(ECCE), 2016, pp. 1-8, doi: 10.1109/ECCE.2016.7855076.
---------------------------------------------------------------------------

    We agree with Mr. Kreucher that extreme cold and hot conditions 
impact electrified vehicle range. We use the latest compliance testing 
procedures to appropriately evaluate the effectiveness and range of 
electrified technologies, as discussed earlier in this section. 
However, there are some extreme conditions, which may impact electric 
vehicle range, which may not be captured by the Federal test cycle. The 
selection of a phase-in cap for BEV200 is based in part on 
consideration of differences in utility, including the potential for 
temperature-based (among other things) variations in driving range, 
that may affect consumer adoption of shorter-range BEVs. For more 
details, see Section III.D.3.c) of this preamble, Electrification 
Adoption Features.
    The range of effectiveness values for the electrification 
technologies, for all ten vehicle technology classes, is shown in 
Figure III-13. In the graph, the box shows the inner quartile range 
(IQR) of the effectiveness values and whiskers extend out 1.5 x IQR. 
The dots outside of the whiskers show values outside these bounds.
BILLING CODE 4910-59-P

[[Page 25816]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.082

BILLING CODE 4910-59-C
(e) Electrification Costs
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    \360\ The data used to create this figure can be found in the 
FE_1 Adjustments file.
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    The total cost to electrify a vehicle in this analysis is based on 
the battery the vehicle requires, the non-battery electrification 
component costs the vehicle requires, and the traditional powertrain 
components that must be added or removed from the vehicle to build the 
electrified powertrain.
    We work collaboratively with the experts at Argonne National 
Laboratory to generate battery costs using BatPaC, which is a model 
designed to calculate the cost of a vehicle battery for a specified 
battery power, energy, and type. For this analysis, Argonne used BatPaC 
v4.0 (October 2020 release) to create lookup tables for battery cost 
and mass that the Autonomie simulations reference when a vehicle 
receives an electrified powertrain. The BatPaC battery cost estimates 
for mild hybrids, strong hybrids, plug-in hybrids, and full battery 
electric vehicles are generated for a base year, in this case for MY 
2020. Accordingly, our BatPaC inputs characterize the state of the 
market in MY 2020 and employ a widely utilized cell chemistry 
(NMC622),\361\ average estimated battery pack production volume per 
plant (25,000), and a plant efficiency or plant cell yield value of 95 
percent.
---------------------------------------------------------------------------

    \361\ Autonomie model documentation, Chapter 5.9. Argonne 
surveyed A2Mac1 and TBS teardown reports for electrified vehicle 
batteries and of the five fully electrified vehicles surveyed, four 
of those vehicles used NMC622 and one used NMC532. See also Georg 
Bieker, A Global Comparison of the Life-Cycle Greenhouse Gas 
Emissions of Combustion Engine and Electric Passenger Cars, 
International Council on Clean Transportation (July 2021), https://theicct.org/sites/default/files/publications/Global-LCA-passenger-cars-jul2021_0.pdf (``For cars registered in 2021, the GHG emission 
factors of the battery production are based on the most common 
battery chemistry, NMC622-graphite batteries . . . .''); 2021 NAS 
Report, at 87 (``. . . NMC622 is the most common cathode chemistry 
in 2019. . . .'').
---------------------------------------------------------------------------

    For this final rule, we use a lower SS12V micro hybrid battery cost 
that was not developed in BatPaC. The NPRM SS12V fixed battery pack 
direct manufacturing cost was $237, across all vehicle classes. For 
this final rule analysis, the agency conducted additional research 
regarding battery types used in typical SS12V systems yielding a 
battery cost that reflects the cost of a more common battery chemistry. 
Specifically, absorbed-glass-mat (AGM) batteries are more common in 
SS12V systems than the Li-ion-based chemistry used in the NPRM 
analysis.362 363 364 The battery pack direct manufacturing 
cost for SS12V systems is now $113, across all vehicle classes. This 
cost also more closely aligns with the estimated cost of the SS12V 
system presented in the 2015 NAS Report.\365\
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    \362\ EPA-HQ-OAR-2021-0208-0144, p. 5-73.
    \363\ USABC, ``United States Advanced Battery Consortium Battery 
Test Manual For 12 Volt Start/Stop Vehicles.'' January 2018. 
Revision 2. Contract DE-AC07-05ID14517.
    \364\ H. Tataria; O. Gross; C. Bae; B. Cunningham; J.A. Barnes; 
J. Deppe; J. Neubauer. ``USABC Development of 12 Volt Battery for 
Start-Stop Application: Preprint'': 10 pp. 2015. https://www.nrel.gov/docs/fy15osti/62680.pdf.
    \365\ 2015 NAS Report, at 158.
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    For BEV400 and BEV500, we did not use BatPaC to generate battery 
pack costs. Rather, we scaled the BatPaC-generated BEV300 costs to 
match the range of BEV400 and BEV500 vehicles to compute a direct 
manufacturing cost for those vehicles' batteries. We explained in the 
NPRM that we initially examined using BatPaC to model the

[[Page 25817]]

cost and weight of BEV400 and BEV500 packs, however, initial values 
from the model could not be validated and were based on assumptions for 
smaller sized battery packs. We stated that the initial results 
provided cost and weight estimates for BEV400 battery packs out of 
alignment with current examples of BEV400s in the market, and there are 
currently no examples of BEV500 battery packs in the market against 
which to validate the pack results.
    Although one example of a BEV500 has entered the market since 
publication of the NPRM, it is for a low volume passenger vehicle, and 
it is not representative of some pack characteristics and costs for 
vehicles in this analysis.366 367 In particular, BatPaC 
weights for the BEV400 and BEV500 pickup truck classes often made the 
vehicle exceed the light duty 8,500 lb. curb weight threshold for light 
duty vehicles, pushing the vehicles into the next weight class. While 
this may be representative of what could happen with vehicles that have 
more significant range and towing requirements (for example, the 2022 
GMC Hummer EV will be a class 2b vehicle \368\), we also believe that 
manufacturers will employ different weight saving strategies to keep 
heavier vehicles in the light-duty fleet. For this final rule analysis, 
we determined that keeping the battery pack mass a more consistent 
percentage of vehicle curb weight using the scaling method was a 
reasonable assumption, and we will explore how to model this concept 
more in future analyses.
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    \366\ CarAndDriver. ``2022 Lucid Air Lucid Air EV's Battery Will 
Be a Big 113.0 kWh, Topping Tesla's Best.'' September 2, 2020. 
https://www.caranddriver.com/news/a33797162/2021-lucid-air-517-mile-range-113-kwh-battery. Last accessed March 28, 2022.
    \367\ Fueleconomy.gov, 2022 Lucid Air. https://www.fueleconomy.gov/feg/Find.do?action=sbs&id=44495&id=44493 (last 
accessed: January 23, 2022).
    \368\ CarAndDriver. ``2022 GMC Hummer EV EPA Documents Reveal 
MPGe, Weight, Other Details.'' Feb 15, 2022. https://www.caranddriver.com/news/a39049358/2022-gmc-hummer-ev-pickup-epa-specs. Last accessed March 28, 2022.
---------------------------------------------------------------------------

    Finally, we apply a learning rate to the direct manufacturing cost 
to reflect how we expect battery costs could fall over the timeframe 
considered in the analysis. For most electrification technologies, the 
learning rate that we apply reflects ``midrange'' year-over-year 
improvements until MY 2032. Post 2032, the learning rates incrementally 
become shallower as battery technology is expected to mature in MY 2033 
and beyond. Applying learning curves to the battery pack DMC in 
subsequent analysis years reduces costs such that battery pack costs 
are believed to represent the manufacturing costs for any future pack, 
regardless of cell chemistry, cell format, or production volume.
    Unlike the rest of the electrification technologies, however, the 
SS12V micro hybrid system uses a shallower learning curve, as shown in 
TSD Chapter 3.3.5.2. This shallow curve reflects the maturity of the 
technology; as we discuss in TSD Chapter 3.3.2, 50 percent of the MY 
2020 fleet utilizes a SS12V micro hybrid system.
    TSD Chapter 3.3.5.1 includes more detail about the process to 
develop battery costs for this analysis. In addition, all BatPaC-
generated direct manufacturing costs for all technology keys can be 
found in the CAFE Model's Battery Costs file, and the Argonne BatPaC 
Assumptions file includes the assumptions used to generate the costs, 
pack costs, pack mass, cell capacity, $/kW at the pack level, and W/kg 
at the pack level for all vehicle classes.
    A range of parameters can ultimately influence battery pack 
manufacturing costs, including other vehicle improvements (e.g., mass 
reduction technology, aerodynamic improvements, or tire rolling 
resistance improvements all affect the size and energy of a battery 
required to propel a vehicle where all else is equal), and the 
availability of materials required to manufacture the 
battery.369 370 Or, if manufacturers adopt more 
electrification technology than projected in this analysis, increases 
in battery pack production volume will likely lower actual battery pack 
costs.
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    \369\ The cost of raw material also has a meaningful influence 
on the future cost of the battery pack. As the production volume 
goes up, the demand for battery critical raw materials also goes up, 
which has an offsetting impact on the efficiency gains achieved 
through economies of scale, improved plant efficiency, and advanced 
battery cell chemistries, at least while supply is readjusting to 
demand. We do not consider future battery raw material price 
fluctuations for this analysis, however that may be an area for 
further exploration in future analyses.
    \370\ See, e.g., Jacky Wong, EV Batteries: The Next Victim of 
High Commodity Prices?, The Wall Street Journal (July 22, 2021), 
https://www.wsj.com/articles/ev-batteries-the-next-victim-of-high-commodity-prices-11626950276.
---------------------------------------------------------------------------

    In the NPRM, we compared our battery pack costs in future years to 
battery pack costs from a non-exhaustive list of other sources that may 
or may not account for some of these additional parameters, including 
varying potential future battery chemistry and learning rates. As 
discussed in TSD Chapter 3.3.5.1.4, our battery pack costs in 2025 and 
2030 fell fairly well in the middle of other sources' cost projections, 
with Bloomberg New Energy Finance (BNEF) projections presenting the 
highest year-over-year cost reductions, and one scenario in MIT's 
Insights into Future Mobility report providing an upper bound of 
potential future costs of the studies surveyed to create this 
comparison.371 372 ICCT presented a similar comparison of 
costs from several sources in its 2019 working paper and predicted 
battery pack costs in 2025 and 2030 would drop to approximately $104/
kWh and $72/kWh, respectively, which put their projections slightly 
higher than BNEF's 2019 projections.\373\ BNEF's 2020 Electric Vehicle 
Outlook projected average pack cost to fall below $100/kWh by 2024, 
while the 2021 NAS Report projected pack costs to reach $90-115/kWh by 
2025.374 375 Since the NPRM, BNEF released its 2021 Electric 
Vehicle Outlook, which estimated average pack prices in 2021 at $132/
kwh.\376\ In addition, Bloomberg weighed in on recent supply chain 
impacts on battery materials availability, which is discussed in more 
detail below.
---------------------------------------------------------------------------

    \371\ See Logan Goldie-Scot, A Behind the Scenes Take on 
Lithium-ion Battery Prices, Bloomberg New Energy Finance (March 5, 
2019), https://about.bnef.com/blog/behind-scenes-take-lithium-ion-battery-prices/.
    \372\ MIT Energy Initiative. 2019. Insights into Future 
Mobility. Cambridge, MA: MIT Energy Initiative. Available at http://energy.mit.edu/insightsintofuturemobility.
    \373\ Nic Lutsey and Michael Nicholas, ``Update on electric 
vehicle costs in the United States through 2030'', ICCT (April 2, 
2019), available at https://theicct.org/publications/update-US-2030-electric-vehicle-cost.
    \374\ Bloomberg New Energy Finance (BNEF), ``Electric Vehicle 
Outlook 2020,'' https://about.bnef.com/electric-vehicle-outlook/, 
last accessed July 29, 2021.
    \375\ 2021 NAS Report, at 114. The 2021 NAS Report assumed a 7 
percent cost reduction per year from 2018 through 2030.
    \376\ BloombergNEF. ``Battery Pack Prices Fall to an Average of 
$132/kWh, But Rising Commodity Prices Start to Bite.'' November 30, 
2021. https://about.bnef.com/blog/battery-pack-prices-fall-to-an-average-of-132-kwh-but-rising-commodity-prices-start-to-bite/#_ftn1. 
(Last accessed: January 10, 2022)
---------------------------------------------------------------------------

    We concluded in the NPRM that our projected costs seemed to fall 
between several projections, giving confidence that the costs used in 
the analysis could reasonably represent future battery pack costs 
across the industry during the rulemaking time frame. We emphasized 
that battery technology is currently under intensive development, and 
that characteristics such as cost, and capability are rapidly changing. 
These advances are reflected in recent aggressive projections, like 
those from ICCT, BNEF, and the 2021 NAS Report.
    We sought comment on several elements of the battery modeling 
analysis in the NPRM, including on battery direct manufacturing costs, 
or DMCs (and inputs and assumptions

[[Page 25818]]

used in BatPaC to estimate those costs), battery learning curves, and 
other battery-related materials. More specifically, we first sought 
comments on DMC assumptions, including comments supported by data 
elements on different assumptions for battery chemistry, plant 
manufacturing volume, or plant efficiency in MY 2020.\377\ To align 
with our guiding principle that each technology model employed in the 
analysis be representative of a wide range of specific technology 
applications used in the industry, we requested that commenters explain 
how these assumptions reasonably represent applications across the 
industry in MY 2020.\378\ This is important to ensure that the CAFE 
Model's simulation of manufacturer compliance pathways results in 
impacts that we would reasonably expect to see in the real world. In 
addition, we sought comment on the scaling used to generate direct 
manufacturing costs for BEV400 and BEV500 technologies; in particular, 
we were interested in any additional data or information on the 
relationship between cost and weight for heavier battery packs used for 
these higher-range BEV applications, particularly in light truck 
vehicle segments.
---------------------------------------------------------------------------

    \377\ Note that stakeholders had commented on the 2020 final 
rule that batteries using NMC811 chemistry had either recently come 
into the market or was imminently coming into the market, and 
therefore DOT should have selected NMC811 as the appropriate 
chemistry for modeling battery pack costs. Similar to the other 
technologies considered in this analysis, DOT endeavors to use 
technology that is a reasonable representation of what the industry 
could achieve in the model year or years under consideration, in 
this case the base DMC year of 2020, as discussed above. At the time 
of this current analysis, the referenced A2Mac1 teardown reports and 
other reports provided the best available information about the 
range of battery chemistry actually employed in the industry. At the 
time of writing for this final rule, DOT still has not found 
examples of NMC811 in commercial application across the industry in 
a way that DOT believes selecting NMC811 would have represented 
industry average performance in MY 2020. As discussed in TSD Chapter 
3.3.5.1.4, DOT did analyze the potential future cost of NMC811 in 
the composite learning curve generated to ensure the battery 
learning curve projections are reasonable.
    \378\ Again, some vehicle manufacturer's systems may perform 
better and cost less than our modeled systems and some may perform 
worse and cost more. However, employing this approach will ensure 
that, on balance, the analysis captures a reasonable level of costs 
and benefits that would result from any manufacturer applying the 
technology.
---------------------------------------------------------------------------

    We also sought comment on the learning rates applied to battery 
pack costs and on battery pack costs in future years. We recognized 
that any battery pack cost projections for future years from our 
analysis or external analyses will involve assumptions that may or may 
not come to pass and stated that it would be most helpful if commenters 
thoroughly explained the basis for any recommended learning rates, 
including references to publicly available data or models (and if such 
models are peer reviewed) where appropriate. We also noted that it 
would be helpful for commenters to note where external analyses may or 
may not take into account certain parameters in their battery pack cost 
projections, and whether we should attempt to incorporate those 
parameters in our analysis. For example, as discussed above, our 
analysis does not consider long-term trends in raw material prices; 
however, the price of raw materials may put a lower bound on NMC-based 
battery prices.\379\
---------------------------------------------------------------------------

    \379\ See, e.g., MIT Energy Initiative. 2019. Insights into 
Future Mobility. Cambridge, MA: MIT Energy Initiative. Available at 
http://energy.mit.edu/insightsintofuturemobility, at pp. 78-79.
---------------------------------------------------------------------------

    We also stated that it would also be helpful if commenters 
explained how learning rates or future cost projections could represent 
the state of battery technology across the industry. Like other 
technologies considered in this analysis, some battery and vehicle 
manufacturers have more experience manufacturing electric vehicle 
battery packs, and some have less, meaning that different manufacturers 
will be at different places along the learning curve in future years. 
We also stated that comments should specify whether their referenced 
costs, either for MY 2020 or for future years, are for the battery cell 
or the battery pack. We requested the information to ensure our 
learning rates encompass these diverse parameters and to ensure that 
the analysis best predicts the costs and benefits associated with 
standards.
    Tesla commented that the battery pack costs we projected in the 
SAFE rule were too high, citing lower estimates published in the UBS-
sponsored Volkswagen ID 3 teardown report, among other studies.\380\ 
Tesla also commented that we unnecessarily constrained the analysis by 
assuming that the drivetrain and other components are unique to each 
vehicle and not shared by another vehicle.\381\
---------------------------------------------------------------------------

    \380\ Tesla, at p. 9; DNV-GL, Tesla's Battery Day and the Energy 
Transition (Oct. 26, 2020); BNEF, Electric Vehicle Outlook 2021 
(June 9, 2021).; BNEF, Hitting the Inflection Point: Electric 
Vehicle Price Parity and Phasing Out Combustion Vehicle Sales in 
Europe (May 5, 2021); 2021 NAS Report; UBS, EVs Shifting into 
Overdrive: VW ID.3 teardown--How will electric cars re-shape the 
auto industry? (March 2, 2021).
    \381\ Tesla, at p. 10.
---------------------------------------------------------------------------

    To be clear, the battery pack DMCs used in our 2021 proposal and 
this final rule are different than the battery pack DMCs used in the 
SAFE rule that Tesla refers to in their comments. While our battery 
pack DMCs have decreased since the 2020 final rule, our projected costs 
are still higher than the sources that Tesla identifies. In the NPRM, 
we provided a detailed explanation of how we developed those costs 
using the BatPaC model and the specific inputs and assumptions used to 
do so. We explained that we also expected those costs to represent the 
range of costs across the industry. We acknowledged that each 
manufacturer has different strategies associated with each vehicle line 
based on several factors such as performance, costs, technology class, 
utility among others, and this affects manufacturers strategy on 
sourcing only certain components of battery pack or the complete 
battery pack. We acknowledge that the cost of the battery pack as 
measured in $/kWh can vary for each manufacturer with different form, 
fit, and function requirements.\382\ BatPaC's inputs and assumptions, 
including those developed specifically to support this rule,\383\ are 
based on various and extended teardown reports available to the public 
for predominant batteries that use robust and safe battery 
chemistries.\384\ We understand that some mass market and premium 
luxury BEVs have already achieved $/kWh values that are lower than our 
projected costs, however others have not. To investigate the 
sensitivity of our analysis to this cost we performed additional 
analyses considering a 20 percent reduction in battery direct 
manufacturing costs. And as discussed further below, this additional 
cost reduction had a minimal impact on the overall vehicle cost and 
increased electrification technology penetration. Therefore, we believe 
the cost estimates from the BatPaC model represent a reasonable average 
across all manufacturers for all vehicle technology classes.
---------------------------------------------------------------------------

    \382\ Form, fit, and function is the identification and 
description of characteristics of a part or assembly. Each defines a 
specific aspect of the part to help engineers match parts to needs.
    \383\ See Autonomie Model Documentation.
    \384\ Ahmed, S., Nelson, P., Kubal, J., Liu, Z., Knehr, K. Dees, 
D., ``Estimated cost of EV Batteries.'' Argonne. August 12, 2021. 
https://www.anl.gov/cse/batpac-model-software. Last accessed January 
20, 2022.
---------------------------------------------------------------------------

    In contrast, the Auto Innovators submitted extensive comments on 
our assumptions that the costs of battery electric vehicles will 
continue to decline because of decreases in costs to produce battery 
packs and other non-battery electrification components.\385\ Auto 
Innovators stated that ``the traditional method of accounting for 
possible future changes in battery-pack

[[Page 25819]]

costs is to apply a learning curve in future years based on production 
volume, and then make a somewhat arbitrary assumption about when the 
rate of decline decelerates or stops (technological maturity).'' Auto 
Innovators identified that we characterized our learning curve as a 
proxy for changes in battery chemistry, changes in energy density, 
further gains in plant efficiency, and additional economies of scale in 
production due to higher production volumes, but stated that we and NAS 
do not ``confront the real possibility that counteracting, unanalyzed 
factors could work to restrain the future decline in battery-pack 
costs.'' \386\
---------------------------------------------------------------------------

    \385\ Auto Innovators, at pp. 94-121.
    \386\ Id., at pp. 94-95.
---------------------------------------------------------------------------

    Auto Innovators and also the Alliance for Vehicle Efficiency (AVE) 
requested that we consider potential impacts to battery raw materials 
costs in the analysis.\387\ Auto Innovators provided a lengthy 
qualitative survey of the state of raw materials extraction issues, 
including their perspective on political and environmental obstacles to 
further supply development. Auto Innovators also provided estimates of 
battery materials costs that assumed a doubling of raw materials prices 
and stated that ``a pre-2032 doubling of raw material prices could 
substantially erode the `learning-curve' cost reductions assumed in the 
RIAs.'' Auto Innovators stated that the battery sensitivity cases 
presented in the PRIA are not large enough to account for simultaneous 
increases in several raw materials prices, and that ``there is no basis 
for believing that raw material prices will decline for a sustained 
period prior to 2032.'' Accordingly, Auto Innovators stated that much 
more careful analysis of raw material prices is necessary in the final 
RIAs.
---------------------------------------------------------------------------

    \387\ AVE, NHTSA-2021-0053-1488, at pp. 6-7.
---------------------------------------------------------------------------

    With respect to analytical tools available to perform such an 
analysis, Auto Innovators stated that ``less than a handful of the 
dozens of published battery-forecasting models include any formal 
analysis of global trends in raw material prices'' and stated that 
``none of the published battery-forecasting models have accounted for 
the surge in material price experienced in 2021.'' \388\ Auto 
Innovators stated that ``BatPaC does not include a formal global model 
of the market for each raw material used in battery packs,'' and 
instead provides a best estimate of raw materials prices at the time of 
version release.\389\ Auto Innovators stated that the version of BatPaC 
we used did not account for the 2021 surge in raw material prices. Auto 
Innovators stated that the MIT's Insights into Future Mobility report 
took an important step to forecasting battery pack costs by using a 
two-stage model, one for the cost of materials and the second for the 
costs to manufacture the battery pack.\390\ However, Auto Innovators 
stated that we erroneously characterized MIT's estimate as an ``upper 
bound'' of battery pack costs, while the report actually provides best 
estimates based on different scenarios.
---------------------------------------------------------------------------

    \388\ Auto Innovators, at pp. 97-98.
    \389\ Id., at pp. 119-121.
    \390\ Insights into Future Mobility, MIT Energy Initiative 
(2019), Cambridge, MA: MIT Energy Initiative, https://energy.mit.edu/research/mobilityofthefuture/ at p. 76. Accessed 
January 19, 2022.
---------------------------------------------------------------------------

    Auto Innovators made three explicit requests in regards to future 
battery materials costs and chemistry impacts; first, Auto Innovators 
stated that we should work with National Laboratories, DOE, and others 
to produce sensitivity cases for raw and processed material costs, 
material efficiency in battery construction, and other considerations; 
next, Auto Innovators stated that we should remove changes in battery 
chemistry from the near-term learning factor and analyze it separately 
and explicitly in our RIA; and finally, Auto Innovators stated that 
``instead of choosing one battery chemistry as representative of the 
entire industry, as the [a]gencies do with the Argonne battery model, 
the [a]gencies should forecast the penetration of different battery 
chemistries in the fleet from 2021 to 2032 and estimate applicable 
costs for each of them.''
    As a reminder, the learning rate that we used in the NPRM and this 
final rule, carried forward from work done for the 2018 NPRM, is based 
on an assessment of cost reductions due to production volume increases. 
As we described in the TSD, we identified the change in cost for the 
estimated changes in production volumes linked to model years and used 
this rate to develop the learning curves used out to MY 2032, which 
resulted in an approximately 4.5 percent year over year cost reduction. 
For MYs 2033 to 2050, we scaled down the learning rate in steps based 
on literature values and market research.
    The parametric analysis presented in the NPRM TSD was meant to 
confirm that looking at any one potential factor that could have an 
impact on the battery pack direct manufacturing costs would not have 
significantly changed this original near-term (i.e., through MY 2032) 
4.5 percent production-volume-based learning rate. The parametric 
analysis showed that considering two factors by themselves--increasing 
production volume and improving manufacturing plant efficiency--would 
result in a slightly shallower learning curve (3.26 and 3.5 percent 
near-term, year-over-year reductions in cost), while changing battery 
chemistry by itself would result in a steeper learning curve (5.15 
percent near-term, year-over-year cost reductions). Constructing a 
composite learning curve to consider these three factors in tandem, 
assuming that the predominant battery chemistry will change over the 
course of this decade, and also that battery manufacturing plants will 
become better at producing battery cells--two widely accepted 
assumptions--confirmed that our original learning curve based on year-
over-year production volume increases could reasonably encompass these 
changes.\391\ Furthermore, while Auto Innovators asserted that our 
production-based learning curve could miss several important factors, 
as discussed in Section III.C.6 above and in recent literature,\392\ a 
production-volume-based learning curve is an accepted and reasonable 
method for projecting future costs.
---------------------------------------------------------------------------

    \391\ See, e.g., MIT Insights into Future Mobility Report, at 77 
(``A clear trend within the EV LIB industry is to increase nickel 
content to boost energy density (for increased driving range) while 
reducing the amount of expensive cobalt required.'').
    \392\ Lukas Mauler, Fabian Duffner, Wolfgang G Zeier, Jens 
Leker, ``Battery Cost Forecasting: A Review of Methods and Results 
with an Outlook to 2050,'' Energy and Environmental Science, 14 
(2021) at p. 4724.
---------------------------------------------------------------------------

    Regarding Auto Innovators' extensive comments about the impact of 
materials availability on battery costs, we are aware that the outlook 
for battery materials has remained uncertain since we released the 
NPRM. At this time, studies and organizations have provided projections 
about the impact of battery materials price increases due to supply 
chain factors and the consensus seems to be that the overall impact on 
prices will be minimal for the predominant battery chemistries.\393\ 
Our estimated future battery costs are fairly conservative compared to 
leading analysis firms, even accounting for materials price impacts 
since the

[[Page 25820]]

NPRM.394 395 This makes us confident that our projected 
battery costs, presented in this final rule, still fall within the 
scope of reasonable projections for the near-term model years covered 
by this analysis.
---------------------------------------------------------------------------

    \393\ Lukas Mauler, Fabian Duffner, Wolfgang G Zeier, Jens 
Leker, ``Battery Cost Forecasting: A Review of Methods and Results 
with an Outlook to 2050,'' Energy and Environmental Science, 14 
(2021) at p. 4734 (``Every single study that provides time-based 
projections expects LIB cost to fall, even if increasing raw and 
battery material prices are taken into account.''); Henze, V., 
``Battery Pack Prices Fall to an Average of $132/kWh, But Rising 
Commodity Prices Start to Bite''. BloombergNEF. November 30, 2021. 
https://about.bnef.com/blog/battery-pack-prices-fall-to-an-average-of-132-kwh-but-rising-commodity-prices-start-to-bite/. Last accessed 
January 23, 2022.
    \394\ See NPRM TSD at 296, Table 3-86--Battery Cost Estimates 
from Other Sources.
    \395\ Henze, V., ``Battery Pack Prices Fall to an Average of 
$132/kWh, But Rising Commodity Prices Start to Bite''. BloombergNEF. 
November 30, 2021. https://about.bnef.com/blog/battery-pack-prices-fall-to-an-average-of-132-kwh-but-rising-commodity-prices-start-to-bite/. Last accessed January 23, 2022.
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    Nonetheless, we do appreciate Auto Innovators' data and analysis 
submitted on raw materials cost impacts on battery pack costs. We also 
appreciate the enormity of the task of integrating forecasts of global 
trends in raw materials prices in our analysis, given that only a 
minority of the dozens of published battery-forecasting models include 
any formal analysis of global trends in raw materials prices and none 
of the published forecasting models have accounted for the increase in 
material price experienced in 2021. MIT's two-stage model, and 
multidimensional mathematical models are more refined than single 
dimensional models due to the use of numerous parameters. However, this 
comes at the expense of needing to obtain high quality and accurate 
data for these parameters, potentially at the cost of reduced 
transparency. For example, MIT's two-stage model requires data from 
mining companies, materials producers, cell producers, and battery pack 
producers.\396\ However, detailed data on these specifics are not 
readily publicly available.\397\ \398\ \399\
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    \396\ Insights into Future Mobility, MIT Energy Initiative 
(2019), Cambridge, MA: MIT Energy Initiative, https://energy.mit.edu/research/mobilityofthefuture/ at p. 77. Accessed 
January 19, 2022.
    \397\ S. Matteson and E. Williams, Learning dependent subsidies 
for lithium-ion electric vehicle batteries, Technol. Forecast. Soc. 
Change, 2015, 92, 322-331.
    \398\ B. Nykvist, F. Sprei and M. Nilsson, Assessing the 
progress toward lower priced long range battery electric vehicles, 
Energy Policy, 2019, 124, 144-155.
    \399\ Lukas Mauler, Fabian Duffner, Wolfgang G Zeier, Jens 
Leker, ``Battery Cost Forecasting: A Review of Methods and Results 
with an Outlook to 2050,'' Energy and Environmental Science, 14 
(2021) at p. 4715 (``However, details on company-specific prices, 
costs and profit margins are not publicly available and differences 
are difficult to assess.'').
---------------------------------------------------------------------------

    Developing a multi-stage model that can perform the calculations we 
need for the number of large-scale simulations required by our 
analysis, with data and assumptions that are transparent and can be 
made publicly available, would be a difficult task. As discussed above, 
BatPaC is a publicly available model and the inputs and assumptions 
used to develop and populate BatPaC are publicly available. More 
specifically, we included detailed data from teardown reports that we 
used to generate the battery pack inputs for this analysis in the TSD 
and Argonne Model Documentation. The battery pack designs and cell 
chemistry that we modeled in BatPaC represented the most common battery 
pack parameters in the market in MY 2020, our base year for calculating 
direct manufacturing costs. This approach reflects the same approach we 
use across our analysis; we do not currently model, for example, the 
penetration rate of Toyota's HCR engine separately from Mazda's HCR 
engine. Again, modeling an industry-average system will ensure that, on 
balance, the analysis captures a reasonable level of costs and benefits 
that would result from any manufacturer applying the technology. In 
addition, while Auto Innovators presents important points about the 
uncertainty regarding the predominant battery chemistry beyond MY 2027, 
the battery chemistries that we analyzed--NMC622 and NMC811--are still 
expected to be the dominant chemistries in this rulemaking timeframe. 
The sensitivity analyses presented in the TSD accompanying the NPRM and 
this final rule show that analyzing both chemistries separately results 
in only a small difference in cost between the two options. We see only 
a small difference in costs because we consider a narrow range of 
battery pack power and energy sizes in the respective vehicle 
technology classes.
    At this time, we believe that our battery pack costs in this final 
rule still could reasonably represent costs to the industry during the 
model years under consideration taking into account the factors 
mentioned by Auto Innovators. In addition, as discussed further below, 
our sensitivity cases show that BEV prices remain within a fairly 
narrow range in the rulemaking timeframe considering potentially higher 
direct manufacturing costs or shallower learning rates.
    We will continue to investigate further refinements to input data 
and models that we use to assess battery costs as the input data and 
models continue to develop. We understand that battery technologies and 
manufacturing processes are undergoing significant development and we 
will continue to monitor and evaluate battery cost and performance, and 
how to reflect those trends in our modeling.
    For future actions, we would welcome any additional information on 
the impact of raw materials prices on battery pack costs, including 
information on a CBI or public basis on the impact of long-term supply 
contracts on battery costs.\400\ In particular, we would be interested 
in more information on whether manufacturers that had contracted for 
battery packs prior to the 2021 materials supply chain disruptions were 
insulated from materials cost increases and if there is a contractual 
or other mechanism within the vehicle manufacturer's control through 
which vehicle manufacturers could insulate themselves from such 
disruptions moving forward.\401\
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    \400\ C. Xu, et al., Future material demand for automotive 
lithium-based batteries, Commun. Mater., 2020, 1, 99.; H. Hao, et 
al., Impact of transport electrification on critical metal 
sustainability with a focus on the heavy-duty segment, Nat. Commun., 
2019, 10, 5398.; Reuters. ``Stellantis, LG Energy Solution to form 
battery JV for North America.'' Automotive News. October 18, 2021. 
https://www.autonews.com/manufacturing/stellantis-lg-energy-solution-form-battery-jv-north-america. Last accessed 01/20/2022.; 
``Daimler, Stellantis enter agreement with battery maker Factorial 
Energy.'' Automotive News. November 30, 2021. https://www.autonews.com/suppliers/why-daimler-stellantis-are-investing-battery-maker. Last accessed January 20, 2022.; ``FORD COMMITS TO 
MANUFACTURING BATTERIES, TO FORM NEW JOINT VENTURE WITH SK 
INNOVATION TO SCALE NA BATTERY DELIVERIES.' Ford Media Center. May 
20, 2021. https://media.ford.com/content/fordmedia/fna/us/en/news/2021/05/20/ford-commits-to-manufacturing-batteries.html. Last 
accessed January 20, 2022.; ``Toyota Selects North Carolina for New 
U.S. Automotive Battery Plant.'' Toyota Newsroom. December 7, 2021. 
https://global.toyota/en/newsroom/corporate/36418723.html. Last 
accessed January 20, 2022.
    \401\ See, e.g., Lukas Mauler, Fabian Duffner, Wolfgang G Zeier, 
Jens Leker, ``Battery Cost Forecasting: A Review of Methods and 
Results with an Outlook to 2050,'' Energy and Environmental Science, 
14 (2021) at p. 4724; (``In the battery industry-prices are further 
influenced by strategic pricing, long-term contracts and rebates to 
utilize excess production capacity.'').
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    As in any large-scale analysis, uncertainties exist. Recognizing 
that there could be additional factors that constrain battery learning 
rates, as Auto Innovators suggests, we performed four sensitivity 
studies around battery pack costs that are described in FRIA Chapter 
7.2.2.3. The sensitivity studies examined the impacts of increasing and 
decreasing the direct cost of batteries and battery learning costs by 
20 percent from central analysis levels, based on our survey of 
external analyses' battery pack cost projections that fell generally 
within 20 percent of our central analysis costs. The 
average difference in vehicle cost between the reference case and four 
battery sensitivity cases ranged from -$52 to $128. This means that, 
even accounting for potential unanalyzed factors related to battery 
prices, we expect battery electric vehicle prices to remain within a 
fairly narrow range in the rulemaking timeframe. These sensitivity 
outcomes are similar

[[Page 25821]]

to those we showed in the NPRM sensitivity analysis. Although Auto 
Innovators showed how an increase in individual raw material cost could 
impact the final cost, we believe that at the total pack level the 20 
percent high sensitivity case encompasses these situations in the 
rulemaking time frame. Again, these results, in addition to the 
consensus in literature regarding the impact of rising materials prices 
on future costs described above, make us comfortable that our approach 
to estimating battery costs is a reasonable approach for this final 
rule analysis.
    After pointing out the BatPaC model's limitations regarding future 
potential increases in materials costs, Auto Innovators commented that 
we should use BatPaC to estimate battery pack costs for BEV400 and 
BEV500 technologies instead of scaling up BEV300 battery pack 
costs.\402\ Beyond the request to do so, we received no updated real-
world data on the cost and weight of battery packs used in 400- and 
500-mile range electric vehicles. As discussed above, and as originally 
stated in the NPRM, initial values from BatPaC could not be validated 
by real-world data, leading us to continue using the scaled values for 
the final rule.
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    \402\ Auto Innovators, at p. 119.
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    Auto Innovators identified other costs related to electric vehicles 
(EVs) that they stated our analysis does not consider; specifically, 
they stated that our battery-price estimates are industry averages that 
do not exclude supply chains that fail environmental, social, and 
governance (ESG) tests. Auto Innovators stated that ``for the major 
global automakers that operate in the [U.S.] auto market, the RIAs 
should not assume that low-cost suppliers with poor ESG profiles can be 
utilized in EV supply chains.'' Auto Innovators also identified the 
shift from recycling engines and transmissions to recycling EV 
batteries, as well as the price of electricity to produce EV batteries, 
as costs that we do not currently account for. In addition, Auto 
Innovators stated that the BEVs and PHEVs are a new technology type for 
many drivers and, as a result, drivers may incur some costs and 
inconveniences that we should consider as part of our analysis.\403\ 
They provided three examples of costs to the user beyond the purchase 
price: (1) Costs of charging stations for BEVs and PHEVs; (2) costs to 
the user of a vehicle that has a shorter driving range than the typical 
conventional IC engine and that requires a long time to charge, and (3) 
the time spent charging.
---------------------------------------------------------------------------

    \403\ Id., at pp. 119-121.
---------------------------------------------------------------------------

    We applaud Auto Innovators members for including serious ESG 
considerations in their planning for developing battery supply chains. 
However, like the issues surrounding raw materials impacts discussed 
above, we currently do not have a specific mechanism to account for the 
cost of supply chains that pass basic ESG tests, as Auto Innovators 
suggests. To the extent that Auto Innovators members have already 
entered into contracts with battery suppliers and have included ESG 
terms in those contracts, and have data or other information on how 
that increases the costs for EV production over and above an industry 
average that we would project quantitatively, we welcome that 
information for future analysis. We will continue to research these 
factors and consider whether to include them in the cost-benefit 
analysis. We support Auto Innovators and any individual component or 
vehicle manufacturer providing the agency with supporting material for 
these specific topics.
    As a reminder, our analysis considers technology costs that vehicle 
manufacturers ultimately pass to the buyer separately from the user 
costs for a technology, like fueling from either gasoline or 
electricity. We consider many externalities that accrue cost for the 
consumer in the analysis, and these are discussed in Section III.E. We 
specifically identified a cost to the user for time spent charging an 
EV, which is discussed further in that section. However, regardless of 
where we account for those costs in the analysis, we believe those 
costs would be minimal in the timeframe of this rulemaking considering 
the standard-setting projections of EV and PHEV penetration rates, 
which are discussed further in FRIA Chapter 6.3.1. That said, for 
future rules we appreciate any new data Auto Innovators and other 
stakeholders can provide to develop more precise electric vehicle user 
costs.
    Next, ICCT commented that we ``erroneously inflated battery costs 
by applying the retail price equivalent (RPE) markup to base costs that 
already include indirect costs.'' \404\ We disagree. The indirect costs 
represented in BatPaC output are those that apply to the battery 
supplier, and do not represent the indirect costs experienced by the 
OEM who purchases the battery and integrates it into the vehicle. NHTSA 
has always considered RPE markup to be applicable to purchased items.
---------------------------------------------------------------------------

    \404\ ICCT, at p. 8.
---------------------------------------------------------------------------

    We also believe that the warranty costs are appropriately marked up 
with the BatPaC outputs. The RPE markup factor is based on an 
examination of historical financial data contained in 10-K reports 
filed by manufacturers with the Securities and Exchange Commission. It 
represents the ratio between the retail price of motor vehicles and the 
direct costs of all activities that manufacturers engage in, including 
the design, development, manufacturing, assembly, and sales of new 
vehicles, refreshed vehicle designs, and modifications to meet safety 
or fuel economy standards. An RPE of 1.5 does not imply that 
manufacturers automatically mark up each vehicle by exactly 50 percent. 
Rather, it means that, over time, the competitive marketplace has 
resulted in pricing structures that average out to this relationship 
across the entire industry. Prices for any individual model may be 
marked up at a higher or lower rate depending on market demand. The 
consumer who buys a popular vehicle may, in effect, subsidize the 
installation of a new technology in a less marketable vehicle. But, on 
average, over time and across the vehicle fleet, the retail price paid 
by consumers has risen by about $1.50 for each dollar of direct costs 
incurred by manufacturer.
    The direct costs associated with any specific technology will 
change over time as some combination of learning and resource price 
changes occurs. Resource costs, such as the price of steel, can 
fluctuate over time and can experience real long-term trends in either 
direction, depending on supply and demand. However, the normal learning 
process generally reduces direct production costs as manufacturers 
refine production techniques and seek out less costly parts and 
materials for increasing production volumes. By contrast, this learning 
process does not generally influence indirect costs. To be consistent 
with the basis for the RPE multiplier, we apply learning to direct 
costs, and then mark up the resulting learned direct costs using the 
RPE multiplier.
    We consulted Argonne and the BatPaC manual and as shown in the 
BatPaC documentation, the final cost provided by the BatPaC model 
includes two-part variable costs (what we consider direct costs) and 
fixed expenses (what we consider indirect costs). Table 8.7 in the 
BatPaC Model Documentation shows the breakdown of the costs and the 
approximate percentage of each cost.
    These costs combine to provide the overall cost of the battery pack 
from the supplier to the OEM. The cost of the battery pack from the 
supplier to the OEM is considered a direct cost to the OEM, like any 
other part that an OEM

[[Page 25822]]

acquires from other suppliers. In turn, while using the battery pack in 
the finished vehicle, the OEM will incur indirect costs including 
research and development (R&D), general sales and administrative costs 
(GSA), as well as warranty and profit. Thus, the indirect costs 
associated with components or subsystems incurred by the automotive 
suppliers should not be conflated with vehicle manufacturer indirect 
costs.
    Supplier warranty costs should reflect losses they experience to 
replace defective battery packs or parts. Likewise, OEM warranty costs 
should reflect actual losses they incur in replacing defective parts. 
OEM losses are partially reimbursed by supplier warranties. Both OEM 
warranty costs and supplier warranty costs should thus represent the 
net loss to each business due to warranty coverage. OEM warranty costs 
should thus already reflect reimbursement to OEMs from supplier 
warranties, implying that reflecting warranty costs within the direct 
cost of the product and separate warranty costs at the OEM level is not 
double counting. Accordingly, we did not make any changes to how 
indirect cost markups are applied to the BatPaC costs for this final 
rule.
    In sum, after considering the comments received on how we modeled 
battery pack costs, we determined that it was appropriate to use the 
same battery costs for this final rule. We will perform additional 
research and update our analysis accordingly for future analyses.
    Turning to electrification costs that are non-battery related, each 
vehicle powertrain type receives different non-battery electrification 
components. When researching costs for different non-battery 
electrification components, we found that different reports vary in 
components considered and cost breakdown. This is not surprising, as 
vehicle manufacturers use different non-battery electrification 
components in different vehicle's systems, or even in the same vehicle 
type, depending on the application.\405\ We use costs for the major 
non-battery electrification components on a dollar per kilowatt basis 
based on the costs presented in two reports. We use a $/kW cost metric 
for non-battery components to align with the normalized costs for a 
system's peak power rating as presented in U.S. DRIVE's Electrical and 
Electronics Technical Team (EETT) Roadmap report.\406\ This approach 
captures components in some manufacturer's systems, but not all 
systems; however, we believe this is a reasonable metric and approach 
to use for this analysis given the differences and complexities in non-
battery electrification systems. This approach allows us to scale the 
cost of non-battery electrification components based on the 
requirements of the system to meet vehicle utility and performance 
requirements. We also rely on a MY 2016 Chevrolet Bolt teardown study 
for some categories of strong hybrid component costs and all other PHEV 
and BEV non-battery component costs that were not explicitly estimated 
in the EETT Roadmap report.\407\
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    \405\ For example, the MY 2020 Nissan Leaf does not have an 
active cooling system whereas Chevy Bolt uses an active cooling 
system.
    \406\ U.S. DRIVE, Electrical and Electronics Technical Team 
Roadmap (Oct. 2017), available at https://www.energy.gov/sites/prod/files/2017/11/f39/EETT%20Roadmap%2010-27-17.pdf.
    \407\ Hummel et al., UBS Evidence Lab Electric Car Teardown--
Disruption Ahead?, UBS (May 18, 2017), https://neo.ubs.com/shared/d1wkuDlEbYPjF/ (accessed: Feb. 11, 2022).
---------------------------------------------------------------------------

    We received several comments specific to strong hybrid non-battery 
electrification technology costs, in particular regarding the costs of 
eCVTs and high voltage cables.
    Tesla stated that it believes that non-battery electrification 
components that add to the total cost required to electrify a vehicle 
continue to decrease in price and are utilized across vehicle types and 
EVs are rapidly approaching price parity with ICE technology.\408\
---------------------------------------------------------------------------

    \408\ Tesla, at pp. 9-10.
---------------------------------------------------------------------------

    American Council for an Energy-Efficient Economy (ACEEE) commented 
that the cost to manufacture hybrid vehicles has fallen significantly 
in recent years, more so than NHTSA's analysis assumes.\409\ They 
stated that the incremental hybridization costs used in this rule are 
significantly higher than those assessed by the 2021 NAS Report. 
Specifically, they stated that when accounting for differing 
assumptions, the costs assumed by this rule are 20 percent higher.
---------------------------------------------------------------------------

    \409\ ACEEE, Docket No. NHTSA-2021-0053-0074, at p. 5.
---------------------------------------------------------------------------

    Toyota commented that ``NHTSA's estimated costs are significantly 
higher than Toyota's understanding based on our current products and 
experience developing and marketing hybrids systems over the last two 
decades. The estimated costs for power split hybrids used as an input 
to compliance modeling for the proposed standards are more than twice 
the cost estimates in the National Academies of Science Engineering and 
Medicine (NASEM) 2025-2035 CAFE Study.'' \410\ They added ``NHTSA's 
projected power split system costs are always significantly higher than 
P2 system costs for the same vehicle class. Toyota's experience is that 
the relative cost of the power split and P2 systems depends on vehicle 
class and operational requirements, and that for many applications 
power split and P2 system costs are much more similar than NHTSA's 
estimates suggest.'' They further added ``Once adjusted for future cost 
savings, NHTSA's 2020 hybrid costs are still typically double the NASEM 
estimates. Further, the NASEM committee estimates the incremental cost 
of midsize and crossover strong hybrids in 2020 model year to be $2,000 
to 3,000 more than a conventional vehicle which is well below NHTSA's 
2020 power split estimate,'' and ``Toyota believes the NASEM 2025 model 
year cost values are more representative of hybrid vehicle costs 
through the 2026 model year, including any accompanying engine 
developments and normalization for differences in component sizes and 
assessment methodologies. We disagree that engine upgrades should 
account for a large portion of the difference between the NASEM and 
NHTSA cost estimates. Such a significant cost difference does not exist 
for Toyota's 2.5L Dynamic Force engine used in the hybrid and non-
hybrid versions of the 2021 model year Camry referenced by NHTSA.''
---------------------------------------------------------------------------

    \410\ Toyota, at pp. 7-8.
---------------------------------------------------------------------------

    ICCT also commented on cost estimates for the power-split hybrid, 
stating that ``NHTSA has substantially overestimated the costs of full 
hybrid vehicles, as eCVT costs are far lower than the CVTL2 costs 
assumed by NHTSA; NHTSA's high-voltage cable cost is more than twice 
that of both NAS and FEV; NHTSA's battery size and cost are overstated, 
as they do not take into account power density improvements that cut 
the size and cost of strong hybrid battery packs in half; and NHTSA's 
analysis has $432 for power electronics and thermal management that 
appear to be already be included in motor/inverter/generator/regen 
brake costs for NAS and FEV.'' \411\
---------------------------------------------------------------------------

    \411\ ICCT, at p. 10.
---------------------------------------------------------------------------

    We agree with Tesla that there are many non-battery components that 
are shared across different vehicle lines, and this provides an 
opportunity for cost reductions over time from economies of scale. We 
capture cost reductions for non-battery electrification components 
through a learning curve Section III.C.6. We will continue to monitor 
trends and other information related to non-battery components.
    Based on the comments specific to hybrid vehicle non-battery 
component costs, as well as data from the 2021 NAS Report, we 
reexamined the costs for

[[Page 25823]]

non-battery components. For this final rule, we updated the cost of an 
eCVT for SHEVPS vehicles, as well as the costs of high voltage cables 
for all strong hybrid vehicles.
    Previously, we had used the cost of a CVTL2 as a proxy for the 
eCVT; for this final rule, the eCVT cost comes from data in the EPA-
sponsored teardown study of a 2011 Ford Fusion strong hybrid,\412\ and 
has been adjusted to 2018$. This cost also aligns with the eCVT cost 
presented in the 2021 NAS Report.
---------------------------------------------------------------------------

    \412\ EPA. ``Light Duty Technology Cost Analysis, Power-Split 
and P2 HEV Case Studies.' November 2011. EPA-420-R-11-015. https://nepis.epa.gov/Exe/ZyPDF.cgi/P100EG1R.PDF?Dockey=P100EG1R.PDF. 
(Accessed: Dec. 3, 2021)
---------------------------------------------------------------------------

    We also used data from the 2011 Ford Fusion teardown study to 
adjust the cost of SHEVP2 and SHEVPS high voltage cables. This 
adjustment brought our high voltage cable costs in closer proximity to 
the 2021 NAS Report high voltage cable costs. More details about the 
updated costs can be found in TSD Chapter 3.3.5.3. The resulting cost 
differences between the SHEVP2 and SHEVPS hybrid systems is mainly 
associated with the fact that our analysis considers two motors/
generators for SHEVPS and one motor/generator for SHEVP2. We discuss 
how SHEVPS and SHEVP2 are characterized in our analysis in Section 
III.D.3.a).
    As a reminder, the assumptions that we use to model and simulate 
strong hybrid vehicles in Autonomie are not specific to any one 
manufacturer's vehicle type. The engines and/or electric motors are 
sized to meet different characteristics like utility, performance, and 
other key designs to provide the highest system efficiency. These key 
characteristics and attributes are discussed in detail in Section 
III.C.4. This results in costs that may not match one specific vehicle 
teardown. However, we still believe that on average the system cost 
estimates are appropriate.
    We agree with Toyota that in some cases a vehicle's engine does not 
change when going from a conventional powertrain to hybrid powertrain, 
like Toyota's example of the 2.5L naturally aspirated engine in the 
RAV4 and RAV4 hybrid. However, the analysis fleet consists of vehicles 
with an assortment of engines that are as basic as VVT-only to as 
advanced as VCR. In some cases, a vehicle that starts with a basic 
conventional engine that adopts SHEVP2 system could also adopt a more 
advanced engine. For example, the 2022 Hyundai Tucson base engine is a 
2.5L naturally aspirated engine and its hybrid version engine is a 
downsized turbocharged engine.\413\ We allow the CAFE Model to both 
upgrade and downgrade the engine associated with SHEVP2 powertrains to 
apply the ICE engine that is most cost effective with the hybrid 
system. The details of these scenarios discussed further in Sections 
III.D.3.a) and III.D.3.c) for SHEVs.
---------------------------------------------------------------------------

    \413\ Lorio, J., ''Tested: 2022 Hyundai Tucson Hybrid Aids 
Mileage and Performance.'' Car and Driver. December 22, 2021. 
https://www.caranddriver.com/reviews/a38591574/2022-hyundai-tucson-hybrid-by-the-numbers/. (Accessed: Dec. 29, 2021)
---------------------------------------------------------------------------

    Finally, we use Autonomie and BatPaC to model the size and cost of 
batteries used in strong hybrid vehicles. More details on the sizing 
algorithm and battery costs can be found in the Argonne model 
documentation as well as in TSD Chapter 3.3.5.1.
    We received another comment from ICCT stating that ``for 2018 Mid 
Term Evaluation, non-battery BEV and PHEV costs were updated based on 
more recent teardown data from California Air Resources Board, UBS, and 
other references, but these updated costs were not used in the proposed 
NHTSA rule.'' \414\
---------------------------------------------------------------------------

    \414\ ICCT, at pp. 7-8.
---------------------------------------------------------------------------

    Although ICCT references multiple studies in their comment, they do 
not provide any specific BEV and PHEV component costs that they believe 
are estimated incorrectly in our analysis. As discussed earlier and in 
TSD Chapter 3.3.5.2, we have used the most recent public data available 
to estimate the cost of non-battery electrification components. In 
particular, we rely on the UBS teardown study that ICCT references for 
some BEV and PHEV components.
    To develop the learning curves for non-battery electrification 
components, we used cost information from Argonne's 2016 Assessment of 
Vehicle Sizing, Energy Consumption, and Cost through Large-Scale 
Simulation of Advanced Vehicle Technologies report.\415\ The report 
provided estimated cost projections from the 2010 lab year to the 2045 
lab year for individual vehicle components.416 417 We 
considered the component costs used in electrified vehicles, and 
determined the learning curve by evaluating the year over year cost 
change for those components. Argonne published a 2020 version of the 
same report that included high and low-cost estimates for many of the 
same components, that also included a learning rate.\418\ Our learning 
estimates generated using the 2016 report fall fairly well in the 
middle of these two ranges, and therefore we decided that continuing to 
apply the learning curve estimates based on the 2016 report was 
reasonable. There are many sources that we could have picked to develop 
learning curves for non-battery electrification component costs, 
however given the uncertainty surrounding the complexity of the systems 
and extrapolating costs out to MY 2050, we believe these learning 
curves provide a reasonable estimate.
---------------------------------------------------------------------------

    \415\ Moawad, Ayman, Kim, Namdoo, Shidore, Neeraj, and Rousseau, 
Aymeric. Assessment of Vehicle Sizing, Energy Consumption and Cost 
Through Large Scale Simulation of Advanced Vehicle Technologies 
(ANL/ESD-15/28). United States (2016). Available at https://www.autonomie.net/pdfs/Report%20ANL%20ESD-1528%20-%20Assessment%20of%20Vehicle%20Sizing,%20Energy%20Consumption%20and%20Cost%20through%20Large%20Scale%20Simulation%20of%20Advanced%20Vehicle%20Technologies%20-%201603.pdf, (accessed: Feb. 11, 2022).
    \416\ ANL/ESD-15/28, at p. 116.
    \417\ DOE's lab year equates to five years after a model year, 
e.g., DOE's 2010 lab year equates to MY 2015.
    \418\ Islam, E., Kim, N., Moawad, A., Rousseau, A. ``Energy 
Consumption and Cost Reduction of Future Light-Duty Vehicles through 
Advanced Vehicle Technologies: A Modeling Simulation Study Through 
2050'', Report to the U.S. Department of Energy, Contract ANL/ESD-
19/10, June 2020 https://www.autonomie.net/pdfs/ANL%20-%20Islam%20-%202020%20-%20Energy%20Consumption%20and%20Cost%20Reduction%20of%20Future%20Light-Duty%20Vehicles%20through%20Advanced%20Vehicle%20Technologies%20A%20Modeling%20Simulation%20Study%20Through%202050.pdf, (accessed: Feb. 
11, 2022).
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    Table III-19 shows an example of how the non-battery 
electrification component costs are computed for the Medium Car and 
Medium SUV non-performance vehicle classes for the final rule analysis.
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[[Page 25824]]

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[[Page 25825]]


    TSD Chapter 3.3.5.2 contains more information about the non-battery 
electrification components relevant to each specific electrification 
technology and the sources used to develop these costs.
    Finally, the cost of electrifying a vehicle depends on the other 
powertrain components that must be added or removed from a vehicle with 
the addition of the electrification technology. Table III-20 below 
provides a breakdown of each electrification component included for 
each electrification technology type, as well as where to find the 
costs in each CAFE Model input file.
[GRAPHIC] [TIFF OMITTED] TR02MY22.084

    The following example in Table III-21 shows how the costs are 
computed for a vehicle that progresses from a lower level to a higher 
level of electrified powertrain. The table shows the components that 
are removed and the components that are added as a GMC Acadia 
progresses from a MY 2024 vehicle with only SS12V electrification 
technology to a BEV300 in MY 2025.\420\ The total cost in MY 2025 is a 
net cost addition to the vehicle. The same methodology could be used 
for any other technology advancement in the electric technology tree 
path. For the final rule analysis, the cost of the SS12V battery was 
updated as discussed earlier, and this example has been updated to show 
the new cost.
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    \419\ As discussed in section 3.3.5.3 of the TSD, we no longer 
use the BatPaC SS12V battery cost and use a cheaper AGM battery 
instead, and the updated cost is reflected in the battery_costs.csv 
file.
    \420\ Vehicle code 11001008 in the Vehicle Report output file.

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[[Page 25826]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.085

    TSD Chapter 3.3.5.3 includes more details about how the costs 
associated with the internal combustion engine, transmission, electric 
machine(s), non-battery electrification components, and battery pack 
for each electrified technology type are combined to create a full 
electrification system cost.
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    \421\ Please note that in this calculation the CAFE Model 
accounts for the air conditioning and off-cycle technologies (g/
mile) applied to each vehicle model. The cost for the AC/OC 
adjustments are located in the CAFE Model Scenarios file. The air 
conditioning and off-cycle cost values are discussed further in TSD 
Chapter 3.8.
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Mass Reduction
    Mass reduction is a relatively cost-effective means of improving 
fuel economy, and vehicle manufacturers are expected to apply various 
mass reduction technologies to meet fuel economy standards. Reducing 
vehicle mass is accomplished through several different techniques, such 
as modifying and optimizing vehicle component and system designs, part 
consolidation, and adopting lighter weight materials (advanced high 
strength steel, aluminum, magnesium, and plastics including carbon 
fiber reinforced plastics).
    The cost for mass reduction depends on the type and amount of 
materials used, the manufacturing and assembly processes required, and 
the degree to which changes to plants and new manufacturing and 
assembly equipment is needed. In addition, manufacturers may develop 
expertise and invest in certain mass reduction strategies that may 
affect the approaches for mass reduction they consider and the 
associated costs. Manufacturers may also consider vehicle attributes 
like noise-vibration-harshness (NVH), ride quality, handling, crash 
safety and various acceleration metrics when considering how to 
implement any mass reduction strategy. These are considered to be 
aspects of performance, and for this analysis any identified pathways 
to compliance are intended to maintain performance neutrality. 
Therefore, mass reduction via elimination of, for example, luxury items 
such as climate control, or interior vanity mirrors, leather padding, 
etc., is not considered in the mass reduction pathways for this 
analysis.
    The automotive industry uses different metrics to measure vehicle 
weight. Some commonly used measurements are vehicle curb weight,\422\ 
gross vehicle weight (GVW),\423\ gross vehicle weight rating 
(GVWR),\424\ gross combined weight (GCVW),\425\ and equivalent test 
weight (ETW),\426\ among others. The vehicle curb weight is the most 
commonly used

[[Page 25827]]

measurement when comparing vehicles. A vehicle's curb weight is the 
weight of the vehicle including fluids, but without a driver, 
passengers, and cargo. A vehicle's glider weight, which is vehicle curb 
weight minus the powertrain weight, is used to track the potential 
opportunities for weight reduction not including the powertrain. A 
glider's subsystems may consist of the vehicle body, chassis, interior, 
steering, electrical accessory, brake, and wheels systems. The 
percentage of weight assigned to the glider will remain constant for 
any given rule but may change overall. For example, as electric 
powertrains including motors, batteries, inverters, etc. become a 
greater percent of the fleet, glider weight percentage will change 
compared to earlier fleets with higher dominance of ICE powertrains.
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    \422\ This is the weight of the vehicle with all fluids and 
components but without the drivers, passengers, and cargo.
    \423\ This weight includes all cargo, extra added equipment, and 
passengers aboard.
    \424\ This is the maximum total weight of the vehicle, 
passengers, and cargo to avoid damaging the vehicle or compromising 
safety.
    \425\ This weight includes the vehicle and a trailer attached to 
the vehicle, if used.
    \426\ For the EPA two-cycle regulatory test on a dynamometer, an 
additional weight of 300 lbs. is added to the vehicle curb weight. 
This additional 300 lbs. represents the weight of the driver, 
passenger, and luggage. Depending on the final test weight of the 
vehicle (vehicle curb weight plus 300 lbs.), a test weight category 
is identified using the table published by EPA according to 40 CFR 
1066.805. This test weight category is called ``Equivalent Test 
Weight'' (ETW).
---------------------------------------------------------------------------

    For this analysis, NHTSA considers six levels of mass reduction 
technology that include increasing amounts of advanced materials and 
mass reduction techniques applied to the glider. NHTSA accounts for 
changes in mass associated with powertrain changes separately. The 
following sections discuss the assumptions for the six mass reduction 
technology levels, the process used to assign initial analysis fleet 
mass reduction assignments, the effectiveness for applying mass 
reduction technology, and mass reduction costs.
(a) Mass Reduction in the CAFE Model
    The CAFE Model considers six levels of mass reduction technologies 
that manufacturers could use to comply with CAFE standards. The 
magnitude of mass reduction in percent for each of these levels is 
shown in Table III-22 for mass reductions for light trucks, passenger 
cars and for gliders.
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[GRAPHIC] [TIFF OMITTED] TR02MY22.086

    For this analysis, NHTSA considers mass reduction opportunities 
from the glider subsystems of a vehicle first, and then consider 
associated opportunities to downsize the powertrain, which are 
accounted for separately.\427\ As explained below, in the Autonomie 
simulations, the glider system includes both primary and secondary 
systems from which a percentage of mass is reduced for different glider 
weight reduction levels; specifically, the glider includes the body, 
chassis, interior, electrical accessories, steering, brakes and wheels. 
In this analysis, NHTSA assumes the glider share is 71 percent of 
vehicle curb weight. The Autonomie model sizes the powertrain based on 
the glider weight and the mass of some of the powertrain components in 
an iterative process. The mass of the powertrain depends on the 
powertrain size. Therefore, the weight of the glider impacts the weight 
of the powertrain.\428\
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    \427\ When the mass of the vehicle is reduced by an appropriate 
amount, the engine may be downsized to maintain performance. See 
Section III.C.4 for more details.
    \428\ Since powertrains are sized based on the glider weight for 
the analysis, glider weight reduction beyond a threshold amount 
during a redesign will lead to re-sizing of the powertrain. For the 
analysis, the glider was used as a base for the application of any 
type of powertrain. A conventional powertrain consists of an engine, 
transmission, exhaust system, fuel tank, radiator, and associated 
components. A hybrid powertrain also includes a battery pack, 
electric motor(s), generator, high voltage wiring harness, high 
voltage connectors, inverter, battery management system(s), battery 
pack thermal system, and electric motor thermal system.
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    NHTSA uses glider weight to apply non-powertrain mass reduction 
technology in the CAFE Model and use Autonomie simulations to determine 
the size of the powertrain and corresponding powertrain weight for the 
respective glider weight. The combination of glider weight (after mass 
reduction) and re-sized powertrain weight equal the vehicle curb 
weight.
    While there are a range of specific mass reduction technologies 
that may be applied to vehicles to achieve each of the six mass 
reduction levels, there are some general trends that are helpful to 
illustrate some of the more widely used approaches. Typically, MR0 
reflects vehicles with widespread use of mild steel structures and body 
panels, and very little or no use of high strength steel or aluminum. 
MR0 reflects materials applied to average vehicles in the MY 2008 
timeframe. MR1-MR3 can be achieved with a steel body structure. In 
going from MR1 to MR3, expect that mild steel to be replaced by high 
strength and then advanced high strength steels. In going from MR3 to 
MR4 aluminum is required. This will start at using aluminum closure 
panels and then to get to MR4 the vehicle's primary structure will need 
to be mostly made from aluminum. In the vast majority of cases, carbon 
fiber technology is necessary to reach MR5, perhaps with a mix of some 
aluminum. MR6 requires nearly every primary structural component of the 
vehicle, like body structure and closure panels, be made from carbon 
fiber. There may be some use of aluminum in the suspension components. 
TSD Chapter 3.4 includes more discussion of the challenges involved 
with adopting large amounts of carbon fiber in the vehicle fleet.
    Arconic Corporation commented that ``the NPRM makes specific 
references to aluminum, which are accurate and consistent with 
practical automotive industry experience and future program 
expectations. Mass reduction utilizing advanced materials like aluminum 
is recognized as one of the technology options to achieve safe, fuel-
efficient

[[Page 25828]]

and cost-effective vehicles that meet or exceed consumer demands.'' 
\429\
---------------------------------------------------------------------------

    \429\ Arconic, Docket No. NHTSA-2021-0053-1560, at p. 1.
---------------------------------------------------------------------------

    The American Chemistry Council (ACC) commented on the agency's 
statements about vehicle light-weighting in several respects, but 
particularly disagreeing with our analysis of mass reduction technology 
levels.\430\ Specifically, ACC stated that ``as written, the NPRM could 
be construed as NHTSA discouraging the use of carbon fiber composites 
as well as an endorsement for utilizing steel and aluminum-based 
designs to achieve mass reduction.'' \431\ ACC also provided updated 
data on carbon fiber costs from DOE ORNL studies that they asked the 
agency to consider in the final rule.
---------------------------------------------------------------------------

    \430\ ACC, Docket No. NHTSA-2021-0053-1564, at p. 5.
    \431\ Id.
---------------------------------------------------------------------------

    To be clear, our analysis does not endorse any specific technology 
solution or pathway over another. However, our analysis does need to 
accurately reflect trends that are developing in the real-world 
automotive marketplace and potential fuel economy improving technology 
to appropriately estimate the costs and benefits of more stringent 
standards. It also does need to consider what could reasonably occur in 
the future of the market given automotive development timelines for 
implementing new technology into real passenger vehicles. Precursor 
materials technologies that potentially offer game-changing dry carbon 
fiber cost reductions are still under development and therefore we 
would not expect them to end up in a production vehicle program beyond 
what our adoption features allow in the rulemaking timeframe.
    In addition, while carbon fiber composites are considered a 
potential pathway to compliance, wholly carbon fiber primary structure, 
which is what is necessary to reduce mass enough to achieve the highest 
mass reduction levels in the analysis, simply have not materialized. 
While the number and mass of discrete applications of carbon fiber has 
expanded the fleet--for example, adding carbon fiber decorative 
interior trim pieces or carbon fiber roof panels to medium and high-end 
luxury cars--these discrete applications do not contribute to 
substantial mass reduction required to meet the highest levels of mass 
reduction in this analysis. The price to apply carbon fiber technology 
to produce wholly carbon fiber composite primary structure with the 
precursor material available today has not yet dropped to a price that 
would make it cost-effective for the industry to apply to meet more 
stringent fuel economy standards. This fact is corroborated by the 2021 
NAS Report, which provided updated data for carbon fiber composite 
costs that show the technology has not yet dropped to a price that 
would make it cost-effective for the industry to apply to meet more 
stringent fuel economy standards. This is discussed further in Section 
III.D.4.c) below. We also appreciate ACC's inclusion of the DOE ORNL 
technoeconomic analysis on carbon fiber and discuss the study further 
in Section III.D.4.e) below.
    As discussed further below, the cost studies used to generate the 
cost curves assume mass can be reduced in levels that require utilizing 
different materials and modifying different components, in a specific 
order. NHTSA's mass reduction levels are loosely based on what 
materials and component modifications are required for each percent of 
mass reduction, based on the conclusions of those studies.
(b) Mass Reduction Analysis Fleet Assignments
    To assign baseline mass reduction levels (MR0 through MR6) for 
vehicles in the MY 2020 analysis fleet, NHTSA uses previously developed 
regression models to estimate curb weight for each vehicle based on 
observable vehicle attributes. NHTSA uses these models to establish a 
baseline (MR0) curb weight for each vehicle, and then determines the 
existing mass reduction technology level by finding the difference 
between the vehicles actual curb weight to the estimated regression-
based value, and comparing the difference to the values in Table III-
22. NHTSA originally developed the mass reduction regression models 
using MY 2015 fleet data; for this analysis, NHTSA used MY 2016 and 
2017 analysis fleet data to update the models.
    NHTSA believes the regression methodology is a technically sound 
approach for estimating mass reduction levels in the analysis fleet. 
For a detailed discussion about the regression development and use 
please see TSD Chapter 3.4.2.
    Manufacturers generally apply mass reduction technology at a 
vehicle platform level (i.e., using the same components across multiple 
vehicle models that share a common platform) to leverage economies of 
scale and to manage component and manufacturing complexity, so 
conducting the regression analysis at the platform level leads to more 
accurate estimates for the real-world vehicle platform mass reduction 
levels. The platform approach also addresses the impact of potential 
weight variations that might exist for specific vehicle models, as all 
the individual vehicle models are aggregated into the platform group, 
and are effectively averaged using sales weighting, which minimizes the 
impact of any outlier vehicle configurations.
(c) Mass Reduction Adoption Features
    Given the degree of commonality among the vehicle models built on a 
single platform, manufacturers do not have complete freedom to apply 
unique mass reduction technologies to each vehicle model that shares 
the platform. While some technologies (e.g., low rolling resistance 
tires) are very nearly ``bolt-on'' technologies, others involve 
substantial changes to the structure and design of the vehicle, and 
therefore affect all vehicle models that share a platform. In most 
cases, mass reduction technologies are applied to platform level 
components and therefore the same design and components are used on all 
vehicle models that share the platform.
    Each vehicle in the analysis fleet is associated with a specific 
platform. Similar to the application of engine and transmission 
technologies, the CAFE Model defines a platform ``leader'' as the 
vehicle variant of a given platform that has the highest level of 
observed mass reduction present in the analysis fleet. If there is a 
tie, the CAFE Model begins mass reduction technology on the vehicle 
with the highest sales volume in MY 2020. If there remains a tie, the 
model begins by choosing the vehicle with the highest manufacturer 
suggested retail price (MSRP) in MY 2020. As the model applies 
technologies, it effectively levels up all variants on a platform to 
the highest level of mass reduction technology on the platform. For 
example, if the platform leader model is already at MR3 in MY 2020, and 
a ``follower'' platform model starts at MR0 in MY 2020, the follower 
platform model will get MR3 at its next redesign, assuming no further 
mass reduction technology is applied to the leader model before the 
follower model's next redesign.
    In addition to the platform-sharing logic employed in the model, 
NHTSA applies phase-in caps for MR5 and MR6 (15 percent and 20 percent 
reduction of a vehicle's curb weight, respectively), based on the 
current state of mass reduction technology. As discussed above, for 
nearly every type of vehicle, a manufacturer's strategy to achieve mass 
reduction consistent with MR5 and MR6 will require extensive use of 
carbon fiber technologies in the vehicles' primary structures. For 
example, one way of using carbon fiber

[[Page 25829]]

technology to achieve MR6 is to develop a carbon fiber monocoque 
structure.\432\
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    \432\ A monocoque structure is one where the outer most skins 
support the primary loads of the vehicle. For example, they do not 
have separate non-load bearing aero surfaces. All of the vehicle's 
primary loads are supported by the monocoque. In the most 
structurally efficient automotive versions, the monocoque is made 
from multiple well-consolidated plies of carbon fiber infused with 
resin. Such structures would likely require a few hundred kilograms 
of carbon fiber for most passenger vehicles.
---------------------------------------------------------------------------

    High CAFE stringency levels will push the CAFE Model to select 
compliance pathways that include these higher levels of mass reduction 
for vehicles produced in the mid and high hundreds of thousands of 
vehicles per year. NHTSA assumes, based on material costs and 
availability, that achieving MR6 levels of mass reduction will cost 
over ten thousand dollars per car. The cost of achieving MR6 in the 
CAFE Model is consistent with our understanding of the real-world costs 
to produce a carbon fiber monocoque structure.\433\ Therefore, 
application of such technology to high volume vehicles is unrealistic 
today and will, with certainty, remain so for the next several years.
---------------------------------------------------------------------------

    \433\ In simplest terms, the cost to produce a component made 
from carbon fiber composite materials is the sum of the cost of dry 
carbon fiber, resin, amortized tooling, direct labor, and factor 
overhead. A BMW i3 monocoque contains between 100 and 150 kg of 
carbon fiber composite material depending on source (see article on 
https://www.marklines.com/en/report_all/rep1419_201506, (accessed: 
Feb. 11, 2022). ``Recent Trends in CFRP Development: Increased Usage 
in European Vehicles, July 2015, and see book: ``Lightweight and 
Sustainable Materials for Automotive Applications,'' Chapter 8, 
2017, CRC Press). Assuming a very typical 60/40 mix of carbon fiber 
to resin, and assuming the price of dry carbon fiber is $20-$40 per 
kilogram and the price of resin is $5-$10 per kilogram, the cost of 
direct materials alone in an i3's carbon fiber monocoque is already 
approaching $4,200. Adding direct labor, factory overhead (which 
scales with cycle time) and the amortized cost of tooling can easily 
bring the cost for components made from composite materials in the 
i3 to a higher level. Note that the BMW i3 is on the small end of 
the size spectrum in the 2020 fleet and these costs would increase 
faster than proportional to vehicle footprint because of the mass 
compounding effect. Therefore, the cost of a monocoque for a large 
sedan (the current BMW 7-series has a foot-print that is 30 percent 
higher than that of the i3) could easily cost over ten thousand 
dollars.
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    The CAFE Model applies technologies to vehicles that provide a 
cost-effective pathway to compliance. In some cases, the direct 
manufacturing cost, indirect costs, and applied learning factor do not 
capture all the considerations that make a technology more or less 
costly for manufacturers to apply in the real world. For example, there 
are direct labor, R&D overhead, manufacturing overhead and tooling 
costs. Due to the complexities of manufacturing composite components, 
many of these are more expensive for manufacturing carbon fiber 
components than for manufacturing metal components. Next, as of yet, no 
one has found an effective way to recycle carbon fiber composites, 
which means there saving money through re-using material is a 
challenge. In addition, R&D overhead will also increase because of the 
knowledge base for composite materials in automotive applications is 
simply not as deep as it is for steel and aluminum.
    ACC commented on this characterization of potential costs for 
carbon fiber technology, using it as an example of where, as discussed 
above, they believed the NPRM could be construed as NHTSA discouraging 
the use of carbon fiber composites.\434\ However, the views stated in 
the previous paragraph explaining why carbon fiber technologies are not 
widespread are not indicative of NHTSA discouraging the use of or 
further development carbon fiber technologies. Rather, they reflect 
what has actually occurred in the automotive market and views shared by 
others. In fact, BMW decided that a mixed materials solution is a more 
financially effective way to reduce mass and will not build a wholly 
carbon fiber composite successor to the i3.\435\ \436\ \437\ \438\ 
\439\
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    \434\ ACC, at p. 5.
    \435\ Brosius, Dale, ``Carbon Fiber in Automotive: At a Dead 
End?'' Composites World, December 20, 2021.
    \436\ Sloan, Jeff, ``AutoComposites and the Myth of $5/lb. 
Carbon Fiber,'' Composites World, February 24, 2017.
    \437\ Taylor, Edward and Sage, Alexandria, ``BMW Limits 
Lightweight Carbon Fibre Use to Juice Profits,'' Reuters, October 
2016.
    \438\ Bunkley, Nick, ``BMW Limits Carbon Fiber Use to Protect 
Profits,'' Autonews Gasgoo, October 31, 2016.
    \439\ Schlosser, Andreas, Coskun Baban, Samith, and Siedel 
Phillipp, ``After the Hype: Where is the Carbon Car?'' Arthur D. 
Little, January 2019.
---------------------------------------------------------------------------

    Indeed, the intrinsic anisotropic mechanical properties of 
composite materials compared to the isotropic properties of metals 
complicates the design process. Added testing of these novel 
anisotropic structures and their associated costs will be necessary for 
decades. Adding up all these contributing costs, the price tag for a 
passenger car or truck monocoque would likely be multiple tens of 
thousands of dollars per vehicle. This would be significantly more 
expensive than transitioning to hybrid or fully electric powertrains 
and potentially less effective at achieving CAFE compliance.
    In addition, the CAFE Model does not currently enable direct 
accounting for the stranded capital associated with a transition away 
from stamped sheet metal construction to molded composite materials 
construction. For decades, or in some cases half-centuries, car 
manufacturers have invested billions of dollars in capital for 
equipment that supports the industry's sheet metal forming paradigm. A 
paradigm change to tooling and equipment developed to support molding 
carbon fiber panels and monocoque chassis structures would leave that 
capital stranded in equipment that would be rendered obsolete. Doing 
this is possible, but the financial ramifications are not currently 
reflected in the CAFE Model for MR5 and MR6 compliance pathways.
    Financial matters aside, carbon fiber technology and how it is best 
used to produce light-weight primary automotive structures is far from 
mature. In fact, no car company knows for sure the best way to use 
carbon fiber to make a passenger car's primary structure. Using this 
technology in passenger cars is far more complex than using it in 
racing cars where passenger egress, longevity, corrosion protection, 
crash protection, etc. are lower on the list of priorities for the 
design team. BMW may be the one manufacturer most able accurately opine 
on the viability of carbon fiber technology for primary structure on 
high-volume passenger cars, and even it decided to use a mixed 
materials solution for their next generation of EVs (the iX and i4) 
after the i3, thus eschewing a wholly carbon fiber monocoque structure.
    Another factor limiting the application of carbon fiber technology 
to mass volume passenger vehicles is indeed the availability of dry 
carbon fibers. There is high global demand from a variety of industries 
for a limited supply of carbon fibers. Aerospace, military/defense, and 
industrial applications demand most of the carbon fiber currently 
produced. Today, only roughly 10 percent of the global dry fiber supply 
goes to the automotive industry, which translates to the global supply 
base only being able to support approximately 80,000 cars.\440\
---------------------------------------------------------------------------

    \440\ J. Sloan, ``Carbon Fiber Suppliers Gear up for Next 
Generation Growth,'' compositesworld.com, February 11, 2020.
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    To account for these cost and production considerations, including 
the limited global supply of dry carbon fiber, NHTSA applied phase-in 
caps that limited the number of vehicles that can achieve MR5 and M6 
levels of mass reduction in the CAFE Model. NHTSA applied a phase-in 
cap for MR5 level technology so that 75 percent of the vehicle fleet 
starting in 2020 could employ the technology, and the technology could 
be applied to 100

[[Page 25830]]

percent of the fleet by MY 2022. NHTSA also applied a phase-in cap for 
MR6 technology so that five percent of the vehicle fleet starting in MY 
2020 could employ the technology, and the technology could be applied 
to 10 percent of the fleet by MY 2025.
    To develop these phase-in caps, NHTSA chose a 40,000-unit threshold 
for both MR5 and MR6 technology (80,000 units total), because it 
roughly reflects the number of BMW i3 cars produced per year 
worldwide.\441\ As discussed above, the BMW i3 is the only high-volume 
vehicle currently produced with a primary structure mostly made from 
carbon fiber (except the skateboard, which is aluminum). Because mass 
reduction is applied at the platform level (meaning that every car of a 
given platform would receive the technology, not just special low 
volume versions of that platform), only platforms representing 40,000 
vehicles or less are eligible to apply MR5 and MR6 toward CAFE 
compliance. Platforms representing high volume sales, like a Chevrolet 
Traverse, for example, where hundreds of thousands are sold per year, 
are therefore blocked from access to MR5 and MR6 technology. There are 
no phase in caps for mass reduction levels MR1, MR2, MR3 or MR4.
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    \441\ However, even this number is optimistic because only a 
small fraction of i3 cars are sold in the U.S. market, and combining 
MR5 and MR6 allocations equates to 80k vehicles, not 40k. 
Regardless, if the auto industry ever seriously committed to using 
carbon fiber in mainstream high-volume vehicles, competition with 
the other industries would rapidly result in a dramatic increase in 
price for dry fiber. This would further stymie the deployment of 
this technology in the automotive industry.
---------------------------------------------------------------------------

    In addition to determining that the caps were reasonable based on 
current global carbon fiber production, NHTSA determined that the MR5 
phase-in cap is consistent with the NHTSA light-weighting study that 
found that a 15 percent curb weight reduction for the fleet is possible 
within the rulemaking timeframe.\442\
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    \442\ Singh, Harry. (2012, August). Mass Reduction for Light-
Duty Vehicles for Model Years 2017-2025. (Report No. NHTSA HS 811 
666). Program Reference: NHTSA Contract DTNH22-11-C-00193. Contract 
Prime: Electricore, Inc, at 356, Figure 397.
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    These phase-in caps appropriately function as a proxy for the cost 
and complexity currently required (and that likely will continue to be 
required until manufacturing processes evolve) to produce carbon fiber 
components. Again, MR6 technology in this analysis reflects the use of 
a significant share of carbon fiber content, as seen through the BMW i3 
and Alfa Romeo 4c as discussed above.
    Given the uncertainty and fluid nature of knowledge around higher 
levels of mass reduction technology, we welcomed comments on how to 
most cost effectively use carbon fiber technology in high-volume 
passenger cars. We also stated that financial implementation estimates 
for this technology are equally as welcome.
    NHTSA received comment involving the ability of auto industry 
suppliers to procure dry carbon fiber materials in quantities 
consistent with supplying high-volume platforms. Commenters suggested 
that the industry that produces dry carbon fiber could readily ramp-up 
fiber production at a rate fast enough to accommodate the demands of 
multiple high volume automotive platforms such as the Chevrolet 
Traverse or Volvo XC90, all within the time frame in which this rule 
applies.\443\ Commenters did not mention specific achievable production 
volumes or detail a production volume trajectory as a function of time. 
In addition, ACC commented that it was misleading for NHTSA to state 
that only roughly 10 percent of the global dry fiber supply goes to the 
automotive industry, that 10 percent would only be enough for roughly 
70,000 vehicles and that producers of dry carbon fiber would not scale 
their output to support high volume production automotive programs. 
Based on available literature, engineering judgment and the composition 
of the current fleet, we continue to believe that MR5 or MR6 will not 
be achievable for large volume platforms in the rulemaking 
timeframe.\444\ Sources in the literature indicate that if only three 
mass volume auto makers used 8-9 kg of carbon fiber (which would not 
meet MR5 or MR6 levels) in each of their vehicles, the carbon fiber 
industry would need to double its output. Using only 8-9 kg of carbon 
fiber per vehicle will never enable mass reduction consistent with MR5 
or MR6. The amount of carbon fiber required for this would require at 
least an order of magnitude more than 8-9 kg. Fiber producers cannot 
double their output in the rulemaking timeframe let alone increase it 
by twenty-fold within the same timeframe.\445\
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    \443\ ACC, at p. 5.
    \444\ Bill, Bregar, ``Prices Keep Carbon Fiber from Mass 
Adoption,'' Plastic News, August 5, 2014.
    \445\ ``How to Turn Pitch into Carbon Fiber for Automotive 
Applications,'' https://www.azom.com/article.aspx?ArticleID=19200 
(accessed: Feb. 11, 2022).
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    In addition, since publication of the NPRM, BMW stopped producing 
its i3 vehicle, the only mass-volume vehicle built with nearly full 
carbon fiber construction. The i3 was replaced with a vehicle 
containing only a small fraction of the amount carbon fiber composite 
materials as its predecessor. BMW decided a multi-materials solution 
was more cost effective.\446\ \447\ Currently, the few vehicles that 
continue to use carbon fiber do so in only small fractions or they are 
not mass-market vehicles.\448\ We are not currently aware of any high-
volume cars planned for the near future with nearly full carbon fiber 
construction. If that remains the case, there is no incentive to 
dramatically boost production of dry carbon fiber to support the auto 
industry.
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    \446\ Taylor, Edward and Sage, Alexandria, ``BMW Limits 
Lightweight Carbon Fibre Use to Juice Profits,'' Reuters, October 
2016.
    \447\ Bunkley, Nick, ``BMW Limits Carbon Fiber Use to Protect 
Profits,'' Autonews Gasgoo, October 31, 2016.
    \448\ See, e.g., the BMW iX and i4, and some Lamborghini 
vehicles.
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    There may be some emerging methods to provide a lower cost pathway 
to MR6, like selectively applying high-modulus carbon fiber tapes to 
lower cost structures primarily made from fiberglass composites.\449\ 
Although these methods may reduce the cost of direct materials, the do 
not alleviate slow production cycle times and the costs associated with 
them.
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    \449\ By strategic application of carbon fiber in areas of 
highest stress in a given structure, it is often possible to achieve 
sufficient structural performance at a lower cost. However, this 
strategy does not solve the aforementioned issues surrounding the 
high costs associated with the relatively long production cycle 
times of composite materials composites.
---------------------------------------------------------------------------

    The analysis herein uses the 2020 fleet to evaluate the level of 
mass reduction (MR0-MR6) achieved by individual vehicle platforms. In 
total, a little more than 25,000 vehicles of a fleet containing roughly 
16 million vehicles achieved MR5 and MR6. It is expected that achieving 
MR5 will require at least some carbon fiber technology and achieving 
MR6 will require nearly full carbon fiber construction. Of the 25,000 
vehicles, about 5,000 vehicles have nearly full carbon fiber 
construction. These vehicles are produced by BMW (the i3 and i8), the 
VW Group (Bugatti and Lamborghini) and few others that are not big 
enough to be included in the 2020 fleet. Noteworthy is that there are 
service vans in the fleet that achieve the highest MR levels, but only 
for the reason that they have large footprints (wheelbase times average 
track) and do not include interior trim and luxury items. Given this 
small representation of vehicles with nearly full carbon fiber 
construction, and current trends in

[[Page 25831]]

automotive carbon fiber application, discussed above, we do not believe 
that multiple large-volume platforms would be able to reach MR6 in the 
rulemaking timeframe.
    We will continue to monitor carbon fiber investments from the 
automotive sector, whether for full carbon fiber construction bodies or 
carbon fiber parts, and on the implications of such investments for 
automotive application carbon fiber demand, capacity, and supply. Based 
on these observations, however, we declined to update any of our mass 
reduction adoption features for this final rule.
(d) Mass Reduction Effectiveness Modeling
    As discussed in Section III.C.4, Argonne developed a database of 
vehicle attributes and characteristics for each vehicle technology 
class that included over 100 different attributes. Some examples from 
these 100 attributes include frontal area, drag coefficient, fuel tank 
weight, transmission housing weight, transmission clutch weight, hybrid 
vehicle components, and weights for components that comprise engines 
and electric machines, tire rolling resistance, transmission gear 
ratios, and final drive ratio. Argonne used these attributes to 
``build'' each vehicle that it used for the effectiveness modeling and 
simulation. Important for precisely estimating the effectiveness of 
different levels of mass reduction is an accurate list of initial 
component weights that make up each vehicle subsystem, from which 
Autonomie considered potential mass reduction opportunities.
    As stated above, NHTSA uses glider weight, or the vehicle curb 
weight minus the powertrain weight, to determine the potential 
opportunities for weight reduction irrespective of the type of 
powertrain.\450\ This is because weight reduction can vary depending on 
the type of powertrain. For example, an 8-speed transmission may weigh 
more than a 6-speed transmission, and a basic engine without variable 
valve timing may weigh more than an advanced engine with variable valve 
timing. Autonomie simulations account for the weight of the powertrain 
system inherently as part of the analysis, and the powertrain mass 
accounting is separate from the application and accounting for mass 
reduction technology levels that are applied to the glider in the 
simulations. Similarly, Autonomie also accounts for battery and motor 
mass used in hybrid and electric vehicles separately. This secondary 
mass reduction is discussed further below.
---------------------------------------------------------------------------

    \450\ Depending on the powertrain combination, the total curb 
weight of the vehicle includes glider, engine, transmission and/or 
battery pack and motor(s).
---------------------------------------------------------------------------

    Accordingly, in the Autonomie simulations, mass reduction 
technology is simulated as a percentage of mass removed from the 
specific subsystems that make up the glider, as defined for that set of 
simulations (including the non-powertrain secondary mass systems such 
as the brake system). For the purposes of determining a reasonable 
percentage for the glider, NHTSA in consultation with Argonne examined 
glider weight data available in the A2Mac1 database,\451\ in addition 
to the NHTSA MY 2014 Chevrolet Silverado light-weighting study 
(discussed further below). Based on these studies, NHTSA assumes that 
the glider weight comprised 71 percent of the vehicle curb weight. TSD 
Chapter 3.4.4 includes a detailed breakdown of the components that 
NHTSA considered to arrive at the conclusion that a glider, on average, 
represents 71 percent of a vehicle's curb weight.
---------------------------------------------------------------------------

    \451\ A2Mac1: Automotive Benchmarking, https://a2mac1.com.
---------------------------------------------------------------------------

    Any mass reduction due to powertrain improvements is accounted for 
separately from glider mass reduction. Autonomie considers several 
components for powertrain mass reduction, including engine downsizing, 
and transmission, fuel tank, exhaust systems, and cooling system light-
weighting.
    The 2015 NAS Report suggested an engine downsizing opportunity 
exists when the glider mass is light-weighted by at least 10 percent. 
The 2015 NAS Report also suggested that 10 percent light-weighting of 
the glider mass alone would boost fuel economy by 3 percent and any 
engine downsizing following the 10 percent glider mass reduction would 
provide an additional 3 percent increase in fuel economy.\452\ The 2011 
Honda Accord and 2014 Chevrolet Silverado light-weighting studies 
applied engine downsizing (for some vehicle types but not all) when the 
glider weight was reduced by 10 percent. Accordingly, this analysis 
limited engine resizing to several specific incremental technology 
steps as in the 2018 NPRM and 2020 final rule; important for this 
discussion, engines in the analysis were only resized when mass 
reduction of 10 percent or greater was applied to the glider mass, or 
when one powertrain architecture was replaced with another 
architecture.
---------------------------------------------------------------------------

    \452\ 2015 NAS Report. National Research Council. 2015. Cost, 
Effectiveness, and Deployment of Fuel Economy Technologies for 
Light-Duty Vehicles. Washington, DC--The National Academies Press. 
https://doi.org/10.17226/21744, (accessed: Feb. 11, 2022).
---------------------------------------------------------------------------

    Specifically, we allow engine resizing upon adoption of 7.1, 10.7, 
14.2, and 20 percent curb weight reduction, but not at 3.6 and 5.3 
percent.\453\ Resizing is also allowed upon changes in powertrain type 
or the inheritance of a powertrain from another vehicle in the same 
platform. The increments of these higher levels of mass reduction, or 
complete powertrain changes, more appropriately match the typical 
engine displacement increments that are available in a manufacturer's 
engine portfolio.
---------------------------------------------------------------------------

    \453\ These curb weight reductions equate to the following 
levels of mass reduction as defined in the analysis: MR3, MR4, MR5 
and MR6, but not MR1 and MR2; additional discussion of engine 
resizing for mass reduction can be found in Section III.C.4 and TSD 
Chapter 2.4.
---------------------------------------------------------------------------

    Argonne performed a regression analysis of engine peak power versus 
weight for a previous analysis based on attribute data taken from the 
A2Mac1 benchmarking database, to account for the difference in weight 
for different engine types. For example, to account for weight of 
different engine sizes like 4-cylinder versus 8-cylinder, Argonne 
developed a relationship curve between peak power and engine weight 
based on the A2Mac1 benchmarking data. We use this relationship to 
estimate mass for all engine types regardless of technology type (e.g., 
variable valve lift and direct injection). NHTSA applies weight 
associated with changes in engine technology by using this linear 
relationship between engine power and engine weight from the A2Mac1 
benchmarking database. When a vehicle in the analysis fleet with an 8-
cylinder engine adopts a more fuel-efficient 6-cylinder engine, the 
total vehicle weight reflects the updated engine weight with two less 
cylinders based on the peak power versus engine weight relationship.
    When Autonomie selects a powertrain combination for a light-
weighted glider, the engine and transmission are selected such that 
there is no degradation in the performance of the vehicle relative to 
the baseline vehicle. The resulting curb weight is a combination of the 
mass reduced glider with the resized and potentially new engine and 
transmission. This methodology also helps in accurately accounting for 
the cost of the glider and cost of the engine and transmission in the 
CAFE Model.
    Secondary mass reduction is possible from some of the components in 
the glider after mass reduction is applied to the primary subsystems 
(body, chassis, and interior). Similarly, engine

[[Page 25832]]

downsizing and powertrain secondary mass reduction is possible after 
certain level of mass reduction is incorporated in the glider. For the 
analysis, the agencies include both primary mass reduction, and when 
there is sufficient primary mass reduction, additional secondary mass 
reduction. The Autonomie simulations account for the aggregate of both 
primary and secondary glider mass reduction, and separately for 
powertrain mass.
    Note that secondary mass reduction is integrated into the mass 
reduction cost curves. Specifically, the NHTSA studies, upon which the 
cost curves depend, first generated costs for light-weighting the 
vehicle body, chassis, interior, and other primary components, and then 
calculated costs for light-weighting secondary components. Accordingly, 
the cost curves reflect that, for example, secondary mass reduction for 
the brake system is only applied after there has been sufficient 
primary mass reduction to allow the smaller brake system to provide 
safe braking performance and to maintain mechanical functionality.
    NHTSA enhances the accuracy of estimated engine weights by using 
two curves to represent separately naturally aspirated engine designs 
and turbocharged engine designs.\454\ This achieves two benefits. 
First, small naturally aspirated 4-cylinder engines that adopt 
turbocharging technology reflects the increased weight of associated 
components like ducting, clamps, the turbocharger itself, a charged air 
cooler, wiring, fasteners, and a modified exhaust manifold. Second, 
larger cylinder count engines like naturally aspirated 8-cylinder and 
6-cylinder engines that adopt turbocharging and downsizing technologies 
have lower weight due to having fewer engine cylinders. For this 
analysis, a naturally aspirated 8-cylinder engine that adopts 
turbocharging technology and is downsized to a 6-cylinder turbocharged 
engine appropriately reflects the added weight of the turbocharging 
components, and the lower weight of fewer cylinders.
---------------------------------------------------------------------------

    \454\ See Autonomie model documentation, Chapter 5.2.9, Engine 
Weight Determination.
---------------------------------------------------------------------------

    The range of effectiveness values for the mass reduction 
technologies, for all ten vehicle technology classes are shown in 
Figure III-14. In the graph, the box shows the inner quartile range 
(IQR) of the effectiveness values and whiskers extend out 1.5 x IQR. 
The NHTSAs outside of the whiskers show a few values outside these 
ranges. As discussed earlier, Autonomie simulates all possible 
combinations of technologies for fuel consumption improvements. For a 
few technology combinations mass reduction has minimal impact on 
effectiveness on the regulatory 2-cycle test. For example, if an engine 
is operating in an efficient region of the fuel map on the 2-cycle test 
further reduction of mass may have smaller improvement on the 
regulatory cycles. Figure III-14 shows the range improvements based on 
the full range of other technology combinations considered in the 
analysis.
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[[Page 25833]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.087

(e) Mass Reduction Costs
    The CAFE Model analysis handles mass reduction technology costs 
differently than all other technology costs. Mass reduction costs are 
calculated as an average cost per pound over the baseline (MR0) for a 
vehicle's glider weight. While the definitions of glider may vary, 
NHTSA uses the same dollar per pound of curb weight to develop costs 
for different glider definitions. In translating these values, NHTSA 
takes care to track units ($/kg vs. $/lb.) and the reference for 
percentage improvements (glider vs. curb weight).
    NHTSA calculates the cost of mass reduction on a glider weight 
basis so that the weight of each powertrain configuration can be 
directly and separately accounted for. This approach provides the true 
cost of mass reduction without conflating the mass change and costs 
associated with downsizing a powertrain or adding additional advanced 
powertrain technologies. Hence, the mass reduction costs in this final 
rule reflect the cost of mass reduction in the glider and do not 
include the mass reduction associated with engine downsizing. The mass 
reduction and costs associated with engine downsizing are accounted for 
separately.
    A second reason for using glider share instead of curb weight is 
that it affects the absolute amount of curb weight reduction applied, 
and therefore cost per pound for the mass reduction changes with the 
change in the glider share. The cost for removing 20 percent of the 
glider weight when the glider represents 75 percent of a vehicle's curb 
weight is not the same as the cost for removing 20 percent of the 
glider weight when the glider represents 50 percent of the vehicle's 
curb weight. For example, the glider share of 79 percent of a 3,000-
pound curb weight vehicle is 2,370 lbs., while the glider share of 50 
percent of a 3,000-pound curb weight vehicle is 1,500 lbs., and the 
glider share of 71 percent of a 3,000-pound curb weight vehicle is 
2,130 lbs. The mass change associated with 20 percent mass reduction is 
474 lbs. for 79 percent glider share (= [3,000 lbs. x 79% x 20%]), 300 
lbs. for 50 percent glider share (= [3,000 lbs. x 50% x 20%]), and 426 
lbs. for 71 percent glider share (= [3,000 lbs. x 71% x 20%]). The mass 
reduction cost studies that NHTSA relies on to develop mass reduction 
costs for this analysis show that the cost for mass reduction varies 
with the amount of mass reduction. Therefore, for a fixed glider mass 
reduction percentage, different glider share assumptions will have 
different costs.
    NHTSA considered several sources to develop the mass reduction 
technology cost curves. Several mass reduction studies have used either 
a mid-size passenger car or a full-size pickup truck as an exemplar 
vehicle to demonstrate the technical and cost feasibility of mass 
reduction. While the findings of these studies may not apply directly 
to different vehicle classes, the cost estimates derived for the mass 
reduction technologies identified in these studies can be useful for 
formulating general estimates of costs. As discussed further below, the 
mass reduction cost curves developed for this analysis are based on two 
light-weighting studies, and NHTSA also updated the curves based

[[Page 25834]]

on more recent studies to better account for the cost of carbon fiber 
needed for the highest levels of mass reduction technology. The two 
studies used for MR1 through MR4 costs included the teardown of a MY 
2011 Honda Accord and a MY 2014 Chevrolet Silverado pickup truck, and 
the carbon fiber costs required for MR5 and MR6 were updated based on 
the 2021 NAS Report.\455\
---------------------------------------------------------------------------

    \455\ This analysis applied the cost estimates per pound derived 
from passenger cars to all passenger car segments, and the cost 
estimates per pound derived from full-size pickup trucks to all 
light-duty truck and SUV segments. The cost estimates per pound for 
carbon fiber (MR5 and MR6) were the same for all segments.
---------------------------------------------------------------------------

    Both teardown studies are structured to derive the estimated cost 
for each of the mass reduction technology levels. NHTSA relies on the 
results of those studies because they considered an extensive range of 
material types, material gauge, and component redesign while taking 
into account real world constraints such as manufacturing and assembly 
methods and complexity, platform-sharing, and maintaining vehicle 
utility, functionality and attributes, including safety, performance, 
payload capacity, towing capacity, handling, NVH, and other 
characteristics. In addition, NHTSA believes that the baseline vehicles 
and mass reduction technologies assessed in the studies are still 
reasonably representative of the technologies that may be applied to 
vehicles in the MY 2020 analysis fleet to achieve up to MR4 level mass 
reduction in the rulemaking timeframe. NHTSA adjusted the cost 
estimates derived from the two studies to reflect the assumption that a 
vehicle's glider weight consisted of 71 percent of the vehicle's curb 
weight, and mass reduction as it pertains to achieving MR0-MR6 levels 
would only come from the glider.
    As discussed above, achieving the highest levels of mass reduction 
often necessitates extensive use of advanced materials like higher 
grades of aluminum, magnesium, or carbon fiber. We provided a survey of 
information available regarding carbon fiber costs based on the Honda 
Accord and Chevrolet Silverado teardown studies. In the Honda Accord 
study, the estimated cost of carbon fiber was $5.37/kg, and the cost of 
carbon fiber used in the Chevy Silverado study was $15.50/kg. The 
$15.50 estimate closely matched the cost estimates from a BMW i3 
teardown analysis,\456\ the cost figures provided by Oak Ridge National 
Laboratory for a study from the IACMI Composites Institute,\457\ and 
from a Ducker Worldwide presentation at the CAR Management Briefing 
Seminar.\458\
---------------------------------------------------------------------------

    \456\ Singh, Harry, FSV Body Structure Comparison with 2014 BMW 
i3, Munro and Associates for World Auto Steel (June 3, 2015).
    \457\ IACMI Baseline Cost and Energy Metrics (March 2017), 
available at https://iacmi.org/wp-content/uploads/2016/10/Dale-Brosius-IACMI-1.pdf (accessed Feb. 11, 2022).
    \458\ Ducker Worldwide, The Road Ahead--Automotive Materials 
(2016), https://societyofautomotiveanalysts.wildapricot.org/resources/Pictures/SAA%20Sumit%20slides%20for%20Abey%20Abraham%20of%20Ducker.pdf, 
(accessed: Feb. 11, 2022).
---------------------------------------------------------------------------

    However, for this analysis, NHTSA relies on the cost estimates for 
carbon fiber construction that NAS detailed in the 2021 Assessment of 
Technologies for Improving Fuel Economy of Light-Duty Vehicles--Phase 3 
recently completed by NAS.\459\ The study indicates that the sum of 
direct materials costs plus manufacturing costs for carbon fiber 
composite automotive components is $25.97 per pound in high volume 
production. In order to use this cost in the CAFE Model it must be put 
in terms of dollars per pound saved. Using an average vehicle curb 
weight of 4000 lbs., a 71 percent glider share and the percent mass 
savings associated with MR5 and MR6, it is possible to calculate the 
number of pounds to be removed to attain MR5 and MR6. Also taken from 
the NAS study is the assertion that carbon fiber substitution for steel 
in an automotive component results in a 50 percent mass reduction. 
Combining all this together, carbon fiber technology offers weight 
savings at $24.60 per pound saved. This dollar per pound savings figure 
must also be converted to a retail price equivalent (RPE) to account 
for various commercial costs associated with all automotive components. 
This is accomplished by multiplying $24.60 by the factor 1.5. This 
brings the cost per pound saved for using carbon fiber to $36.90 per 
pound saved.\460\ The analysis uses this cost for achieving MR5 and 
MR6.
---------------------------------------------------------------------------

    \459\ 2021 NAS Report, at p. 219.
    \460\ See MR5 and MR6 CFRP Cost Increase Calculator.xlsx in the 
docket for this action.
---------------------------------------------------------------------------

    Table III-23 and Table III-24 show the cost values (in dollars per 
pound) used in the CAFE Model with MR1-4 costs based on the cost curves 
developed from the MY 2011 Honda Accord and MY 2014 Chevrolet Silverado 
studies, and the updated MR5 and MR6 values that account for the 
updated carbon fiber costs from the 2021 NAS Report. Both tables assume 
a 71 percent higher glider share.
[GRAPHIC] [TIFF OMITTED] TR02MY22.088


[[Page 25835]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.089

    There is a dramatic increase in cost going from MR4 to MR5 and MR6 
for all classes of vehicles. However, while the increase in cost going 
from MR4 to MR5 and MR6 is dramatic, the MY 2011 Honda Accord study, 
the MY 2014 Chevrolet Silverado study, and the 2021 NAS Report all 
included a steep increase to achieve the highest levels of mass 
reduction technology.
    Table III-25 provides an example of mass reduction costs in 2018$ 
over select model years for the medium car and pickup truck technology 
classes as a dollar per pound value. The table shows how the $/lb. 
value for each mass reduction level decreases over time because of cost 
learning. For a full list of the $/lb. mass reduction costs used in the 
analysis across all model years, see the Technologies file.
[GRAPHIC] [TIFF OMITTED] TR02MY22.090

BILLING CODE 4910-59-C
    NHTSA received comment from the ACC regarding the costs used in the 
analysis for carbon fiber technology and how new precursors will soon 
be available with high potential to reduce the cost of dry carbon 
fibers.\461\ These precursor materials include, lignin, mesophase pitch 
and textile-grade polyacrylonitrile (TG-PAN). Commenters specifically 
referenced research conducted into these precursor materials conducted 
at the Carbon Fiber Technology Facility at Oak Ridge National 
Laboratory.
---------------------------------------------------------------------------

    \461\ ACC, at p. 5.
---------------------------------------------------------------------------

    Indeed, a factor that dominates the price of dry carbon fibers is 
the precursor materials from which it is made. Dry carbon fibers that 
are used in the mainstream automotive industry today, like those used 
by BMW,\462\ are derived from high-molecular weight PAN fibers. The 
high molecular weight of these materials not only makes the material 
expensive, but it makes it more expensive to convert to carbon fiber 
because it takes much longer to pyrolyze the fibers. However, the 
result is a consistently stiff and incredibly high-strength fiber. 
Prices today for traditional 3K tow (tow refers to the width of a 
strand) PAN-based carbon fiber fall within the $20/kg to $40/kg 
range.463 464 These price levels are consistent with NHTSA's 
understanding and with the recent 2021 NAS Report.\465\
---------------------------------------------------------------------------

    \462\ J. Sloan, ``Carbon Fiber Suppliers Gear up for Next 
Generation Growth,'' compositesworld.com, February 11, 2020.
    \463\ Schlosser, Andreas, Coskun Baban, Samith, and Siedel 
Phillipp, ``After the Hype: Where is the Carbon Car?'' Arthur D. 
Little, January 2019.
    \464\ 2021 NAS Report, at pp. 218, 219, 419.
    \465\ Id.
---------------------------------------------------------------------------

    The commenters mentioned several other advancements in carbon fiber 
technologies that are under development; however, we do not believe 
these materials will be available for use in the rulemaking timeframe. 
Lignin, which is an organic substance found in the cells of plants, has 
great potential to achieve affordable carbon fibers and could 
potentially be a lower-cost alternative to PAN.466 467 While 
lignin is renewable, recyclable, sustainable, and cost effective, there 
are stiffness and cost issues with lignin and research into lignin-
based carbon fiber has significantly slowed.\468\ Similarly, mesophase 
pitch and TG-PAN are encouraging mass reduction technologies; \469\ 
however, based on

[[Page 25836]]

their developmental nature we do not believe they will be available for 
commercial application in this rulemaking timeframe. Therefore, we do 
not believe that the lower costs cited in the ORNL studies are 
representative of the costs to industry for carbon fiber technology in 
the rulemaking timeframe. We will continue to closely monitor these new 
fiber precursor materials and how they may enable low-cost carbon fiber 
technology with competitive mechanical properties.
---------------------------------------------------------------------------

    \466\ Azarova, M.T., Semakina, N.S., Konkin, A.A. Tikhomirova, 
M.V. ``Carbon Fiber Based on Meso-Phase-Pitches,'' Fiber Chemistry, 
1982, pp. 103-110.
    \467\ Kadla, J.F, et al., ``Lignin-Based Carbon Fibers for 
Composite Applications,'' Carbon, Vol. 20, 2002, pp. 2913-2920.
    \468\ For example, one issue with lignin-based carbon fiber is 
that the density specific stiffness of fully pyrolyzed lignin-based 
carbon fiber laminated in an epoxy matrix (which is a materials 
property that often dominates mass reduction potential) is barely 
competitive with that of steel. Yet steel costs about $1/kg--$3/kg. 
Furthermore, because the absolute stiffness of lignin-based carbon 
fiber composite material is low, a component made with lignin-based 
carbon fiber composite material will require more packaging space 
than a steel component to achieve equivalent component level 
stiffness.
    \469\ Mesophase pitch is made from coal which is plentiful and 
therefore low cost, and the material has a density specific 
stiffness better than steel, aluminum, and magnesium. TG-PAN has a 
molecular weight that is about half that of traditional PAN 
materials used from making carbon fiber and consequently requires 
less time to pyrolyze, thus reducing its costs. In addition, textile 
grade PAN is available in much wider tows (>= 50k) than traditional 
PAN which means that more material can be converted to carbon fiber 
in less time.
---------------------------------------------------------------------------

    Aside from precursor materials issues, how dry carbon fibers are 
processed into usable carbon fiber composite components is also an 
important cost driver that we do not believe is represented in the 
lower cited cost estimates. As an example, the carbon fiber composite 
parts used on the BMW i3 are manufactured with cycle times between five 
and ten minutes,\470\ while precise and accurate metallic parts are 
produced in seconds.
---------------------------------------------------------------------------

    \470\ Sloan, Jeff, ``BMW Leipzig: The Epicenter of i3 
Production,'' Composites World, May 31, 2014.
---------------------------------------------------------------------------

    Again, we will continue to monitor composite materials processing 
technology advances and make cost adjustments in future analysis to 
reflect advances in this field.
Aerodynamics
    The energy required to overcome aerodynamic drag accounts for a 
significant portion of the energy consumed by a vehicle and can become 
the dominant factor for a vehicle's energy consumption at high speeds. 
Reducing aerodynamic drag can, therefore, be an effective way to reduce 
fuel consumption and emissions.
    Aerodynamic drag is proportional to the frontal area (A) of the 
vehicle and coefficient of drag (Cd), such that aerodynamic performance 
is often expressed as the product of the two values, CdA, which is also 
known as the drag area of a vehicle. The coefficient of drag (Cd) is a 
dimensionless value that essentially represents the aerodynamic 
efficiency of the vehicle shape. The frontal area (A) is the cross-
sectional area of the vehicle as viewed from the front. It acts with 
the coefficient of drag as a sort of scaling factor, representing the 
relative size of the vehicle shape that the coefficient of drag 
describes. The force imposed by aerodynamic drag increases with the 
square of vehicle velocity, accounting for the largest contribution to 
road loads at higher speeds.
    Aerodynamic drag reduction can be achieved via two approaches, 
either by reducing the drag coefficient or reducing vehicle frontal 
area, with two different categories of technologies, passive and active 
aerodynamic technologies. Passive aerodynamics refers to aerodynamic 
attributes that are inherent to the shape and size of the vehicle, 
including any components of a fixed nature. Active aerodynamics refers 
to technologies that variably deploy in response to driving conditions. 
These include technologies such as active grille shutters, active air 
dams, and active ride height adjustment. It is important to note that 
manufacturers may employ both passive and active aerodynamic 
technologies to achieve aerodynamic drag improvements.
    The greatest opportunity for improving aerodynamic performance is 
during a vehicle redesign cycle when the manufacturer can make 
significant changes to the shape and size of the vehicle. A 
manufacturer may also make incremental improvements during mid-cycle 
vehicle refresh using restyled exterior components and add-on devices. 
Some examples of potential technologies that a manufacturer could apply 
during mid-cycle refresh are restyled front and rear fascia, modified 
front air dams and rear valances, addition of rear deck lips and 
underbody panels, and low-drag exterior mirrors. While manufacturers 
may nudge the frontal area of the vehicle during redesigns, large 
changes in the frontal area are typically not possible without 
impacting the utility and interior space of the vehicle. Similarly, 
manufacturers may improve Cd by changing the frontal shape of the 
vehicle or lowering the height of the vehicle, among other approaches, 
but the form drag of certain body styles and airflow needs for engine 
cooling often limit how much manufacturers can improve Cd.
    The following sections discuss the four levels of aerodynamic 
improvements that we consider in the CAFE Model, how we assign baseline 
aerodynamic technology levels to vehicles in the MY 2020 fleet, the 
effectiveness improvements for the addition of aerodynamic technologies 
to vehicles, and the costs for adding that aerodynamic technology.
(a) Aerodynamic Technologies in the CAFE Model
    We bin aerodynamic improvements into four levels--5, 10, 15, and 20 
percent aerodynamic drag improvement values over a baseline computed 
for each vehicle body style--which correspond to AERO5, AERO10, AERO15, 
and AERO20, respectively.
    The aerodynamic improvements technology pathway consists of a 
linear progression, with each level superseding all previous levels, as 
seen in Figure III-15.
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[[Page 25837]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.091

    While the four levels of aerodynamic improvements are technology-
agnostic, we built a pathway to compliance for each level based on 
aerodynamic data from a National Research Council (NRC) of Canada-
sponsored wind tunnel testing program. The program included an 
extensive review of production vehicles utilizing these technologies, 
and industry comments.471 472 Again, these technology 
combinations are intended to show a potential way for a manufacturer to 
achieve each aerodynamic improvement level; however, in the real world, 
manufacturers may implement different combinations of aerodynamic 
technologies to achieve a percentage improvement over their baseline 
vehicles.
---------------------------------------------------------------------------

    \471\ Larose, G., Belluz, L., Whittal, I., Belzile, M. et al., 
``Evaluation of the Aerodynamics of Drag Reduction Technologies for 
Light-duty Vehicles--a Comprehensive Wind Tunnel Study,'' SAE Int. 
J. Passeng. Cars--Mech. Syst. 9(2):772-784, 2016, https://doi.org/10.4271/2016-01-1613, (accessed: Feb. 11, 2022).
    \472\ Larose, Guy & Belluz, Leanna & Whittal, Ian & Belzile, 
Marc & Klomp, Ryan & Schmitt, Andreas. (2016). Evaluation of the 
Aerodynamics of Drag Reduction Technologies for Light-duty 
Vehicles--a Comprehensive Wind Tunnel Study. SAE International 
Journal of Passenger Cars--Mechanical Systems. 9. 10.4271/2016-01-
1613.
---------------------------------------------------------------------------

    Table III-26 and Table III-27 show the aerodynamic technologies 
that could be used to achieve 5, 10, 15, and 20 percent improvements in 
passenger cars, SUVs, and pickup trucks. As discussed further in 
Section III.D.5.c), the model does not apply AERO20 to pickup trucks, 
which is why there is no pathway to AERO20 shown in Table III-27. While 
manufacturers can apply some aerodynamic improvement technologies 
across vehicle classes, like active grille shutters (used in the 2015 
Chevrolet Colorado),\473\ we determined that there are limitations that 
make it infeasible for vehicles with some body styles to achieve a 20 
percent reduction in the coefficient of drag from their baseline. This 
technology path is an example of how a manufacturer could reach each 
AERO level, but they would not necessarily be required to use the 
technologies.
---------------------------------------------------------------------------

    \473\ Chevrolet Product Information, available at https://media.chevrolet.com/content/media/us/en/chevrolet/vehicles/colorado/2015/_jcr_content/iconrow/textfile/file.res/15-PG-Chevrolet-Colorado-082218.pdf, (accessed: Feb. 11, 2022).

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[GRAPHIC] [TIFF OMITTED] TR02MY22.092

[GRAPHIC] [TIFF OMITTED] TR02MY22.093

    As discussed further in Section III.D.8, this analysis assumes 
manufacturers apply off-cycle technology at rates defined in the Market 
Data file. While the AERO levels in the analysis are technology-
agnostic, achieving AERO20 improvements does assume the use of active 
grille shutters, which is an off-cycle technology.
    Auto Innovators provided two comments on aerodynamic improvements. 
Auto Innovators commented that it ``does not recommend considering 
additional aerodynamic improvements (such as 25 percent aerodynamic 
improvements, etc.). Some additional reductions in aerodynamic forces 
may be possible if side view mirrors were no longer required by NHTSA 
and FMVSSs.'' \474\
---------------------------------------------------------------------------

    \474\ Auto Innovators, Docket No. NHTSA-2021-0053-1492, at pp. 
62, 135.
---------------------------------------------------------------------------

    We agree with Auto Innovators that we should not assume additional 
aerodynamics technology adoption. We do not exceed 20 percent 
aerodynamic improvement for all body styles and 15

[[Page 25839]]

percent improvement for the body styles discussed below.
    We also agree with Auto Innovators that side view mirrors cause 
additional aerodynamic drag. Due to existing Federal motor vehicle 
safety regulations, we currently do not consider aerodynamic 
improvements from removing side view mirrors in the CAFE Model 
analysis.\475\
---------------------------------------------------------------------------

    \475\ Federal motor vehicle safety standard (FMVSS) No. 111, 
``Rear Visibility,'' currently requires that vehicles be equipped 
with rearview mirrors to provide drivers with a view of objects that 
are to their side or to their side and rear.
---------------------------------------------------------------------------

(b) Aerodynamics Analysis Fleet Assignments
    We use a relative performance approach to assign an initial level 
of aerodynamic drag reduction technology to each vehicle. Each AERO 
level represents a percent reduction in a vehicle's aerodynamic drag 
coefficient (Cd) from a baseline value for its body style. 
For a vehicle to achieve AERO5, the Cd must be at least 5 
percent below the baseline for the body style; for AERO10, 10 percent 
below the baseline, and so on. Baseline aerodynamic assignment is 
therefore a three-step process: Each vehicle in the fleet is assigned a 
body style, the average drag coefficient is calculated for each body 
style, and the drag coefficient for each vehicle model is compared to 
the average for the body style.
    We assign every vehicle in the fleet a body style; available body 
styles included convertible, coupe, sedan, hatchback, wagon, SUV, 
pickup, minivan, and van. These assignments do not necessarily match 
the body styles that manufacturers use for marketing purposes. Instead, 
we assign them based on analyst judgement, taking into account how a 
vehicle's AERO and vehicle technology class assignments are affected. 
Different body styles offer different utility and have varying levels 
of baseline form drag. In addition, frontal area is a major factor in 
aerodynamic forces, and the frontal area varies by vehicle. This 
analysis considers both frontal area and body style as utility factors 
affecting aerodynamic forces; therefore, the analysis assumes all 
reduction in aerodynamic drag forces come from improvement in the drag 
coefficient.
    We computed the average drag coefficients for each body style using 
the MY 2015 drag coefficients published by manufacturers, which were 
used as the baseline values in the analysis. We harmonize the Autonomie 
simulation baselines with the analysis fleet assignment baselines to 
the fullest extent possible.\476\
---------------------------------------------------------------------------

    \476\ See TSD Chapter 2.4.2 for a table of vehicle attributes 
used to build the Autonomie baseline vehicle models. That table 
includes a drag coefficient for each vehicle class.
---------------------------------------------------------------------------

    We source the drag coefficients for each vehicle in the analysis 
fleet from manufacturer specification sheets, when possible. However, 
manufacturers did not consistently publicly report drag coefficients 
for MY 2020 vehicles. If we could not find a publicly reported drag 
coefficient, analyst judgment was sometimes used to assign an AERO 
level. If no level was manually assigned, we used the drag coefficient 
obtained from manufacturers to build the MY 2016 fleet,\477\ if 
available. The MY 2016 drag coefficient values may not accurately 
reflect the current technology content of newer vehicles but are, in 
many cases, the most recent data available.
---------------------------------------------------------------------------

    \477\ See 83 FR 42986 (Aug. 24, 2018). The MY 2016 fleet was 
built to support the 2018 NPRM.
---------------------------------------------------------------------------

(c) Aerodynamics Adoption Features
    As already discussed, we use a relative performance approach to 
assign current aerodynamic technology (AERO) level to a vehicle. For 
some body styles with different utility, such as pickup trucks, SUVs 
and minivans, frontal area can vary, and this can affect the overall 
aerodynamic drag forces. In order to maintain vehicle utility and 
functionality related to passenger space and cargo space, we assume all 
technologies that improve aerodynamic drag forces do so by reducing 
Cd while maintaining frontal area.
    Technology pathway logic for levels of aerodynamic improvement 
consists of a linear progression, with each level superseding all 
previous ones. Technology paths for AERO are illustrated in Figure III-
15.
    The model does not consider the highest AERO levels for certain 
body styles. In these cases, this means that AERO20, and sometimes 
AERO15, can neither be assigned in the baseline fleet nor adopted by 
the model. For these body styles, there are no commercial examples of 
drag coefficients that demonstrate the required AERO15 or AERO20 
improvement over baseline levels. We also deemed the most advanced 
levels of aerodynamic drag simulated as not technically practicable 
given the form drag of the body style and costed technology, especially 
given the need to maintain vehicle functionality and utility, such as 
interior volume, cargo area, and ground clearance. In short, we 
`skipped' AERO15 for minivan body styles, and `skipped' AERO20 for 
convertible, minivan, pickup, and wagon body styles.
    We also do not allow application of AERO15 and AERO20 technology to 
vehicles with more than 780 horsepower. There are two main types of 
vehicles that informed this threshold: Performance internal combustion 
engine (ICE) vehicles and high-power battery electric vehicles (BEVs). 
In the case of the former, we recognize that manufacturers tune 
aerodynamic features on these vehicles to provide desirable downforce 
at high speeds and to provide sufficient cooling for the powertrain, 
rather than reducing drag, resulting in middling drag coefficients 
despite advanced aerodynamic features. Therefore, manufacturers may 
have limited ability to improve aerodynamic drag coefficients for high 
performance vehicles with internal combustion engines without reducing 
horsepower. 1,655 units of sales volume in the baseline fleet include 
limited application of aerodynamic technologies because of ICE vehicle 
performance.\478\
---------------------------------------------------------------------------

    \478\ Market Data file.
---------------------------------------------------------------------------

    In the case of high-power battery electric vehicles, the 780-
horsepower threshold is set above the highest peak system horsepower 
present on a BEV in the 2020 fleet. BEVs have different aerodynamic 
behavior and considerations than ICE vehicles, allowing for features 
such as flat underbodies that significantly reduce drag.\479\ BEVs are 
therefore more likely to achieve higher AERO levels, so the horsepower 
threshold is set high enough that it does not restrict AERO15 and 
AERO20 application. Note that the CAFE Model does not force high levels 
of AERO adoption; rather, higher AERO levels are usually adopted 
organically by BEVs because significant drag reduction allows for 
smaller batteries and, by extension, cost savings. BEVs represent 
252,023 units of sales volume in the baseline fleet.\480\
---------------------------------------------------------------------------

    \479\ 2020 EPA Automotive Trends Report, at p. 227.
    \480\ Market Data file.

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[[Page 25840]]

(d) Aerodynamics Effectiveness Modeling
    To determine aerodynamic effectiveness, the CAFE Model and 
Autonomie use individually assigned road load technologies for each 
vehicle to appropriately assign initial road load levels and 
appropriately capture benefits of subsequent individual road load 
improving technologies.
    The current analysis included four levels of aerodynamic 
improvements, AERO5, AERO10, AERO15, and AERO20, representing 5, 10, 
15, and 20 percent reduction in drag coefficient (Cd), respectively. We 
assume that aerodynamic drag reduction can only come from reduction in 
Cd and not from reduction of frontal area, to maintain vehicle 
functionality and utility, such as passenger space, ingress/egress 
ergonomics, and cargo space.
    The effectiveness values for the aerodynamic improvement levels 
relative to AERO0, for all ten vehicle technology classes, are shown in 
Figure III-16. Each of the effectiveness values shown is representative 
of the improvements seen for upgrading only the listed aerodynamic 
technology level for a given combination of other technologies. In 
other words, the range of effectiveness values seen for each specific 
technology (e.g., AERO 15) represents the addition of AERO15 technology 
(relative to AERO0 level) for every technology combination that could 
select the addition of AERO15. It must be emphasized that the change in 
fuel consumption values between entire technology keys is used,\481\ 
and not the individual technology effectiveness values. Using the 
change between whole technology keys captures the complementary or non-
complementary interactions among technologies. The box shows the inner 
quartile range (IQR) of the effectiveness values and whiskers extend 
out 1.5 x IQR. The dots outside the whiskers show effectiveness values 
outside those thresholds.
---------------------------------------------------------------------------

    \481\ Technology key is the unique collection of technologies 
that constitutes a specific vehicle, see TSD Chapter 2.4.7 for more 
detail.
[GRAPHIC] [TIFF OMITTED] TR02MY22.094

(e) Aerodynamics Costs
    This analysis uses the AERO technology costs established in the 
2020 final rule that are based on confidential business information 
submitted by the automotive industry in advance of the 2018 NPRM,\483\ 
and on our assessment of manufacturing costs for specific aerodynamic 
technologies.\484\ We received no additional comments from stakeholders 
regarding the costs established in the 2018 NPRM, and

[[Page 25841]]

continued to use the established costs for the 2020 final rule and this 
analysis.
---------------------------------------------------------------------------

    \482\ The data used to create this figure can be found in the 
FE_1 Improvements file.
    \483\ See the PRIA accompanying the 2018 NPRM, Chapter 
6.3.10.1.2.1.2, for a discussion of these cost estimates.
    \484\ See the FRIA accompanying the 2020 final rule, Chapter 
VI.C.5.e.
---------------------------------------------------------------------------

    Table III-28 shows examples of costs for AERO technologies as 
applied to the medium car and pickup truck vehicle classes in select 
model years. The cost to achieve AERO5 is relatively low, as most of 
the improvements can be made through body styling changes. The cost to 
achieve AERO10 is higher than AERO5, due to the addition of several 
passive aerodynamic technologies, and the cost to achieve AERO15 and 
AERO20 is higher than AERO10 due to use of both passive and active 
aerodynamic technologies. For a full list of all absolute aerodynamic 
technology costs used in the analysis across all model years see the 
Technologies file.
[GRAPHIC] [TIFF OMITTED] TR02MY22.095

Tire Rolling Resistance
    Tire rolling resistance is a road load force that arises primarily 
from the energy dissipated by elastic deformation of a vehicle's tires 
as they roll. Tire design characteristics (for example, materials, 
construction, and tread design) have a strong influence on the amount 
and type of deformation and the energy the tire dissipates. Designers 
can select these characteristics to minimize rolling resistance. 
However, these characteristics may also influence other performance 
attributes, such as durability, wet and dry traction, handling, and 
ride comfort.
    Lower rolling resistance tires have characteristics that reduce 
frictional losses associated with the energy dissipated mainly in the 
deformation of the tires under load, thereby improving fuel economy. 
OEMs increasingly specify low rolling resistance tires in new vehicles, 
and they are also increasingly available from aftermarket tire vendors. 
They commonly include attributes such as higher inflation pressure, 
material changes, tire construction optimized for lower hysteresis, 
geometry changes (e.g., reduced aspect ratios), and reduced sidewall 
and tread deflection. These changes are commonly accompanied by 
additional changes to vehicle suspension tuning and/or suspension 
design to mitigate any potential impact on other performance attributes 
of the vehicle.
    We continue to assess the potential impact of tire rolling 
resistance changes on vehicle safety. We have been following the 
industry developments and trends in application of rolling resistance 
technologies to light duty vehicles. As stated in the NAP special 
report on Tires and Passenger Vehicle Fuel Economy,\485\ national crash 
data does not provide data about tire structural failures specifically 
related to tire rolling resistance, because the rolling resistance of a 
tire at a crash scene cannot be determined. However, other metrics like 
brake performance compliance test data are helpful to show trends like 
that stopping distance has not changed in the last ten years,\486\ 
during which time many manufacturers have installed low rolling 
resistance tires in their fleet--meaning that manufacturers were 
successful in improving rolling resistance while maintaining stopping 
distances through tire design, tire materials, and/or braking system 
improvements. In addition, NHTSA has addressed other tire-related 
issues through rulemaking,\487\ and continues to research tire problems 
such as blowouts, flat tires, tire or wheel deficiency, tire or wheel 
failure, and tire degradation.\488\ However, there are currently no 
data connecting low rolling resistance tires to accident or fatality 
rates.
---------------------------------------------------------------------------

    \485\ Tires and Passenger Vehicle Fuel Economy: Informing 
Consumers, Improving Performance--Special Report 286 (2006), 
available at https://www.nap.edu/read/11620/chapter/6.
    \486\ See, e.g., NHTSA Office of Vehicle Safety Compliance, 
Compliance Database, https://one.nhtsa.gov/cars/problems/comply/index.cfm.
    \487\ 49 CFR 571.138, Tire pressure monitoring systems.
    \488\ Tire-Related Factors in the Pre-Crash Phase, DOT HS 811 
617 (April 2012), available at https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/811617.
---------------------------------------------------------------------------

    NHTSA conducted tire rolling resistance tests and wet grip index 
tests on original equipment tires installed on new vehicles. The tests 
showed that there is no degradation in wet grip index values (i.e., no 
degradation in traction) for tires with improved rolling resistance 
technology. With better tire design, tire compound formulations and 
improved tread design, tire manufacturers have tools to balance 
stopping distance and reduced rolling resistance. Tire manufacturers 
can use ``higher performance materials in the tread compound, more 
silica as reinforcing fillers and advanced tread design features'' to 
mitigate issues related to stopping distance.\489\
---------------------------------------------------------------------------

    \489\ Jesse Snyder, A big fuel saver: Easy-rolling tires (but 
watch braking) (July 21, 2008), https://www.autonews.com/article/20080721/OEM01/307219960/a-big-fuel-saver-easy-rolling-tires-but-watch-braking. Last visited December 3, 2019.
---------------------------------------------------------------------------

    U.S. Tire Manufacturers Association (USTMA) commented on NHTSA's 
conclusion that the agency did not observe any unacceptable tradeoff 
between tire rolling resistance and wet grip performance, which ``NHTSA 
correctly recognized is due to advanced tire design, rubber compounding 
and manufacturing technologies.'' However, USTMA cautioned that ``this 
inverse relationship between rolling resistance and wet grip 
performance still exists, and as the tire industry continues to enhance 
rolling resistance performance, new and/or enhanced countermeasures 
will also need to be developed to assure

[[Page 25842]]

no unacceptable impact to wet grip performance.'' \490\
---------------------------------------------------------------------------

    \490\ USTMA, Docket No. NHTSA-2021-0053-1612, at 2.
---------------------------------------------------------------------------

    The following sections discuss levels of tire rolling resistance 
technology considered in the CAFE Model, how the technology was 
assigned in the analysis fleet, adoption features specified to maintain 
performance, effectiveness, and cost.
(a) Tire Rolling Resistance in the CAFE Model
    We continue to consider two levels of improvement for low rolling 
resistance tires in the analysis: the first level of low rolling 
resistance tires considered reduced rolling resistance 10 percent from 
an industry-average baseline rolling resistance coefficient (RRC) 
value, while the second level reduced rolling resistance 20 percent 
from the baseline.\491\
---------------------------------------------------------------------------

    \491\ To achieve ROLL10, the tire rolling resistance must be at 
least 10 percent better than baseline (.0081 or better). To achieve 
ROLL20, the tire rolling resistance must be at least 20 percent 
better than baseline (.0072 or better).
---------------------------------------------------------------------------

    We selected the industry-average RRC baseline of 0.009 based on a 
CONTROLTEC study prepared for the California Air Resources Board,\492\ 
in addition to confidential business information submitted by 
manufacturers prior to the 2018 NPRM analysis. The average RRC from the 
CONTROLTEC study, which surveyed 1,358 vehicle models, was 0.009.\493\ 
CONTROLTEC also compared the findings of their survey with values 
provided by Rubber Manufacturers Association (renamed USTMA-U.S. Tire 
Manufacturers Association) for original equipment tires. The average 
RRC from the data provided by RMA was 0.0092,\494\ compared to average 
of 0.009 from CONTROLTEC.
---------------------------------------------------------------------------

    \492\ Technical Analysis of Vehicle Load Reduction by CONTROLTEC 
for California Air Resources Board (April 29, 2015).
    \493\ The RRC values used in this study were a combination of 
manufacturer information, estimates from coast down tests for some 
vehicles, and application of tire RRC values across other vehicles 
on the same platform.
    \494\ Technical Analysis of Vehicle Load Reduction by CONTROLTEC 
for California Air Resources Board (April 29, 2015) at page 40.
---------------------------------------------------------------------------

    In past agency actions, commenters have argued that based on 
available data on current vehicle models and the likely possibility 
that there would be additional tire improvements over the next decade, 
we should consider ROLL30 technology, or a 30 percent reduction of tire 
rolling resistance over the baseline.\495\
---------------------------------------------------------------------------

    \495\ Wesley Dyer, Docket No. NHTSA-2018-0067-11985, at p. 49.
---------------------------------------------------------------------------

    As stated in the Joint TSD for the 2012 final rule for MY 2017-2025 
and 2020 final rule, tire technologies that enable rolling resistance 
improvements of 10 and 20 percent have been in existence for many 
years.\496\ Achieving improvements of up to 20 percent involves 
optimizing and integrating multiple technologies, with a primary 
contributor being the adoption of a silica tread technology. Tire 
suppliers have indicated that additional innovations are necessary to 
achieve the next level of low rolling resistance technology on a 
commercial basis, such as improvements in material to retain tire 
pressure, and tread design to manage both stopping distance and wet 
traction.\497\
---------------------------------------------------------------------------

    \496\ EPA-420-R-12-901, at p. 3-210.
    \497\ 2011 NAS Report, at p. 103.
---------------------------------------------------------------------------

    The agency believes that the tire industry is in the process of 
moving automotive manufacturers towards higher levels of rolling 
resistance technology in the vehicle fleet. Importantly, as shown 
below, the MY 2020 baseline fleet does include a higher percentage of 
vehicles with ROLL20 technology than the MY 2017 fleet. However, we 
believe that at this time, the emerging tire technologies that would 
achieve 30 percent improvement in rolling resistance, like changing 
tire profile, stiffening tire walls, or adopting improved tires along 
with active chassis control,\498\ among other technologies, will not be 
available for widespread commercial adoption in the fleet during the 
rulemaking timeframe. As a result, we continue to not to incorporate 30 
percent reduction in rolling resistance technology.
---------------------------------------------------------------------------

    \498\ Mohammad Mehdi Davari, Rolling resistance and energy loss 
in tyres (May 20, 2015), available at https://www.sveafordon.com/media/42060/SVEA-Presentation_Davari_public.pdf. Last visited 
December 30, 2019.
---------------------------------------------------------------------------

    USTMA agreed with this assessment, and commented that ``its members 
will continue to develop advanced rolling resistance technologies for 
future adoption, since vehicle manufacturers continue to prioritize 
rolling resistance as one of the more cost-effective ways to achieve 
advancements in vehicle fuel economy.'' \499\ Auto Innovators, in their 
comments to both NHTSA and EPA, also discouraged the addition of 30 
percent tire rolling resistance, stating that ``performance neutrality 
for cold weather traction, hot weather performance, wet weather 
traction, load handling (for addition weight of batteries, for 
instance), wear and durability, and noise, vibration, and harshness can 
be challenging to achieve for 20 [percent] tire rolling resistance 
reduction, and the technology pathway to ROLL30 for many vehicles 
remains unclear.'' \500\
---------------------------------------------------------------------------

    \499\ USTMA, at 2.
    \500\ Auto Innovators, Docket No. NHTSA-2021-0053-1492, at 134.
---------------------------------------------------------------------------

    We will continue to monitor this issue and consider any additional 
advancements in tire rolling resistance technology for future analyses.
(b) Tire Rolling Resistance Analysis Fleet Assignments
    Tire rolling resistance is not a part of tire manufacturers' 
publicly released specifications and thus it is difficult to assign 
this technology to the analysis fleet. Manufacturers also often offer 
multiple wheel and tire packages for the same nameplates, further 
increasing the complexity of this assignment. We employed an approach 
consistent with previous rulemaking in assigning this technology. We 
relied on previously submitted rolling resistance values that were 
supplied by manufacturers in the process of building older fleets and 
bolstered it with agency-sponsored tire rolling resistance testing by 
Smithers.\501\
---------------------------------------------------------------------------

    \501\ See memo to Docket No. NHTSA-2021-0053, Evaluation of 
Rolling Resistance and Wet Grip Performance of OEM Stock Tires 
Obtained from NCAP Crash Tested Vehicles Phase One and Two. NHTSA 
used tire rolling resistance coefficient values from this project to 
assign baseline tire rolling resistance technology in the MY 2020 
analysis fleet and is therefore providing the draft project 
appendices for public review and comment.
---------------------------------------------------------------------------

    We carried over rolling resistance assignments for nameplates where 
manufacturers had submitted data on the vehicles' rolling resistance 
values, even if the vehicle was redesigned. If Smithers data was 
available, we replaced any older or missing values with that updated 
data. Those vehicles for which no information was available from either 
previous manufacturer submission or Smithers data were assigned to 
ROLL0. All vehicles under the same nameplate were assigned the same 
rolling resistance technology level even if manufacturers do outfit 
different trim levels with different wheels and tires.
    The MY 2020 analysis fleet includes the following breakdown of 
rolling resistance technology: 44 percent at ROLL0, 20 percent at 
ROLL10, and 36 percent at ROLL20, which shows that the majority of the 
fleet has now adopted some form of improved rolling resistance 
technology. The majority of the change from the MY 2017 analysis fleet 
has been in implementing ROLL20 technology. There is likely more 
proliferation of rolling resistance technology, but we would need 
further information from manufacturers in order to account for it. 
Accordingly, we made no changes to tire rolling

[[Page 25843]]

resistance assignments for this final rule.
(C) Tire Rolling Resistance Adoption Features
    Rolling resistance technology can be adopted with either a vehicle 
refresh or redesign. In some cases, low rolling resistance tires can 
affect traction, which may adversely impact acceleration, braking, and 
handling characteristics for some high-performance vehicles. Similar to 
past rulemakings, the agency recognizes that to maintain performance, 
braking, and handling functionality, some high-performance vehicles 
would not adopt low rolling resistance tire technology. For cars and 
SUVs with more than 405 horsepower (hp), the agency restricted the 
application of ROLL20. For cars and SUVs with more than 500 hp, the 
agency restricted the application of any additional rolling resistance 
technology (ROLL10 or ROLL20). The agency developed these cutoffs based 
on a review of confidential business information and the distribution 
of rolling resistance values in the fleet. We received no comments on 
these adoption features and made no changes for this final rule 
analysis.
(d) Tire Rolling Resistance Effectiveness Modeling
    As discussed above, the baseline rolling resistance value from 
which rolling resistance improvements are measured is 0.009, based on a 
thorough review of confidential business information submitted by 
industry, and a review of other literature. To achieve ROLL10, the tire 
rolling resistance must be at least 10 percent better than baseline 
(.0081 or better). To achieve ROLL20, the tire rolling resistance must 
be at least 20 percent better than baseline (.0072 or better).
    We determined effectiveness values for rolling resistance 
technology adoption using Autonomie. Figure III-17 below shows the 
range of effectiveness values used for adding tire rolling resistance 
technology to a vehicle in this analysis. The graph shows the change in 
fuel consumption values between entire technology keys,\502\ and not 
the individual technology effectiveness values. Using the change 
between whole technology keys captures the complementary or non-
complementary interactions among technologies. In the graph, the box 
shows the interquartile range (IQR) of the effectiveness values and 
whiskers extend out 1.5 x IQR. The dots outside of the whiskers show 
values for effectiveness that are outside these bounds.
---------------------------------------------------------------------------

    \502\ Technology key is the unique collection of technologies 
that constitutes a specific vehicle, see TSD Chapter 2.4.7 for more 
information.
---------------------------------------------------------------------------

    The data points with the highest effectiveness values are almost 
all exclusively BEV and FCV technology combinations for medium sized 
nonperformance cars. The effectiveness for these vehicles, when the low 
rolling resistance technology is applied, is amplified by a 
complementary effect, where the lower rolling resistance reduces road 
load and allows a smaller battery pack to be used (and still meet range 
requirements). The smaller battery pack reduces the overall weight of 
the vehicle, further reducing road load, and improving fuel efficiency. 
This complimentary effect is experienced by all the vehicle technology 
classes, but the strongest effect is on the midsized vehicle non-
performance classes and is only captured in the analysis through the 
use of full vehicle simulations, demonstrating the full interactions of 
the technologies.

[[Page 25844]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.096

(e) Tire Rolling Resistance Costs
    For this final rule analysis, we continue to use the same DMC 
values for ROLL technology that were used for the 2020 final rule, 
which are based on NHTSA's MY 2011 CAFE final rule and the 2006 NAS/NRC 
report.\503\ Table III-29 shows the different levels of tire rolling 
resistance technology cost for all vehicle classes across select model 
years, which shows how the learning rate for ROLL technologies impacts 
the cost. For all ROLL absolute technology costs used in the analysis 
across all model years see the Technologies file.
---------------------------------------------------------------------------

    \503\ ``Tires and Passenger Vehicle Fuel Economy,'' 
Transportation Research Board Special Report 286, National Research 
Council of the National Academies, 2006, Docket No. EPA-HQ-OAR-2009-
0472-0146.
[GRAPHIC] [TIFF OMITTED] TR02MY22.097

7. Other Vehicle Technologies
    We included four other vehicle technologies in the analysis--
electric power steering (EPS), improved accessory devices (IACC), low 
drag brakes (LDB), and secondary axle disconnect (SAX). The CAFE Model 
applied the effectiveness values for each of these technologies 
directly, with unique effectiveness values for each technology and for 
each technology class, rather than using Autonomie effectiveness 
estimates. We used this methodology in these four cases because the 
effectiveness of these technologies varies little with combinations of 
other technologies. Also, applying these technologies directly in the 
CAFE Model significantly reduces the required runtime of Autonomie 
simulations.
(a) Electric Power Steering
    Electric power steering reduces fuel consumption by reducing load 
on the engine. Specifically, it reduces or

[[Page 25845]]

eliminates the parasitic losses associated with engine-driven power 
steering pumps, which pump hydraulic fluid continuously through the 
steering actuation system even when no steering input is present. By 
selectively powering the electric assist only when steering input is 
applied, the power consumption of the system is reduced in comparison 
to the traditional ``always-on'' hydraulic steering system. Power 
steering may be electrified on light duty vehicles with standard 12V 
electrical systems and is also an enabler for vehicle electrification 
because it provides power steering when the engine is off (or when no 
combustion engine is present).
    Power steering systems can be electrified in two ways. 
Manufacturers may choose to eliminate the hydraulic portion of the 
steering system and provide electric-only power steering (EPS) driven 
by an independent electric motor, or they may choose to move the 
hydraulic pump from a belt-driven configuration to a stand-alone 
electrically driven hydraulic pump. The latter system is commonly 
referred to as electro-hydraulic power steering (EHPS). As stated in 
past rulemakings, manufacturers have told us that full EPS systems are 
being developed for all types of light-duty vehicles, as well as large 
trucks.
    We described in past rulemakings that, like low drag brakes, EPS 
can be difficult to observe and assign to the analysis fleet, however, 
it is found more frequently in publicly available information than low 
drag brakes. Based on comments received during the 2020 rulemaking, the 
agency increased EPS application rate to nearly 90 percent for the 2020 
final rule. The agency is maintaining this level of EPS fleet 
penetration for this analysis, recognizing that some specialized, 
unique vehicle types or configurations still implement hydraulically 
actuated power steering systems for the baseline fleet model year.
    The effectiveness of both EPS and EHPS is derived from the 
decoupling of the pump from the crankshaft and is considered to be 
practically the same for both. Thus, a single effectiveness value is 
used for both EPS and EHPS. As indicated in the Table III-30, the 
effectiveness of EPS and EHPS varies based on the vehicle technology 
class it is being applied to. This variance is a direct result of 
vehicle size and the amount of energy required to turn the vehicle's 
two front wheels about their vertical axis. More simply put, more 
energy is required for vehicles that weigh more and, typically, have 
larger tire contact patches.
[GRAPHIC] [TIFF OMITTED] TR02MY22.098

(b) Improved Accessories
    Engine accessories typically include the alternator, coolant pump, 
cooling fan, and oil pump, and are traditionally mechanically driven 
via belts, gears, or directly by other rotating engine components such 
as camshafts or the crankshaft. These can be replaced with improved 
accessories (IACC), which may include high efficiency alternators, 
electrically driven (i.e., on-demand) coolant pumps, electric cooling 
fans, variable geometry oil pumps, and a mild regeneration strategy. 
Replacing lower-efficiency and/or mechanically driven components with 
these improved accessories results in a reduction in fuel consumption, 
as the improved accessories can conserve energy by being turned on/off 
``on demand'' in some cases, driven at partial load as needed, or by 
operating more efficiently.
    For example, electric coolant pumps and electric powertrain cooling 
fans provide better control of engine cooling. Flow from an electric 
coolant pump can be varied, and the cooling fan can be shut off during 
engine warm-up or cold ambient temperature conditions, reducing warm-up 
time, fuel enrichment requirements, and ultimately reducing parasitic 
losses.
    IACC technology is difficult to observe and therefore there is 
uncertainty in assigning it to the analysis fleet. As in the past, we 
rely on industry-provided information and comments to assess the level 
of IACC technology applied in the fleet. We believe there continues to 
be opportunity for further implementation of IACC. The analysis has an 
IACC fleet penetration of approximately eight percent compared to the 
six percent value in the MY 2017 analysis fleet used for the 2020 final 
rule analysis.
    The agency believes improved accessories may be incorporated in 
coordination with powertrain related changes occurring at either a 
vehicle refresh or vehicle redesign. This coordination with powertrain 
changes enables related design and tooling changes to be implemented 
and systems development, functionality and durability testing to be 
conducted in a single product change program to efficiently manage 
resources and costs.
    This analysis carries forward work on the effectiveness of IACC 
systems conducted in the Draft TAR and EPA Proposed Determination that 
is originally founded in the 2002 NAS Report \504\ and confidential 
manufacturer data. This work involved gathering information by 
monitoring press reports, holding meetings with suppliers and OEMs, and 
attending industry technical conferences. The

[[Page 25846]]

resulting effectiveness estimates we use are shown in Table III-31. As 
indicated in this table, the effectiveness values of IACC varies based 
on the vehicle technology class it is being applied to. This variance, 
like EPS, is a direct result of vehicle size as well as the amount of 
energy generated by the alternator, the size of the coolant pump to the 
cool the necessary systems, the size of the cooling fan required, among 
other characteristics and it directed related to a vehicle size and 
mass.
---------------------------------------------------------------------------

    \504\ National Research Council 2002. Effectiveness and Impact 
of Corporate Average Fuel Economy (CAFE) Standards. Washington, DC: 
The National Academies Press. https://doi.org/10.17226/10172.
[GRAPHIC] [TIFF OMITTED] TR02MY22.099

(c) Low Drag Brakes
    We have defined low drag brakes (LDB) as brakes that reduce the 
sliding friction of disc brake pads on rotors when the brakes are not 
engaged because the brake pads are pulled away from the rotating disc 
either by mechanical or electric methods since 2009 for the MY 2011 
CAFE rule.\505\ At that time, we estimated the effectiveness of LDB 
technology to be a range from 0.5-1.0 percent, based on CBI data. We 
applied a learning curve to the estimated cost for LDB, but noted that 
the technology was considered high volume, mature, and stable. 
Confidential manufacturer comments in response to the NPRM for MY 2011 
(73 FR 24352, May 2, 2008) indicated that most passenger cars have 
already adopted LDB technology, but ladder frame trucks have not.
---------------------------------------------------------------------------

    \505\ Final Regulatory Impact Analysis, Corporate Average Fuel 
Economy for MY 2011 Passenger Cars and Light Trucks (March 2009), at 
V-135.
---------------------------------------------------------------------------

    We and EPA used the same definition for LDB in the MY 2012-2016 
joint rule, with an estimated effectiveness of up to 1 percent based on 
CBI data.\506\ We only allowed LDB technology to be applied to large 
car, minivan, medium and large truck, and SUV classes because the 
agency determined the technology was already largely utilized in most 
other subclasses. The 2011 NAS committee also utilized our definition 
for LDB and added that most new vehicles have low-drag brakes.\507\ The 
committee confirmed that the impact over conventional brakes may be 
about a 1 percent reduction of fuel consumption.
---------------------------------------------------------------------------

    \506\ Final Regulatory Impact Analysis, Corporate Average Fuel 
Economy for MY 2012-MY 2016 Passenger Cars and Light Trucks (March 
2010), at 249.
    \507\ 2011 NAS Report, at 103-104.
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    For the 2012 final rule for MY 2017-2025, however, we and EPA 
updated the effectiveness estimate for LDB to 0.8 percent based on a 
2011 Ricardo study and updated lumped-parameter model.\508\ The 
agencies considered LDB technology to be off the learning curve (i.e., 
the DMC does not change year-over-year). The 2015 NAS Report continued 
to use the agencies' definition for LDB and commented that the 0.8 
percent effectiveness estimate is a reasonable estimate.\509\ The 2015 
NAS committee did not opine on the application of LDB technology in the 
fleet. The agencies used the same definition, cost, and effectiveness 
estimates for LDB in the Draft TAR, but also noted the existence of 
zero drag brake systems which use electrical actuators that allow brake 
pads to move farther away from the rotor.\510\ However, the agencies 
did not include zero drag brake technology in either compliance 
simulation. EPA continued with this approach in its first 2017 Proposed 
Determination that the standards through 2025 were appropriate.\511\
---------------------------------------------------------------------------

    \508\ Joint Technical Support Document: Final Rulemaking for 
2017-2025 Light-Duty Vehicle Greenhouse Gas Emission Standards and 
Corporate Average Fuel Economy Standards (August 2012), at 3-211.
    \509\ 2015 NAS Report, at 231.
    \510\ Draft TAR, at 5-207.
    \511\ EPA Proposed Determination TSD, at 2-422.
---------------------------------------------------------------------------

    In the 2020 final rule, the agencies applied LDB sparingly in the 
MY 2017 analysis fleet using the same cost and effectiveness estimates 
from the 2011 Ricardo study, with approximately less than 15 percent of 
vehicles being assigned the technology. In addition, we noted the 
existence of zero drag brakes in production for some BEVs, similar to 
the summary in the Draft TAR, but did not opine on the existence of 
zero drag brakes in the fleet. Some stakeholders commented to the 2020 
rule that other vehicle technologies, including LDB, were actually 
overapplied in the analysis fleet.
    For this analysis, we considered the conflicting statements that 
LDB were both universally applied in new vehicles and that the new 
vehicle fleet still had space to improve LDB technology. We determined 
that LDB technology as previously defined going back to the MY 2011 
rule (73 FR 24352, May 2, 2008) was universally applied in the MY 2020 
fleet. However, we determined that zero drag brakes, the next level of 
brake technology, was sparingly applied in the MY 2020 analysis fleet. 
Currently, we do not believe that zero drag brake systems will be 
available for wide scale application in the rulemaking timeframe and we 
did not include it as a technology for this analysis. We sought comment 
on the issue, including any data on the use

[[Page 25847]]

advanced LDB systems on current and forthcoming production vehicles, 
but did not receive any comments. We will consider how to define a new 
level of low drag brake technology that either encompasses the 
definition of zero drag brakes or similar technology in future 
rulemakings.
(d) Secondary Axle Disconnect
    AWD and 4WD vehicles provide improved traction by delivering torque 
to the front and rear axles, rather than just one axle. When a second 
axle is rotating, it tends to consume more energy because of additional 
losses related to lubricant churning, seal friction, bearing friction, 
and gear train inefficiencies.\512\ Some of these losses may be reduced 
by providing a secondary axle disconnect function that disconnects one 
of the axles when driving conditions do not call for torque to be 
delivered to both.
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    \512\ Pilot Systems, ``AWD Component Analysis,'' Project Report, 
performed for Transport Canada, Contract T8080-150132, May 31, 2016.
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    The terms AWD and 4WD are often used interchangeably, although they 
have also developed a colloquial distinction, and are two separate 
systems. The term AWD has come to be associated with light-duty 
passenger vehicles providing variable operation of one or both axles on 
ordinary roads. The term 4WD is often associated with larger truck-
based vehicle platforms providing a locked driveline configuration and/
or a low range gearing meant primarily for off-road use.
    Many 4WD vehicles provide for a single-axle (or two-wheel) drive 
mode that may be manually selected by the user. In this mode, a primary 
axle (usually the rear axle) will be powered, while the other axle 
(known as the secondary axle) is not. However, even though the 
secondary axle and associated driveline components are not receiving 
engine power, they are still connected to the non-driven wheels and 
will rotate when the vehicle is in motion. This unnecessary rotation 
consumes energy,\513\ and leads to increased fuel consumption that 
could be avoided if the secondary axle components were completely 
disconnected and not rotating.
---------------------------------------------------------------------------

    \513\ Any time a drivetrain component spins it consumes some 
energy, primarily to overcome frictional forces.
---------------------------------------------------------------------------

    Light-duty AWD systems are often designed to divide variably torque 
between the front and rear axles in normal driving to optimize traction 
and handling in response to driving conditions. However, even when the 
secondary axle is not necessary for enhanced traction or handling, in 
traditional AWD systems it typically remains engaged with the driveline 
and continues to generate losses that could be avoided if the axle was 
instead disconnected. The SAX technology observed in the marketplace 
disengages one axle (typically the rear axle) for 2WD operation but 
detects changes in driving conditions and automatically engages AWD 
mode when it is necessary. The operation in 2WD can result in reduced 
fuel consumption. For example, Chrysler has estimated the secondary 
axle disconnect feature in the Jeep Cherokee reduces friction and drag 
attributable to the secondary axle by 80 percent when in disconnect 
mode.\514\
---------------------------------------------------------------------------

    \514\ Brooke, L. ``Systems Engineering a new 4x4 benchmark'', 
SAE Automotive Engineering, June 2, 2014.
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    Observing SAX technology on actual vehicles is very difficult. 
Manufacturers do not typically identify the technology on technical 
specifications or other widely available information. We employed an 
approach consistent with previous rulemaking in assigning this 
technology. Specifically, we assigned SAX technology based on a 
combination of publicly available information and previously submitted 
confidential information. In the analysis fleet, 38 percent of the 
vehicles that had AWD or 4WD are determined to have SAX technology. All 
vehicles in the analysis fleet with FWD or RWD have SAX skipped since 
SAX technology is a way to emulate FWD or RWD in AWD and 4WD vehicles, 
respectively. We did not allow for the application of SAX technology to 
FWD or RWD vehicles because they do not have a secondary driven axle to 
disconnect.
    SAX technology can be adopted by any vehicle in the analysis fleet, 
including those with a HEV or BEV powertrain,\515\ which was identified 
as having AWD or 4WD. It does not supersede any technology or result in 
any other technology being excluded for future implementation for that 
vehicle. SAX technology can be applied during any refresh or redesign.
---------------------------------------------------------------------------

    \515\ The inefficiencies addressed on ICEs by SAX technology may 
not be similar enough, or even present, in HEVs or BEVs.
---------------------------------------------------------------------------

    This analysis carries forward work on the effectiveness of SAX 
systems conducted in the Draft TAR and EPA Proposed Determination.\516\ 
This work involved gathering information by monitoring press reports, 
holding meetings with suppliers and OEMs, and attending industry 
technical conferences. We did not simulate SAX effectiveness in the 
Autonomie modeling because, similar to LDB, IACC, and EFR, the fuel 
economy benefits from the technology are not fully captured on the two-
cycle test. The secondary axle disconnect effectiveness values, for the 
most part, have been accepted as plausible based on the rulemaking 
record and absence of contrary comments. As such, the agency has 
prioritized its extensive Autonomie vehicle simulation work toward 
other technologies that are emerging or considered more critical for 
total system effectiveness. Table III-32 shows the resulting 
effectiveness estimates we used in this analysis.
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    \516\ Draft TAR, at 5-412; Proposed Determination TSD, at 2-422.

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[[Page 25848]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.100


[[Page 25849]]


(e) Other Vehicle Technology Costs
    The cost estimates for EPS, IACC, SAX, and LDB \517\ rely on 
previous work published as part of past rulemakings with learning 
applied to those cost values which is founded in the 2002 NAS 
Report.\518\ The cost values are the same values that were used for the 
Draft TAR and 2020 final rule, updated to 2018 dollars. Table III-33 
shows examples of costs for these technologies across select model 
years. Note that these costs are the same for all vehicle technology 
classes. For all absolute EPS, IACC, LDB, and SAX technology costs 
across all model years, see the Technologies file.
---------------------------------------------------------------------------

    \517\ Note that because LDB technology is applied universally as 
a baseline technology in the MY 2020 fleet, there is functionally 
zero costs for this technology associated with this rulemaking.
    \518\ National Research Council 2002. Effectiveness and Impact 
of Corporate Average Fuel Economy (CAFE) Standards. Washington, DC: 
The National Academies Press. https://doi.org/10.17226/10172.
[GRAPHIC] [TIFF OMITTED] TR02MY22.101

8. Simulating Air Conditioning Efficiency and Off-Cycle Technologies
    Off-cycle and air conditioning (AC) efficiency technologies can 
provide fuel economy benefits in real-world vehicle operation, but 
those benefits cannot be fully captured by the traditional 2-cycle test 
procedures used to measure fuel economy.\519\ Off-cycle technologies 
include technologies like high efficiency alternators and high 
efficiency exterior lighting.\520\ AC efficiency technologies are 
technologies that reduce the operation of or the loads on the 
compressor, which pressurizes AC refrigerant. The less the compressor 
operates or the more efficiently it operates, the less parasitic load 
the compressor places on the engine, resulting in better fuel 
efficiency.
---------------------------------------------------------------------------

    \519\ See 49 U.S.C. 32904(c) (``The Administrator shall measure 
fuel economy for each model and calculate average fuel economy for a 
manufacturer under testing and calculation procedures prescribed by 
the Administrator . . . . the Administrator shall use the same 
procedures for passenger automobiles the Administrator used for 
model year 1975 (weighted 55 percent urban cycle and 45 percent 
highway cycle), or procedures that give comparable results.'').
    \520\ 40 CFR 86.1869-12(b)--Credit available for certain off-
cycle technologies.
---------------------------------------------------------------------------

    Vehicle manufacturers have the option to generate credits for off-
cycle technologies and improved AC systems under the EPA's CO2 program 
and receive an FCIV equal to the value of the benefit not captured on 
the 2-cycle test under NHTSA's CAFE program. The FCIV is not a 
``credit'' in the NHTSA CAFE program,\521\ but the FCIVs increase the 
reported fuel economy of a manufacturer's fleet, which is used to 
determine compliance. EPA applies FCIVs during determination of a 
fleet's final average fuel economy reported to NHTSA.\522\ In the CAFE 
Model, we only calculate and apply FCIVs at a fleet level for a 
manufacturer based on the volume of the manufacturer's fleet that 
contain qualifying technologies.\523\
---------------------------------------------------------------------------

    \521\ Unlike, for example, the statutory overcompliance credits 
prescribed in 49 U.S.C. 32903.
    \522\ 49 U.S.C. 32904(c)-(e). EPCA granted EPA authority to 
establish fuel economy testing and calculation procedures. See 
Section VII for more information.
    \523\ 40 CFR 600.510-12(c).
---------------------------------------------------------------------------

    There are three pathways that manufacturers can use to determine 
the value of AC efficiency and off-cycle adjustments. First, 
manufacturers can use a predetermined list or ``menu'' of g/mi values 
that EPA established for specific off-cycle technologies.\524\ Second, 
manufacturers can use 5-cycle testing to demonstrate off-cycle CO2 
benefit; \525\ the additional tests allow emissions benefits to be 
demonstrated over some elements of real-world driving not captured by 
the 2-cycle compliance tests, including high speeds, rapid 
accelerations, hot temperatures, and cold temperatures. Third, 
manufacturers can seek EPA approval, through a notice and comment 
process, to use an alternative methodology other than the menu or 5-
cycle methodology for determining the off-cycle technology improvement 
values.\526\ For further discussion of the AC and off-cycle compliance 
and application process, see Section VII.
---------------------------------------------------------------------------

    \524\ See 40 CFR 86.1869-12(b). The TSD for the 2012 final rule 
for MYs 2017 and beyond provides technology examples and guidance 
with respect to the potential pathways to achieve the desired 
physical impact of a specific off-cycle technology from the menu and 
provides the foundation for the analysis justifying the credits 
provided by the menu. The expectation is that manufacturers will use 
the information in the TSD to design and implement off-cycle 
technologies that meet or exceed those expectations in order to 
achieve the real-world benefits of off-cycle technologies from the 
menu.
    \525\ See 40 CFR 86.1869-12(c). EPA proposed a correction for 
the 5-cycle pathway in a separate technical amendments rulemaking. 
See 83 FR 49344 (Oct. 1, 2019). EPA is not approving credits based 
on the 5-cycle pathway pending the finalization of the technical 
amendments rule.
    \526\ See 40 CFR 86.1869-12(d).
---------------------------------------------------------------------------

    We and EPA have been collecting data on the application of these 
technologies since implementing the AC and off-cycle programs.\527\ 
\528\ Most manufacturers are applying AC efficiency and off-cycle 
technologies; in MY 2020, 17 manufacturers employed AC efficiency 
technologies and 20 manufacturers employed off-cycle technologies, 
though the level of deployment varies by manufacturer.\529\
---------------------------------------------------------------------------

    \527\ See 77 FR 62832, 62839 (Oct. 15, 2012). EPA introduced AC 
and off-cycle technology credits for the CO2 program in 
the MYs 2012-2016 rule (75 FR 25324, May 7, 2010) and revised the 
program in the MY 2017-2025 rule (77 FR 62624, Oct. 15, 2012) and 
NHTSA adopted equivalent provisions for MYs 2017 and later in the MY 
2017-2025 rule.
    \528\ Vehicle and Engine Certification. Compliance Information 
for Light-Duty Gas (GHG) Standards. Compliance Information for 
Light-Duty Greenhouse Gas (GHG) Standards [bond] Certification and 
Compliance for Vehicles and Engines [bond] U.S. EPA. Last accessed 
December 22, 2021.
    \529\ See 2021 EPA Automotive Trends Report, at 90 and 92.
---------------------------------------------------------------------------

    Manufacturers have only recently begun including detailed 
information on off-cycle and AC efficiency technologies equipped on 
vehicles in compliance reporting data. For this analysis, though, such 
information was not sufficiently complete to support a detailed 
representation of the application of off-cycle technology to specific 
vehicle

[[Page 25850]]

model/configurations in the MY 2020 fleet. To account for the AC and 
off-cycle technologies equipped on vehicles and the potential that 
manufacturers will apply additional AC and off-cycle technologies in 
the rulemaking timeframe, we specify CAFE Model inputs for AC 
efficiency and off-cycle FCIVs in grams/mile for each manufacturer's 
fleet in each model year. We estimate future potential AC efficiency 
and off-cycle technology application in the CAFE analyses based on an 
expectation that manufacturers already relying heavily on these 
adjustments would continue do so, and that other manufacturers would, 
over time, also approach the limits on adjustments allowed for such 
improvements.
    The next sections discuss how the CAFE Model simulates the 
effectiveness and cost for AC efficiency and off-cycle technology 
adjustments.
(a) AC and Off-Cycle Effectiveness Modeling in the CAFE Model
    In this analysis, the CAFE Model applies AC and off-cycle 
flexibilities to manufacturer's CAFE regulatory fleet performance in a 
similar way to the regulation.\530\ As the CAFE Model simulates the 
addition of technology to vehicles in a given model year fleet, the 
model first applies conventional technologies to vehicles in an attempt 
to meet a given standard, and then applies AC efficiency and off-cycle 
FCIVs to each regulatory fleet. In other words, first the CAFE Model 
applies conventional technologies to each manufacturers' vehicles in 
each model year to assess the 2-cycle sales weighted harmonic average 
CAFE rating. Then, the CAFE Model assesses the CAFE rating to use for a 
manufacturer's compliance value after applying the AC efficiency and 
off-cycle FCIVs designated in the Market Data file. The CAFE Model does 
this on a year-by-year basis. The CAFE Model attempts to apply 
technologies and FCIVs in a way that both minimizes cost and allows the 
manufacturer to meet their standards without over or under complying.
---------------------------------------------------------------------------

    \530\ 49 CFR 531.6 and 49 CFR 533.6 Measurement and Calculation 
procedures.
---------------------------------------------------------------------------

    To determine how manufacturers might adopt AC efficiency and off-
cycle technologies in the rulemaking timeframe, we use data from EPA's 
2021 Trends Report for MY 2020 and CBI compliance material from 
manufacturers.\531\ \532\ We use manufacturer's MY 2020 AC efficiency 
and off-cycle FCIVs as a starting point, and then extrapolate values in 
each model year until MY 2026, for light trucks to the proposed 
regulatory cap, for each manufacturer's fleets by regulatory class.
---------------------------------------------------------------------------

    \531\ Vehicle and Engine Certification. Compliance Information 
for Light-Duty Gas (GHG) Standards. Compliance Information for 
Light-Duty Greenhouse Gas (GHG) Standards [verbar] Certification and 
Compliance for Vehicles and Engines [verbar] U.S. EPA. Last accessed 
May 24, 2021.
    \532\ 49 U.S.C. 32907.
---------------------------------------------------------------------------

    To determine the rate at which to extrapolate the addition of AC 
and off-cycle technology adoption for each manufacturer, we use 
historic AC and off-cycle technology applications, each manufacturer's 
fleet composition (i.e., breakdown between passenger cars (PCs) and 
light trucks (LTs)), availability of AC and off-cycle technologies that 
manufacturers could still use, and CBI compliance data. Different 
manufacturers show different levels of historical AC efficiency and 
off-cycle technology adoption; therefore, different manufacturers hit 
the proposed regulatory caps for AC efficiency technology for both 
their PC and LT fleets, and different manufacturers hit caps for off-
cycle technologies in the LT regulatory class. We do not extrapolate 
off-cycle technology adoption for PCs to the proposed regulatory cap 
for a few reasons. First, past EPA Trends Reports showed that many 
manufacturers did not adopt off-cycle technology to their passenger car 
fleets. Next, manufacturers limited PC offerings in MY 2020 as compared 
to historical trends. Last, available CBI compliance data indicated 
that PCs adopt a lower level of menu item off-cycle technologies than 
LTs. We accordingly limit the application of off-cycle FCIVs to 10 g/mi 
for PCs but allow LTs to apply 15 g/mi of off-cycle FCIVs starting in 
MY 2023 for the final rule analysis. This decision also aligns with 
EPA's treatment of off-cycle adjustments in its final rule. The inputs 
for AC efficiency technologies are set to 5 g/mi and 7.2 g/mi for PCs 
and LTs, respectively. We allow AC efficiency technologies to reach the 
regulatory caps by MY 2024, which is the first year of standards 
assessed in this analysis.
    We apply FCIVs in this way because the AC and off-cycle 
technologies are generally more cost-effective than other technologies. 
The details of this assessment (and the calculation) are further 
discussed in the CAFE Model Documentation.\533\ The AC efficiency and 
off-cycle adjustment schedules used in this analysis are shown in TSD 
Chapter 3.8 and in the Market Data file's Credits and Adjustments 
worksheet. Like the NPRM, for this final rule analysis we did not allow 
some manufacturers to reach the AC efficiency and off-cycle caps to 
avoid over compliance in the rulemaking time frame. Table III-34 and 
Table III-35 show the average FCIVs applied to the regulatory fleets 
for the final rule analysis.
---------------------------------------------------------------------------

    \533\ CAFE Model Documentation, S5.
    [GRAPHIC] [TIFF OMITTED] TR02MY22.102
    

[[Page 25851]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.103

    We received limited comments on how we model off-cycle and AC 
efficiency for this rulemaking analysis. Auto Innovators stated that 
``due to the static nature of the forecasts and input structure, the 
NHTSA forecasts on the quantity of off-cycle credits do not vary by 
scenario, and this creates material distortions in the model outputs. 
For instance, the projected Central case adoption of off-cycle 
technologies may contribute to over-compliance with some scenarios, 
especially low stringency scenarios.'' \534\ On the other hand, UCS 
stated that ``NHTSA has not acknowledge that its [CAFE Model] does not 
consider increased adoption of off-cycle technology to yield any real-
world benefit . . . there is supportive evidence of their real-world 
benefits, and at any rate NHTSA must state explicitly its rationale for 
excluding these technologies from the benefits of the rule, as the 
credits associated with these technologies represent a substantial 
share of the credits accrued for compliance by manufacturers.'' UCS 
also stated that ``NHTSA should correct the [CAFE Model] to ensure it 
adjusts a vehicle's fuel economy to account for reductions in emissions 
and fuel use from off-cycle technologies, which will yield a more 
accurate accounting of the benefits from the CAFE program.'' \535\
---------------------------------------------------------------------------

    \534\ Auto Innovators, Docket No. NHTSA-2021-0053-0021 Appendix 
VII, at 125-126.
    \535\ UCS, Docket No. NHTSA-2021-0053-1567, at 31.
---------------------------------------------------------------------------

    In response to comments from Auto Innovators, we agree that, in 
theory, the way the CAFE Model is set up to apply off-cycle benefits 
statically could create overcompliance for some manufacturers. However, 
as discussed earlier and in TSD Chapter 3.8, we apply off-cycle and 
other flexibilities differently for each manufacturer rather than apply 
adjustments consistently to the cap for each manufacturer. For example, 
if a manufacturer is on a trajectory to reach the off-cycle regulatory 
cap, then we allow the model to reach that cap regardless of 
alternatives. On the other hand, if a manufacturer has historically 
lagged in the adoption of off-cycle technology, we use this historic 
rate of application through the rulemaking time frame. As shown in 
Table III-34 and Table III-35, on average, the fleet does not reach the 
regulatory caps based on our extrapolation.
    We understand UCS's concern, that because the CAFE Model accounts 
for off-cycle technology at the fleet level, the benefits do not 
directly appear in the vehicle-level benefits analysis. Although 
further refinement may be possible for future analyses, at this time 
there are only limited vehicle-level data available. We agree that some 
manufacturers have relied on these flexibilities more so than others, 
but as indicated by the 2021 EPA Trends Report many are still lagging 
in adopting these technologies.\536\ This is one reason why we declined 
to apply off-cycle benefits up to the cap for each vehicle to have 
those benefits automatically count in the benefits calculations. Based 
on the ratio of benefits that manufacturers can expect from on-cycle 
versus off-cycle technology, we believe that the small off-cycle 
technology benefit that is not accounted for in the benefits 
calculations does not make a material difference to the analysis.
---------------------------------------------------------------------------

    \536\ 2021 EPA Trends Report at 104-106.
---------------------------------------------------------------------------

    For the final rule analysis, we updated the baseline fleet off-
cycle data to reflect the 2021 EPA Trends Report, using the same 
modeling methodology as the NPRM. We believe that this approach is 
appropriate to capture the costs and benefits of off-cycle 
technologies.
(b) AC and Off-Cycle Costs
    For this analysis, AC and off-cycle technologies are applied 
independently of the decision trees using the extrapolated values shown 
above, so it is necessary to account for the costs of those 
technologies independently. Table III-36 shows the costs used for AC 
and off-cycle FCIVs in this analysis. The costs are shown in dollars 
per gram of CO2 per mile ($ per g/mile). The AC efficiency and off-
cycle technology costs are the same costs used in the EPA Proposed 
Determination and described in the EPA Proposed Determination TSD.\537\
---------------------------------------------------------------------------

    \537\ EPA PD TSD. EPA-420-R-16-021. November 2016. At 2-423-2-
245. https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100Q3L4.pdf. Last 
accessed May 24, 2021.
---------------------------------------------------------------------------

    To develop the off-cycle technology costs, we selected the second 
generic 3 g/mile package estimated to cost $170 (in 2015$) to apply in 
this analysis in $ per g/mile. We updated the costs used in the 
Proposed Determination TSD from 2015$ to 2018$, adjusted the costs for 
RPE, and applied a relatively flat learning rate.
    Similar to off-cycle technology costs, we used the cost estimates 
from EPA Proposed Determination TSD for AC efficiency technologies that 
relied on the 2012 rulemaking TSD.\538\ We updated these costs to 2018$ 
and adjusted for RPE for this analysis and applied the same mature 
learning rate that we had applied for off-cycle technologies.
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    \538\ Joint NHTSA and EPA 2012 TSD, see Section 5.1.

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[[Page 25852]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.104

    In the NPRM we sought comment on whether our costs were appropriate 
or if other costs should be used. Overall, comments from UCS, Consumer 
Reports, and ICCT stated that our costs for off-cycle technologies were 
high.\539\ Consumer Reports indicated that they did not investigate the 
NHTSA approach to AC and off-cycle adjustments and costs. However 
Consumer Reports did find ``that under the EPA proposal the use of 
similar costs for off-cycle technologies resulted in compliance costs 
for those technologies that were more than three times the average 
compliance costs of all the technology applied to achieve the Preferred 
Alternative.'' \540\ ICCT stated that ``the agencies use an arbitrarily 
and unrealistically high estimate of off-cycle credit cost in their 
compliance modeling.'' \541\ UCS conducted an analysis of off-cycle 
costs using the 2020 final rule's CAFE Model and data from the 2021 NAS 
Report to show that the average costs could be different if the 
agencies used different inputs.\542\ This approach is similar to the 
one used by EPA in the final rule for MYs 2023-2026 in determining the 
costs of off-cycle.
---------------------------------------------------------------------------

    \539\ Consumer Reports, Docket No. NHTSA-2021-0053-1576, at 22; 
UCS, at 30; ICCT, Docket No. NHTSA-2021-0053-1581, at 8.
    \540\ Consumer Reports, at 22-23.
    \541\ ICCT, at 8.
    \542\ UCS, at 30.
---------------------------------------------------------------------------

    As we discussed in the NPRM and explained again above, the CAFE 
Model was updated from the 2020 final rule model to better account for 
costs of AC and Off-Cycle technologies.543 544 This update 
fixed many of the issues highlighted by the commenters by baking in the 
costs per vehicle of the off-cycle technology in the baseline vehicle 
and excluding the costs from affecting the new vehicle model output 
costs. The CAFE Model used by EPA in their rulemaking analysis for MYs 
2023-2026 did not have this feature, and they were required to re-
evaluate the costs as described in the EPA Regulatory Impacts 
Analysis.\545\
---------------------------------------------------------------------------

    \543\ 86 FR 49605 (Sept. 3, 2021).
    \544\ ``More accurate accounting for off-cycle incremental costs 
relative to MY 2020 baseline fleet.''
    \545\ EPA Final Rule for MYs 2023-2026 RIA, Chapter 4.1.1.1, 
Off-Cycle Credit Cost and changes since the Proposed Rule, at p. 4-
6.
---------------------------------------------------------------------------

    Separately, none of these commenters provided alternative AC and 
off-cycle technology costs in response to our request that commenters 
provide any data or information on which any alternative costs are 
based on. General statements that costs should be lower, without 
specific data and analysis to support those statements, are not enough 
to justify a change from the NPRM values. As one example, the 2021 NAS 
Report observed an AC efficiency technology similar to one used by 
Toyota, and they estimated the cost of that technology to be $170 in 
2025.546 547 However, that was not enough information for us 
to update our gram per mile cost for all technologies. We will continue 
to research this issue for future analyses.
---------------------------------------------------------------------------

    \546\ 2021 NAS Report, at 68.
    \547\ EPA Decision Document. ``Off-Cycle Credits for Toyota 
Motor North America.'' EPA-420-R-21-024. October 2021. https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1013CFF.pdf. (Accessed: March 
15, 2022)
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E. Consumer Responses to Manufacturer Compliance Strategies

    The previous subsections in Section III have so far discussed how 
manufacturers might respond to changes to the standards. While the 
technology analysis is informative of the different compliance 
strategies available to manufactures, the tangible costs and benefits 
that accrue because of CAFE standards also depend on how consumers 
respond to the decisions made by manufacturers. Many of the benefits 
and costs resulting from changes to CAFE standards are private benefits 
that accrue to the buyers of new cars and trucks produced in the model 
years subject to this rulemaking. These benefits and costs largely flow 
from the changes to vehicle purchases, ownership, and operating costs 
that result from improved fuel economy, as well as from the costs of 
the technology required to achieve those improvements. In addition, 
buyers' and owners' decisions about the use of their vehicles can 
impose costs or create benefits that fall on others, which the agency 
refers to as ``external'' costs or benefits. The following subsections 
describe how NHTSA's analyzes consumer responses to changing vehicles 
and prices.
1. Assumptions About Macroeconomic Conditions and Consumer Behavior
    This final rule includes a comprehensive economic analysis of the 
impacts of establishing more stringent CAFE standards, and most of the 
effects it measures are influenced by future macroeconomic conditions 
that are beyond the agency's influence. For example, domestic fuel 
prices are mainly determined by global petroleum supply and demand as 
well as refining costs, yet they determine how much technology 
manufacturers will employ to improve the fuel economy of cars and light 
trucks produced for the U.S. market, how much consumers are willing to 
pay for new vehicles offering different levels of fuel economy, how 
much new and used cars and light trucks will be driven, and the value 
of each gallon saved through higher CAFE standards. Similarly, 
projecting sales of new cars and light trucks produced during the model 
years subject to the standards this final rule establishes requires 
robust projections of demographic and macroeconomic variables that span 
the entire timeframe of the analysis, including U.S. population, Gross 
Domestic Product (GDP), consumer confidence about future economic 
conditions, and disposable personal income.
    To ensure internal consistency within the agency's analysis, 
projections of most of the economic variables used in our analysis are 
obtained from the same source. The analysis presented here relies on 
forecasts of fuel prices issued by the U.S. Energy Information 
Administration (EIA), an agency within the DOE that collects, analyzes, 
and disseminates independent and impartial energy data and forecasts to 
promote sound policymaking, efficient markets, and public understanding 
of energy and its interaction with the economy and the environment. EIA 
uses its National Energy Model System (NEMS) to produce its Annual 
Energy Outlook

[[Page 25853]]

(AEO), which includes forecasts of future U.S. macroeconomic growth and 
fuel prices among many other energy-related variables. NHTSA's main 
analysis uses forecasts of fuel prices, from the AEO 2021 Reference 
Case. The agency also uses forecasts of the U.S. population, the number 
of U.S. households, the Nation's Gross Domestic product (GDP), 
disposable personal income, and consumer confidence to develop its 
projections of new car and light truck sales as well as of total light-
duty vehicle travel. For the current analysis, NHTSA obtained forecasts 
of these variables from the IHS Markit Global Insight October 2021 
Macroeconomic Outlook base case, which represents the most likely 
scenario from that organization's most current forecast. EIA also 
relies on the IHS Markit Global Insight Macroeconomic Outlook to 
develop the macroeconomic and energy price forecasts included as part 
of its Annual Energy Outlook. However, the forecasts EIA presents in 
its Annual Energy Outlook 2021 are based on the IHS Markit Global 
Insight March 2021 Macroeconomic Outlook, rather than the more recent 
October 2021 Outlook the agency relies on in this analysis. Because the 
forecasts of population, GDP, disposable income, and other variables in 
the March 2021 and October 2021 Macroeconomic Outlooks are very 
similar, the forecasts the agency relies on in this analysis are 
generally consistent with those reported in EIA's AEO 2021. TSD Chapter 
4.1 includes a more complete discussion of the macroeconomic 
assumptions made for the analysis.
    While these macroeconomic assumptions are some of the most critical 
inputs to the analysis, they are also subject to the most uncertainty--
particularly over the lifetimes of the vehicles subject to this final 
rule, which can extend as far as forty years into the future. The 
agency also uses low and high economic growth and global oil price 
forecasts issued by EIA as part of its Annual Energy Outlook as 
alternative cases in its sensitivity analyses. The purpose of these 
sensitivity analyses, which are discussed in greater detail in FRIA 
Chapters 6 and 7, is not to posit a more credible future state of the 
world than the central case, which the agency assumes represents the 
most likely future state of the world. Instead, the sensitivity 
analyses are intended to illustrate the degree to which important 
future outcomes resulting from this final rule might change under 
different assumptions about fuel prices, economic growth, and other 
factors.
    The agency received several comments about the macroeconomic 
assumptions used in the analysis. Auto Innovators correctly noted that 
fuel prices will influence the adoption of advanced technologies and 
the cost and benefits realized under the new standards, and commented 
that EIA's projections may overestimate fuel prices. In support of its 
claim, Auto Innovators notes that EIA's projections have historically 
overestimated fuel prices and speculates that the current forecasts 
could overestimate domestic demand if the ``EIA Central Case gasoline 
forecast assumes fewer than 50 [percent] plug-in vehicles by 2030.'' 
\548\ In that event, Auto Innovators recommended that NHTSA instead 
rely on the IHS Markit Global Insight forecast of fuel prices 
throughout its main analysis, which as its comment showed falls 
considerably below the AEO 2021 Reference Case forecast after about the 
year 2030. Auto Innovators recognized that NHTSA does use the Global 
Insight forecast it recommended for the purpose of sensitivity analysis 
but encouraged the agency to feature it more prominently.
---------------------------------------------------------------------------

    \548\ Auto Innovators, Docket No. NHTSA-2021-0053-0021, at 58-
59. The AEO 2021 Reference Case forecasts that less than 2 percent 
of new car and light truck sales during 2030 will be plug-in hybrid 
models and including projected sales of conventional hybrid models 
increases that figure to somewhat more than 6 percent.
---------------------------------------------------------------------------

    In contrast, Consumer Reports asserted that the AEO 2021 
projections underestimated how quickly fuel prices would rebound from 
the diminished demand caused by onset of COVID-19. Consumer Reports 
suggested that the agency use the AEO 2020 reference case instead of 
that from AEO 2021 to avoid the potential for fuel prices from calendar 
year 2020 to unduly influence the rest of the analysis.\549\ As 
discussed earlier, projections are inherently uncertain and actual 
prices are likely to deviate from those forecast for any given future 
year, and the accuracy of a multi-year forecast should not be judged by 
its ability to predict the value realized in a single period. In any 
case, the agency determined that the AEO 2021 projections of fuel 
prices were more appropriate for this analysis, because they 
incorporate the potential long-term impacts of the COVID-19 pandemic 
and its effects on travel activity, gasoline demand, and future fuel 
prices.\550\
---------------------------------------------------------------------------

    \549\ Consumer Reports, Comment Body, Docket No. NHTSA-2021-
0053-1576, at 23.
    \550\ EIA reports that actual retail gasoline prices during 2021 
averaged $3.10 per gallon, considerably higher than the $2.36 
average price projected for 2021 as part of AEO 2021. While part of 
this discrepancy probably owes to an overly cautious view of how 
rapidly global demand for petroleum products would return to its 
pre-pandemic level, other unforeseen factors apparently contributed 
as well. This is evidenced by the fact that actual gasoline prices 
during 2021 were well above their levels during the pre-pandemic 
years of 2018 and 2019, when they averaged $2.81 and $2.69 per 
gallon.
---------------------------------------------------------------------------

    Commenters also raised concerns about the included electricity 
price forecast. Auto Innovators, for example, proposed electricity rate 
inputs are too low in the face of anticipated increases in renewable 
electricity generation and may therefore overestimate benefits of the 
regulatory action.\551\ The commenters pointed to research from the 
National Renewable Energy Laboratory that suggests price increases are 
possible and noted EPA's fuel price inputs increase to $0.133 per kWh 
in 2040 (compared to $0.120 in the NHTSA's NPRM). Auto Innovators did 
not suggest alternative price series and NHTSA is wary of varying fuel 
prices without simultaneously varying assumptions about electricity 
grid mix. Further, the CAFE Model is unable to simulate regional 
differences in electricity generation and fuel prices and cannot 
capture regional differences in electricity prices, which may arise 
from heterogeneity in grid mix. The agency did include a sensitivity 
case that varied projections about electricity supply and included a 
case with high levels of renewable energy generation from EIA. These 
results are included in FRIA Chapter 7.
---------------------------------------------------------------------------

    \551\ Auto Innovators, A1, at 85.
---------------------------------------------------------------------------

    Another key assumption that has important ramifications throughout 
the agency's analysis is how much consumers are willing to pay for 
improved fuel economy. If buyers fully value the savings in fuel costs 
that result from driving (and potentially re-selling) vehicles with 
higher fuel economy and manufacturers supply all improvements in fuel 
economy that buyers demand, market-determined levels of fuel economy 
would reflect both the cost of improving it and the private benefits 
from doing so.\552\ In that case, regulations on fuel economy would 
only be necessary to reflect environmental or other benefits other than 
to buyers themselves. But if consumers instead undervalue future fuel 
savings or are otherwise unable to purchase their optimal levels of 
fuel economy due to market failures, they will underinvest in fuel 
economy and manufacturers would spend too little on fuel-saving 
technology (or deploy its energy-saving benefits to improve vehicles' 
other

[[Page 25854]]

attributes). In that case, more stringent fuel economy standards could 
lead manufacturers to adopt improvements in fuel economy that not only 
reduce external costs from producing and consuming fuel to appropriate 
levels but also improve consumer welfare.
---------------------------------------------------------------------------

    \552\ Besides fuel savings, the private benefits from increased 
fuel economy may also include increased driving range, decreased 
costs per mile driven, and refueling benefits such as the experience 
of not having to stop as often to refuel.
---------------------------------------------------------------------------

    Increased fuel efficiency offers vehicle owners significant 
potential savings; in fact, our analysis shows that the value of 
prospective fuel savings exceeds manufacturers' technology costs to 
comply with even the most stringent standards considered for this final 
rule when both are discounted at a either a 3 percent or 7 percent 
rate. It would seem reasonable to assume that well-informed vehicle 
shoppers, if without time constraints or other barriers to rational 
decision-making, will recognize the full value of fuel savings from 
purchasing a model that offers higher fuel economy, since they would 
enjoy an equivalent increase in their disposable income and the other 
consumption opportunities it affords them. If consumers did value the 
full amount of fuel savings, more fuel-efficient vehicles would 
functionally be less costly for consumers to own when considering both 
their initial purchase prices and subsequent operating costs, thus 
making the models that manufacturers are likely to offer under stricter 
alternatives more attractive than those available under the No-Action 
Alternative.
    Recent econometric research is divided between studies concluding 
that consumers value most or all of the potential savings in fuel costs 
from driving higher-mpg vehicles, and those concluding that consumers 
significantly undervalue expected fuel savings. Based on a detailed 
analysis of changes in recent sale values of cars and light trucks in 
response to variation in fuel prices, Busse et al. (2013) estimated 
that buyers value 54 to 117 percent of fuel savings from purchasing 
higher-mpg models, with the exact value depending on the discount rate 
they apply to future savings; their estimates for new car buyers ranged 
from 75 to 133 percent of future fuel savings, Using similar methods 
and an extremely large sample of used vehicle sales, Allcott and Wozny 
(2014) estimated a corresponding range of 55 to 76 percent depending on 
their assumptions about buyers' discount rates and expectations for 
future fuel prices, with a figure of 93 percent for buyers of the 
newest (1-3 year old) cars in their sample. Again using similar 
methods, Sallee et al. (2016) estimated that car and light truck buyers 
are willing to pay from 60 percent to perhaps as much as 142 percent of 
the value of future fuel savings to purchase models offering higher 
fuel economy. Most recently, Leard and Zhou's (2021) analysis puts the 
most likely value for this figure at slightly above half (54 percent), 
and Gillingham et al. (2021) find that ``consumers systematically 
undervalue fuel economy in vehicle purchases to a larger degree than 
reported by much of the recent literature.'' 553 554
---------------------------------------------------------------------------

    \553\ Busse, M., C. Knittel, and F. Zettelmeyer. 2013. ``Are 
Consumers Myopic? Evidence from New and Used Car Purchases.'' 
American Economic Review 103(1): 220-56; Allcott, H., and N. Wozny. 
2014. ``Gasoline Prices, Fuel Economy, and the Energy Paradox.'' The 
Review of Economics and Statistics 96(5): 779-95; Sallee, J., S. 
West, and W. Fan. 2016. ``Do Consumers Recognize the Value of Fuel 
Economy? Evidence from Used Car Prices and Gasoline Price 
Fluctuations.'' Journal of Public Economics 135: 61-73; Leard, B., 
J. Linn, and Y. Zhou. 2021. ``How Much Do Consumers Value Fuel 
Economy and Performance? Evidence from Technology Adoption.'' The 
Review of Economics and Statistics: 1-45 (forthcoming); Gillingham, 
K.T., S. Houde, and A. van Bentham, 2021. ``Consumer Myopia in 
Vehicle Purchases: Evidence from a Natural Experiment.'' American 
Economic Journal: Economic Policy 13(3): 207-238.
    \554\ Other research asks the more fundamental questions of 
whether consumers are adequately informed about and attentive to 
potential fuel savings from buying higher-mpg models when they shop 
for new cars, and again arrives at mixed conclusions. This includes 
Allcott, H. and C. Knittel, 2019. ``Are Consumers Poorly Informed 
about Fuel Economy? Evidence from Two Experiments'', AEJ: Economic 
Policy, 11(1): 1-37, and D. Duncan, A. Ku, A. Julian, S. Carley, S. 
Siddiki, N. Zirogiannis and J. Graham, 2019. ``Most Consumers Don't 
Buy Hybrids: Is Rational Choice a Sufficient Explanation?'', J. of 
Benefit-Cost Analysis, 10(1): 1-38. The former analysis concludes 
that consumers appear to be relatively well-informed about the value 
of higher fuel economy when they shop for new vehicles, while the 
latter concludes that some buyers appear inattentive to savings 
available from buying higher-MPG hybrid versions of certain vehicle 
models.
---------------------------------------------------------------------------

    More circumstantial evidence appears to show that consumers do not 
fully value the expected lifetime fuel savings from purchasing higher-
mpg models. Although the average fuel economy of new vehicles reached 
an all-time high of 25.7 MPG in MY 2020, this is still significantly 
below the fuel economy of the fleet's most efficient vehicles that are 
readily available for consumers to purchase.555 556 
Manufacturers have repeatedly informed the agency that consumers value 
only 2 to 3 years of the future fuel savings that higher-mpg cars and 
light trucks offer when choosing among available models.
---------------------------------------------------------------------------

    \555\ See EPA 2020 Automotive Trends Report at 6 and 9, 
available at https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1010U68.pdf. (Accessed: March 15, 2022)
    \556\ Of course, this could simply suggest that the future 
savings in fuel costs those models offer--given potential buyers' 
expectations about future fuel prices--do not justify manufacturers' 
costs for providing them, since those are presumably reflected in 
their higher purchase prices.
---------------------------------------------------------------------------

    The potential for car buyers to voluntarily forgo improvements in 
fuel economy that appear to offer future savings exceeding their 
initial costs is one example of what is often termed the ``energy-
efficiency gap.'' The appearance of a gap between the level of energy 
efficiency that would minimize consumers' overall expenses and what 
they actually purchase is typically based on engineering calculations 
that compare the initial cost for providing higher energy efficiency to 
the discounted present value of the resulting savings in future energy 
costs. There has long been an active debate about why such a gap might 
arise and whether it exists. Economic theory predicts that economically 
rational individuals will purchase more energy-efficient products only 
if the savings in future energy costs they offer promise to offset 
their higher initial costs. On the other hand, various market failures, 
including information asymmetries between consumers, dealerships, and 
manufacturers; market power; first-mover disadvantages for both 
consumers and manufacturers; split incentives between vehicle 
purchasers and vehicle drivers; and other failures may prevent 
consumers from purchasing the optimal level of fuel economy in an 
unregulated market. Furthermore, behavioral economics has documented 
numerous situations in which the decision-making of consumers differs 
in important ways from the predictions of the model of the fully 
optimizing consumer (e.g., Dellavigna, 2009).\557\
---------------------------------------------------------------------------

    \557\ Dellavigna, S., 2009. ``Psychology and economics: Evidence 
from the field,'' Journal of Economic Literature, 47(2), 315-372. 
Available at https://pubs.aeaweb.org/doi/pdfplus/10.1257/jel.47.2.315. (Accessed: Mar. 24, 2022).
---------------------------------------------------------------------------

    One explanation for such `undervaluation' of the savings from 
purchasing higher-mpg models is myopia or present bias, where consumers 
focus unduly on short-term costs while giving insufficient attention to 
long-term benefits.\558\ This situation could arise because buyers are 
unsure whether they will actually realize the fuel savings indicated by 
test data posted on cars' fuel economy labels under the conditions 
where they drive, what future fuel prices will be, how long they will 
own a new vehicle, or whether they will drive it enough to realize the 
promised savings. As a consequence, they may view choosing

[[Page 25855]]

to purchase a more fuel-efficient vehicle as a risky ``bet,'' and 
experimental research has shown that when faced with a risky choice, 
some consumers appear to weigh the potential loss from an adverse 
outcome approximately twice as heavily as the potential gain from 
``winning'' the bet, leading them to significantly undervalue that 
choice relative to its probabilistic ``expected'' value (e.g., Kahneman 
and Tversky, 1979; \559\ Kahneman, 2011).\560\ Viewed in the context of 
a choice to pay more for a higher-mpg car, loss aversion has been shown 
to have the potential to cause undervaluation of future fuel savings 
like that reported by manufacturers (Greene, 2011; \561\ Greene et al., 
2013).\562\
---------------------------------------------------------------------------

    \558\ Gillingham et al., 2021, which is an AEJ: Economic Policy 
paper, just published on consumer myopia in vehicle purchases; a 
standard reference on present bias generally is O'Donoghue, Ted, and 
Matthew Rabin. 2015. ``Present Bias: Lessons Learned and To Be 
Learned.'' American Economic Review: Papers & Proceedings 105(5): 
273-79. Available at https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.p20151085. (Accessed: Mar. 30, 2022).
    \559\ Kahneman, D. and A. Tversky, 1979. ``Prospect theory: An 
analysis of decision making under risk,'' Econometrica, 47, 263-291.
    \560\ Kahneman, D., 2011. Thinking Fast and Slow. Farrar, Straus 
and Giroux, New York.
    \561\ Greene, D.L., 2011. ``Uncertainty, Loss Aversion and 
Markets for Energy Efficiency,'' Energy Economics, 33, 608-616.
    \562\ Greene, D.L., D.H. Evans, and J. Hiestand, 2013. ``Survey 
evidence on the willingness of U.S. consumers to pay for automotive 
fuel economy,'' Energy Policy, 61, 1539-1550. Application of 
investment under uncertainty will yield similar results as costs may 
be more certain and up front while the fuel savings or benefits of 
the investment may be perceived as more uncertain and farther into 
future, thereby reducing investments in fuel saving technologies.
---------------------------------------------------------------------------

    The ``behavioral'' model of consumer choice also holds that 
consumers' decisions are affected by the context of choices and its 
effect on how consumers ``frame'' decisions. From this perspective, it 
is possible that consumers respond to changes in the fuel economy new 
vehicles offer required by government regulations such as CAFE 
standards differently than they respond to manufacturers voluntarily 
offering buyers the option to purchase models featuring the same fuel 
economy levels those regulations would require.\563\ The intuition 
behind this possibility is that if a consumer is shopping for a new car 
in an unregulated market and considering two models--one that offers 
higher fuel economy but is more expensive and another that does not but 
is cheaper--she may buy the less fuel efficient version even if 
choosing the more expensive model could save money in the long run. If 
instead the consumer faced the decision to buy a new car or keep an 
older one, and all new car models were required to meet fuel economy 
standards, she may view the decision differently and elect to purchase 
a new model offering the same price and fuel economy that she 
previously declined to purchase. Further, if fuel economy standards 
increased gradually over a period of years, this would allow time for 
consumers to consult other information sources and verify that 
potential fuel savings are likely to prove real and of substantial 
value.
---------------------------------------------------------------------------

    \563\ See NASEM (2021), Ch. 11.3.3, We explain this potential 
differential response more thoroughly in TSD Chapter 4.2.1.1.
---------------------------------------------------------------------------

    Another alternative explanation for consumers' reluctance to 
purchase more costly models whose lower fuel costs would ultimately 
repay their higher purchase prices is that consumers view those higher 
prices in the context of tradeoffs they make among their purchasing 
decisions. Households must choose how to spread their limited incomes 
over many competing goods and services, including deciding how much to 
spend on a new vehicle, or even whether to opt for another form of 
transportation instead. While a consumer may correctly recognize the 
cumulative long-term value of fuel savings, they may also prefer to 
spend the extra cost of buying a car that offers those savings on other 
items, whether other vehicle attributes--more interior space and 
comfort, for example, or a more luxurious trim package--or on other 
unrelated goods and services. Some of the same technologies that 
manufacturers have available to increase fuel economy can also enable 
increased vehicle size, power, or weight while maintaining fuel 
economy.\564\ While increased fuel efficiency will free up disposable 
income throughout the lifetime of the vehicle (and may ultimately 
exceed the additional upfront costs to purchase a more expensive but 
more fuel-efficient vehicle), the value of owning a different good 
sooner may provide consumers with even more benefit.\565\
---------------------------------------------------------------------------

    \564\ Other technologies may simultaneously increase both fuel 
economy and certain performance attributes.
    \565\ While households have budgets, both individual vehicle 
purchasers and the purchasers of large fleets of vehicles may have 
access to financing for vehicle purchases. Given sufficient 
financing, a rational consumer could both purchase fuel economy 
improvements that will pay for themselves over time as well as other 
desired goods. Failure to do so would seem to indicate either a lack 
of efficient access to financing or some market failure.
---------------------------------------------------------------------------

    NHTSA's NPRM included an extensive theoretical discussion of 
consumer valuation of fuel economy, including a detailed theoretical 
analysis of consumer choices between vehicle performance and fuel 
economy when buyers are constrained by limited budgets and 
manufacturers by fuel economy standards. That analysis showed that when 
fuel economy standards are binding, consumers might prefer that 
manufacturers employ newly available technologies that could be used to 
improve performance or increase fuel economy to improve performance, 
and that manufacturers would be likely to do so. NHTSA's analysis also 
suggested that if fuel economy standards no longer constrained 
consumers' choices, due either to shifting preferences for fuel economy 
(for example, in response to changes in the price of gasoline) or to 
changes in buyers' income levels, manufacturers would be likely to use 
new technologies to improve both performance and fuel economy. NHTSA 
then presented trends in new vehicle fuel economy and performance over 
time and suggested that its theoretical analysis was consistent with 
the historical record, which shows the fuel economy of the new vehicle 
fleet increases when the price of gasoline increases.\566\ NHTSA 
solicited comments on its theoretical analysis and the potential 
implications for its FRIA, and also sought potential approaches for 
valuing the tradeoff between performance and fuel economy when NHTSA's 
standards constrain consumers to choose more fuel-efficient options.
---------------------------------------------------------------------------

    \566\ For additional details, see 86 FR 49723-31 (Sept. 3, 
2021).
---------------------------------------------------------------------------

    NHTSA noted in the NPRM that the substantial literature on the 
topic of consumer valuation of fuel economy is approximately evenly 
divided between studies that suggest consumer undervalue fuel economy 
and studies that support valuation at the full discounted present value 
(no undervaluation). This potential undervaluation, frequently referred 
to as the ``energy paradox'' or ``fuel efficiency gap,'' has prompted 
an extensive exploration of potential behavioral explanations why 
consumers might undervalue fuel economy. NHTSA explored the possibility 
that the context and framing around consumer decisions may influence 
consumer choices--and that consumers may value fuel-saving technology 
differently when their choices are constrained to more fuel-efficient 
options. NHTSA also discussed how the value consumers place on fuel 
economy may change over time, and that they may come to value the 
future stream of fuel savings more once they begin to experience those 
savings when the rule is in place. NHTSA noted that if fuel economy 
standards lead consumers to value fuel economy more once they 
experience a savings, the new higher valuation of fuel economy may 
offset some or all of the negative impact

[[Page 25856]]

on sales due to the higher prices of fuel-efficient vehicles.
    As explained in more detail in TSD Chapter 4.2.1.1, the agency's 
analyses of the extent to which manufacturers will voluntarily improve 
fuel economy and of the response of new car and light truck sales to 
higher sales prices assume that potential buyers of new cars and light 
trucks value only the undiscounted savings in fuel costs they would 
expect to realize over the first 30 months they own a newly purchased 
vehicle. Depending on the discount rate buyers are assumed to apply, 
this amounts to 25-30 percent of the expected savings in fuel costs 
they (and any subsequent owners) would ultimately realize over the 
vehicle's entire expected lifetime. However, NHTSA establishes CAFE 
standards by comparing vehicles' lifetime savings in fuel costs and 
other economic benefits from reducing fuel consumption to 
manufacturers' costs to improve fuel economy, which leads the agency to 
set standards that require much higher levels of fuel economy than it 
assumes buyers are willing to pay for. Thus, the agency's analysis does 
assume that new car shoppers are somewhat myopic--and that an ``energy 
paradox'' exists in the case of fuel economy--but only at the time they 
are consider purchasing a new car or light truck, and that they 
ultimately value the lifetime fuel savings that purchasing a higher-mpg 
model provides.\567\ The agency also assumes that manufacturers' 
compliance costs will ultimately be borne by vehicle buyers in the form 
of higher purchase prices for new cars and light trucks. This means 
that the fraction of savings in future fuel costs buyers are assumed to 
take into account at the time of purchase (again, 25-30 percent) when 
choosing among models would offset only that same fraction of the 
expected increase in new car and light truck prices.
---------------------------------------------------------------------------

    \567\ In addition to myopia, other market failures may also 
cause consumers to undervalue fuel savings at the time of purchase 
but still fully value the lifetime fuel savings they actually 
experience, including information asymmetries, split incentives, 
first-mover effects, and others. Moreover, it is appropriate in a 
social cost-benefit analysis to fully value the resource savings 
that will result from the purchase of vehicles with greater fuel 
economy.
---------------------------------------------------------------------------

    NHTSA sought comment on the length of time that should be used for 
this ``payback period'' assumption, and asked commenters to specify the 
length of time they believed it should span, provide an explanation of 
why that period is preferable to the agency's assumption, include 
reference to any data or information on which an alternative payback 
period is based, and discuss how changing this assumption would 
interact with other elements in the analysis. In response, NHTSA 
received a handful of comments on this apparent ``energy efficiency 
gap'' and the agency's assumption about consumers' willingness to pay. 
NADA and Auto Innovators agreed with the agency's assumption of a 30-
month payback period, while stressing the need to account for the 
utility of other vehicle attributes that might be improved in the 
absence of mandates to provide higher fuel economy.\568\ NADA commented 
that consumers are not myopic, and any appearance that they are 
actually reflects their wide range of preferences for other vehicle 
attributes, which also explains their willingness to forgo some fuel 
savings in favor of improvements to vehicles' other features. NADA 
asserted that potential buyers of new cars and light trucks focus on 
the total lifetime cost of vehicle ownership, and by doing so consider 
the cost and value of purchasing models that offer higher levels of not 
just fuel economy, but other desirable features as well. To support its 
claim, NADA cited to data from the 2021 Strategic Vision New Vehicle 
Efficiency Survey that found fuel economy ranked as the 12th most 
important attribute to consumers. NADA argued that NHTSA needed to 
examine ``actual sales and lease data or studies assessing how new 
light-duty vehicle consumers value fuel economy technology when making 
purchasing decisions,'' and implored the agency to account for the 
``temporal shifting of consumer preferences.'' Auto Innovators 
supported analyzing sensitivity cases with payback periods ranging from 
1 to 4 years.\569\
---------------------------------------------------------------------------

    \568\ NADA, Docket No. NHTSA-2021-0053-1471, at 8-9.
    \569\ Auto Innovators, at 83-84.
---------------------------------------------------------------------------

    EDF commented that the agency should assume a longer repayment 
period and cited as support a Consumer Reports study showing that 64 
percent of consumers rank fuel economy as extremely or very important, 
and view fuel economy as ``the number one attribute that has room for 
improvement.'' \570\ NHTSA notes that the same Consumer Report study 
also polled consumers about how quickly fuel savings would have to 
offset higher vehicle purchase prices for them to be willing to pay for 
increased fuel efficiency. Responses to this question showed that the 
average consumer is willing to pay for only 2-3 years of fuel savings, 
which aligns well with the agency's estimate of 30 months, and that 
only 39 percent of consumers are willing to pay for fuel economy 
improvements with a payback period longer than 3 years.\571\
---------------------------------------------------------------------------

    \570\ Environmental Defense Fund, Docket No. NHTSA-2021-0053-
1617, at 5.
    \571\ Consumer Reports, Consumer Attitudes Towards Fuel 
Economy'' 2020 Survey Results (Feb. 2021), page 5, https://advocacy.consumerreports.org/wp-content/uploads/2021/02/National-Fuel-Economy-Survey-Report-Feb-2021-FINAL.pdf. (Accessed: March 15, 
2022).
---------------------------------------------------------------------------

    CBD et al. commented that the agency is underestimating consumers' 
willingness to pay by assuming that they require a 30-month payback 
period, but did not explain why it believes this is the case or suggest 
an alternative estimate.\572\
---------------------------------------------------------------------------

    \572\ Center for Biological Diversity, Chesapeake Bay 
Foundation, Conservation Law Foundation, Earthjustice, Environmental 
Law & Policy Center, Natural Resources Defense Council, Public 
Citizen, Inc., Sierra Club, and Union of Concerned Scientists 
(NHTSA-2021-0053-1572) (CBD et al.), Joint Summary Comments, Docket 
No. NHTSA-2021-0053-1572, at 6.
---------------------------------------------------------------------------

    Institute for Policy Integrity at New York School of Law (IPI) 
urged the agency consider using different payback assumptions at 
different points throughout its analysis. Specifically, IPI commented 
that NHTSA should use a lower willingness to pay under the baseline 
scenario to determine how much manufacturers would voluntarily improve 
fuel economy in the absence of stricter standards, but should assume a 
higher willingness to pay when analyzing how the standards will affect 
sales of new vehicles and the turnover of the used vehicle fleet.\573\ 
IPI endorsed the possibility the agency raised in its proposal that 
CAFE regulations can ameliorate myopia among potential buyers or 
information asymmetries between vehicle manufacturers and buyers, and 
by doing so lead potential buyers to value a larger fraction of future 
fuel savings from choosing a higher-mpg model. IPI also listed other 
potential market failures that CAFE regulations could potentially 
mitigate.\574\
---------------------------------------------------------------------------

    \573\ IPI, Docket No. NHTSA-2021-0053-1579-A1, at 16-17.
    \574\ See generally, id., at 9-14.
---------------------------------------------------------------------------

    Specifically, IPI suggested that the agency use a 1.7-year payback 
period to identify the technologies manufacturers would adopt and to 
estimate the resulting increase in fuel economy under the baseline, but 
assume that actual buyers of new cars and light trucks would value fuel 
savings over the first 7 years of their lifetimes when evaluating 
whether to scrap a vehicle. scrappage rates. However, IPI did not offer 
NHTSA a framework for implementing differing payback periods, or 
explain whether the difference in payback periods was intended to 
reflect manufacturers

[[Page 25857]]

underestimation of buyers' valuation of fuel economy and if so, why 
manufacturers would do so only under the No-Action Alternative. Nor did 
IPI specify how long after new standards were adopted would be required 
for consumers to begin to value additional fuel economy, or why they 
would revert to their original lower valuation once new standards took 
effect and became the baseline for evaluating further increases. IPI 
also commented that if the agency opted not to use differing payback 
assumptions, then the agency should use a shorter payback period (1.7 
years) throughout the analysis to avoid overestimating overcompliance 
in the baseline,\575\ and suggested that the agency conduct expert 
elicitation to derive a better estimate.\576\
---------------------------------------------------------------------------

    \575\ Id.
    \576\ Id. at 15.
---------------------------------------------------------------------------

    IPI also commented that NHTSA's theoretical analysis of constrained 
consumer choice lacked an empirical test of its validity and that other 
explanations for the historical pattern of increases in fuel economy 
and changes to vehicles' other attributes may be more plausible than 
that offered by the agency. IPI also argued that consumers' choices 
involving higher-mpg models cannot be constrained by their budgets 
because fuel savings compensate consumers for paying the higher upfront 
costs (thus enabling buyers to finance those additional costs). IPI 
argued further that failures in the market for auto financing that make 
consumers unable to obtain favorable financing to purchase more fuel-
efficient vehicles may constrain consumers' choices more than any 
budgetary limits. IPI continued that NHTSA's prior estimates of the 
opportunity cost of other vehicle attributes lacked an empirical basis 
and ignored potential countervailing effects such as reduced compliance 
costs.
    In contrast, NADA commented that a consumer's willingness to 
purchase fuel-economy technology must be viewed in the context of 
losses in other vehicle attributes like power or safety, and argued 
that consumers are not myopic. In support of its position, NADA cited 
Leard et al.'s (2021) finding that consumers undervalue fuel economy 
but place high values on performance and other attributes,\577\ as well 
as Klier and Linn's (2016) finding that tighter vehicle standards 
reduce horsepower and torque relative to their levels where standards 
remain unchanged.\578\ Finally, IPI cited the conclusion of EPA's 
Scientific Advisory Board that it found little ``useful consensus'' on 
the subject of the opportunity cost of other vehicle attributes \579\ 
and Greene (2018), who found extensive variation in willingness-to-pay 
estimates across the literature.
---------------------------------------------------------------------------

    \577\ Leard, B., J. Linn, and Y. Zhou. 2021. ``How Much Do 
Consumers Value Fuel Economy and Performance? Evidence from 
Technology Adoption.'' The Review of Economics and Statistics: 1-45 
(forthcoming). Adoption, The Review of Economics and Statistics 2021 
(Leard, et al.).
    \578\ Klier, Thomas, and Joshua Linn. 2016. ``The Effect of 
Vehicle Fuel Economy Standards on Technology Adoption.'' Journal of 
Public Economics 133, pp. 41-63).
    \579\ EPA Sci. Advisory Bd., Consideration of the Scientific and 
Technical Basis for the EPA's Proposed Rule Titled The Safer 
Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-
2026 Passenger Cars and Light Trucks, at 2 (Feb. 27, 2020), 
available at https://sab.epa.gov/ords/sab/f?p=100:18:6529621058907:::RP,18:P18_ID:2550 (``We concur with the 
agencies that it is not yet feasible to quantify the impact on new 
vehicle sales of additional vehicle characteristics (beyond fuel 
economy) that are desired by consumers but restrained by federal 
standards.''). David Greene et al., Consumer Willingness to Pay for 
Vehicle Attributes: What Do We Know?, 118 TRANSP. RES. PART A: POL'Y 
& PRAC. 258, 264, 273 (2018); see also id. at 274 (finding that, 
even after trimming outliers, ``one standard deviation exceeds the 
mean of the [willingness to pay] estimates for most of the 
attributes'' and that ``the interquartile range also exceeds the 
median'').
---------------------------------------------------------------------------

    NHTSA agrees with IPI that the theoretical discussion of 
constrained consumer choice under binding fuel economy standards has 
not been tested empirically, and for this reason has not incorporated 
an estimate of the opportunity cost of sacrifices in other vehicle 
attributes in its FRIA. NHTSA notes that the alternative explanations 
posited by IPI to explain the fuel efficiency gap also lack an 
empirical basis--instead, both the agency's and IPI's explanations are 
consistent with consumers' apparent willingness to forgo some fuel 
savings in favor of improvements to vehicles' other features. However, 
NHTSA notes that, because--as acknowledged later in its comment--IPI's 
comment overlooks the theoretical possibility that automakers could at 
some point run out of technologies that could improve performance such 
that the use of a technology to improve fuel economy rather than 
performance would necessarily mean a lack of availability of 
performance enhancements. Even if all available technologies were 
deployed to improve fuel economy rather than performance, and those 
technologies fully paid for themselves with discounted future fuel 
savings, then manufacturers would have no remaining technologies 
available to meet buyers' demands for improved performance. However, no 
such absolute technological constraint has been observed. Furthermore, 
the agency notes that IPI's comment lacks any consideration of how much 
households can afford to spend on vehicle loan payments, instead 
assuming that households will assume as much debt as necessary to 
purchase a vehicle with their preferred bundle of attributes. NADA 
commented that most households already cannot afford to purchase new 
vehicles, and noted that financing does not take into consideration 
potential fuel savings but instead relies on a borrower's income, 
finance amount, and credit worthiness.\580\
---------------------------------------------------------------------------

    \580\ NADA, at 6-7. We note that EPA disagrees and has found 
that some lenders give discounts for loans to purchase more fuel-
efficient vehicles. See EPA, Revised 2023 and Later Model Year 
Light-Duty Vehicle GHG Emissions Standards: Regulatory Impact 
Analysis at 8-27 and n.87 (2021).
---------------------------------------------------------------------------

    NHTSA acknowledges that the opportunity cost of regulations on 
other vehicle attributes is still an under-researched topic and relies 
heavily on economic theory, and for this reason, we are excluding 
estimates of this particular theoretical opportunity cost in its 
primary analysis. NADA provided some literature that it believes may 
assist the agency in developing an estimate of the opportunity cost of 
other vehicle attributes in the future, but NHTSA agrees with the EPA's 
Scientific Advisory board that there is little consensus on this issue. 
For illustrative purposes, NHTSA has included a sensitivity analysis 
estimating the theoretical opportunity cost of other vehicle attributes 
in the FRIA, although as discussed elsewhere, NHTSA is not confident 
that the assumptions used to generate this estimate are sound. NHTSA 
notes that the sensitivity analysis of opportunity costs is a rough, 
speculative proxy with multiple limitations that does not reflect many 
other effects that may largely offset such opportunity costs. The 
sensitivity estimate should be considered as an overestimate of the 
potential effects, and is not sufficiently robust to include in the 
main analysis. Opportunity cost from other vehicle attributes, to the 
extent it exists, may be small. NHTSA notes that consideration of such 
sensitivity analysis does not change NHTSA's conclusion that 
Alternative 2.5 is the maximum feasible and most appropriate standard 
under its statutory factors.
    NADA also comments that the agency's assumption that potential 
buyers consider their expected future fuel savings over some assumed 
``payback period'' when deciding whether to purchase models offering 
higher fuel economy oversimplified buyer's choices, even if other 
attributes

[[Page 25858]]

of models they are comparing are closely comparable.\581\ Specifically, 
NADA argues that both the importance vehicle shoppers attach to higher 
fuel economy and the time horizon over which they evaluate savings in 
fuel costs from buying higher-MPG models vary in response to the 
direction and speed of recent movements in fuel prices, and that 
potential buyers appear to make the calculations the agency assumes 
only when fuel prices are increasing rapidly. When fuel prices are more 
stable, NADA argues that consumers appear to focus on vehicles' other 
attributes, and at current fuel prices NADA asserts that buyers are 
unlikely to demand more fuel-efficient cars and light trucks, 
particularly as their preferences continue to evolve toward SUV and CUV 
models.
---------------------------------------------------------------------------

    \581\ NADA, at 9.
---------------------------------------------------------------------------

    On these points, NADA does not offer specific recommendations about 
how the agency could represent its interpretation of buyers' choice 
process, and the agency's interpretation is that doing so would require 
it to vary the assumed duration of buyers' payback period in response 
to both the direction and pace of recent changes in fuel prices, 
lengthening it when fuel prices are rising rapidly and shortening it 
when prices are stable or declining. While the agency does not believe 
that this approach is reasonable or practical, it has included 
sensitivity cases in the accompanying FRIA that consider both shorter 
and longer payback periods than the 2.5 years assumed in the central 
analysis, and believes their results should shed useful light on the 
potential effects of NADA's recommended approach.
    For several reasons, we decided to retain our 30-month payback 
assumption for evaluating the alternatives we considered for the final 
rule. First, there was no consensus among commenters about a more 
appropriate payback period; approximately equal numbers of commenters 
urged the agency to lengthen, maintain, and shorten the duration of its 
assumed payback period. Second, none of the commenters who urged the 
agency to change the duration of its assumed payback period provided 
any additional evidence to support doing so, and thus NHTSA continues 
to believe that the information on which the payback decision is based 
is reasonable and appropriate. Finally, none provided plausible 
explanations for why adopting fuel economy standards should change 
vehicle buyers' time perspectives on future fuel savings, why their 
longer-term perspectives would revert to their original shorter terms 
once those standards took effect, or why repeat buyers' values would 
once again adopt a longer-term perspective when valuing future fuel 
savings when standards were once again raised.
    While we will continue to explore whether payback periods should 
differ between the baseline and regulatory alternatives that would 
establish higher standards, the agency still lacks a clear basis for 
identifying whether, how much, or how quickly future changes in CAFE 
standards could alter consumer perceptions of fuel economy and its 
value. In addition, neither the agency nor commenters has identified a 
satisfactory explanation for why once having adapted to the presence of 
higher fuel economy standards by lengthening the time horizon over 
which they value fuel savings, consumers would revert to their former 
lower values once those new standards became the reference point for 
evaluating further increases in required fuel economy. The agency will 
also re-examine whether a 30-month payback period is appropriate to use 
in analyzing future increases in standards, and will consider whether 
an expert elicitation is appropriate.
2. Fleet Composition
    The composition of the on-road fleet--and how it changes in 
response to CAFE standards--determines many of the costs and benefits 
of the final standards. For example, how much fuel the light-duty fleet 
consumes is dependent on the number of new vehicles sold, how many 
older (and less efficient) vehicles are retired, and how much vehicles 
are driven.
    Until recently, all previous CAFE rulemaking analyses used static 
fleet forecasts that were based on a combination of manufacturer 
compliance data, public data sources, and proprietary forecasts (or 
product plans submitted by manufacturers). When simulating compliance 
with regulatory alternatives, those analyses projected identical sales 
and retirements across the alternatives, for each manufacturer down to 
the make/model level--where the exact same number of each model variant 
was assumed to be sold in a given model year under both the least 
stringent alternative (typically the baseline) and the most stringent 
alternative considered (intended to represent ``maximum technology'' 
scenarios in some cases). To the extent that an alternative matched the 
assumptions made in the production of the proprietary forecast, using a 
static fleet based upon those assumptions may have been warranted.
    However, a fleet forecast is unlikely to be representative of a 
broad set of regulatory alternatives with significant variation in the 
cost of new vehicles. Several commenters on previous regulatory actions 
and peer reviewers of the CAFE Model encouraged consideration of the 
potential impact of fuel efficiency standards on new vehicle prices and 
sales, the changes to compliance strategies that those shifts could 
necessitate, and the downstream impact on vehicle retirement rates. In 
particular, the continued growth of the utility vehicle segment causes 
changes within some manufacturers' fleets as sales volumes shift from 
one region of the footprint curve to another, or as mass is added to 
increase the ride height of a vehicle on a sedan platform to create a 
crossover utility vehicle, which exists on the same place of the 
footprint curve as the sedan upon which it might be based.
    The analysis now dynamically simulates changes in the vehicle 
fleet's size, composition, and usage as manufacturers and consumers 
respond to regulatory alternatives, fuel prices, and macroeconomic 
conditions. The analysis of fleet composition comprises two forces, how 
new vehicle sales--the flow of new vehicles into the registered 
population--change in response to regulatory alternatives, and the 
influence of economic and regulatory factors on vehicle retirement 
(otherwise known as scrappage).
    While commenters raised specific objections to several of the 
assumptions within the sales and scrappage modules--which are described 
below--commenters generally were supportive of the agency's approach to 
modeling fleet turnover. We did receive one comment from IPI suggesting 
that we should consider returning to a static fleet model if we were 
unable to correct what they perceived as modeling flaws. We disagree 
with IPI's assessment, because it is widely acknowledged that CAFE 
standards and other regulations on new vehicles can influence 
consumers' decisions about both purchasing new vehicles and retiring 
used ones, so to assume that the composition of the vehicle fleet is 
unaffected by regulations would ignore these well documented impacts. 
The agency feels that it is important to provide policymakers with the 
most comprehensive and complete analysis of the regulations, which 
includes understanding how CAFE standards will affect fleet turnover.
    Below are brief descriptions that of how the agency models sales 
and scrappage. For a full explanation, refer to TSD Chapter 4.2.

[[Page 25859]]

(a) Sales
    For the purposes of regulatory evaluation, the relevant sales 
metric is the difference in sales between alternatives rather than the 
absolute number of sales in any of the alternatives. As such, the sales 
response model currently contains three parts: A nominal forecast that 
provides the level of sales in the baseline (based upon macroeconomic 
inputs, exclusively), a price elasticity that creates sales differences 
relative to that baseline in each year, and a fleet share model that 
produces differences in the passenger car and light truck market share 
in each alternative. The nominal forecast does not include price and is 
merely a (continuous) function of several macroeconomic variables that 
are provided to the model as inputs. The price elasticity is also 
specified as an input. In the proposal, the agency assumed a price 
elasticity of sales of -1.0 and sought comment on this assumption.
    Many commenters argued that NHTSA's unit elastic response 
assumption of -1.0 is inaccurate. The California Attorney General et 
al., IPI, ICCT, UCS, CBD et al., CARB and Dr. Kenneth Gillingham, all 
commented that -1.0 is too large and unsupported by the evidence.\582\ 
CBD et al. and the California Attorney General noted that recent 
literature suggests a much lower figure, with California's Attorney 
General suggesting using the estimate from Leard (2021) of -0.34 and 
the CBD et al. suggesting between -0.2 or -0.4 (or lower). IPI 
suggested reducing the figure to at least -0.4, the figure used by EPA 
in a recent sensitivity analysis. ICCT suggested that NHTSA use -0.5, 
and further recommended that NHTSA consider using different elasticity 
estimates for different vehicle classes.
---------------------------------------------------------------------------

    \582\ California Attorney General et al., Docket No. NHTSA-2021-
0053-1499, Appendix A, at 32; IPI, A1, at 26-28; ICCT, Docket No. 
NHTSA-2021-0053-1581, at 3, 14, 19; UCS Docket No. NHTSA-2021-0053-
1567, at 29; CBD et al., Joint Summary Comments, at 3-4, 6; CARB, 
Docket No. NHTSA-2021-0053-1542, Attachment 2, at 3.
---------------------------------------------------------------------------

    IPI and CBD et al. supported their suggested estimates by arguing 
that NHTSA should utilize a long-run elasticity estimate, not a short-
run elasticity estimate.\583\ IPI explained that long-run price 
elasticity of demand for vehicles tends to be much lower than short run 
elasticity, because, due to the limited substitution options for 
personal vehicles, consumers will delay purchases when prices increase 
but are likely to still purchase a vehicle down the road. CBD et al. 
noted that that a long-run estimate is more appropriate because 
consumers replace vehicles in the long run as they age and because it 
more closely matches the timeline of this agency action in which fuel 
economy standards apply years into the future. They also argued that a 
``more reasonable'' price elasticity estimate would likely lead to 
greater projected increases in employment than already estimated in the 
proposed rule.
---------------------------------------------------------------------------

    \583\ IPI, at 26; CBD et al., Joint Summary Comments, at 6.
---------------------------------------------------------------------------

    Dr. Mark Jacobsen commented that the demand elasticity that the 
agency used in the proposal is the improper measurement. Dr. Jacobsen 
argued that NHTSA should instead employ a ``policy elasticity'' since 
CAFE regulations will influence not only new vehicles prices but also 
used vehicle prices, since the two are substitutes.\584\ Because used 
vehicle prices are anticipated to increase, the change in sales in 
response to increasing CAFE standards will be less than what would be 
anticipated if only new vehicle prices were affected. Dr. Jacobsen 
suggested the policy elasticity ranges from -0.5 in the short-run to -
0.28 in the long-run.
---------------------------------------------------------------------------

    \584\ Dr. Mark Jacobsen, Docket No. NHTSA-2021-0053-1586, at 2.
---------------------------------------------------------------------------

    In contrast, NADA expressed support for a sales elasticity of -
1.0.\585\
---------------------------------------------------------------------------

    \585\ NADA, at 11.
---------------------------------------------------------------------------

    While evaluating the concerns raised by commenters, NHTSA 
identified an error in the CARs report that the agency relied upon as a 
key source for selecting -1.0. The CARs report erroneously reported the 
own-price elasticity of cars (-0.79) and trucks (-0.85) instead of the 
long-run elasticity of all light-duty vehicles (-0.39) for Fischer 
(2007). When considering the actual long-run elasticity in Fischer 
(2007), the totality of the evidence presented in the CARs report no 
longer supports an elasticity of -1.0. In addition, after the 
publication of NHTSA's proposed rule, EPA issued a new report exploring 
the effects of changes in vehicle prices that arise from due to fuel 
efficiency regulations on vehicle sales. Since that report was authored 
by Dr. Jacobsen, it unsurprisingly echoed his comments summarized 
above, and recommended that the agency reduce the magnitude of the 
sales price elasticity it uses in its analysis to the range suggested 
above.\586\
---------------------------------------------------------------------------

    \586\ Chapter 4.3.2 of the FRIA accompanying this final rule 
includes a detailed discussion of the interactions between new and 
used vehicle markets identified in Dr. Jacobsen's report to EPA and 
their implications for the sensitivity of new vehicle sales and 
retirement of used vehicles to higher sales prices.
---------------------------------------------------------------------------

    For these reasons, NHTSA has elected to use a price elasticity of 
sales equal to -0.4--meaning that a ten percent increase in the average 
price of a new vehicle produces a four percent decrease in total 
sales--for the final rule. The price change to which this elasticity is 
applied is calculated as the per-vehicle average of manufacturers' 
estimated costs to meet higher CAFE standards, net of the fraction of 
vehicles expected lifetime fuel savings that new vehicle buyers are 
assumed to value (2.5 years or 25-30 percent of lifetime savings, as 
discussed in Section III.E.1. above). NADA commented that it believed 
the agency's sales model was not appropriately applying the sales 
elasticity to the assumed price increase and thus underestimated the 
likely decline in sales.\587\ However, the agency notes that NADA's 
rough sales estimates excluded any value of future fuel savings, and 
that this omission was likely to have caused the divergence between 
NADA's and NHTSA's estimates of changes in sales.
---------------------------------------------------------------------------

    \587\ NADA, at 12.
---------------------------------------------------------------------------

    The current baseline sales module reflects the idea that total new 
vehicle sales are primarily driven by conditions in the economy that 
are exogenous to the automobile industry. Over time, new vehicle sales 
have followed macroeconomic cycles closely, rising when prevailing 
economic conditions are positive (periods of growth) and falling during 
periods of economic contraction. While the kinds of changes to vehicle 
offerings that occur because of manufacturers' compliance actions exert 
some influence on the total volume of new vehicle sales, their effects 
on new vehicle sales are secondary to those of overall economic 
conditions. Instead, they drive the kinds of marginal differences 
between regulatory alternatives that the current sales module is 
designed to simulate--making vehicles more expensive generally reduces 
total sales, although only modestly.
    The first component of the sales response model is a nominal 
forecast, which is a statistical model (using a small set of inputs) 
that projects the size of the new vehicle market in each calendar year 
in the analysis period under the baseline (No-Action Alternative). Past 
reviewers expressed concerns about the possibility of econometrically 
estimating an industry average price elasticity in a way that isolates 
the causal effect of new vehicle prices on new vehicle sales (and 
properly addresses the issue of endogeneity between sales and price). 
However, the agency's current nominal forecast model does not include 
prices and is not intended for statistical inference around the 
question of price response in the new vehicle market;

[[Page 25860]]

instead, it is intended to simulate the general trajectory of the 
market for light duty vehicles. As discussed in more detail in Section 
III below, the current economic climate and the economy's performance 
during the continuing pandemic has created unusually extreme 
uncertainty about this year-to-year forecast. Particularly in the near-
term, there is significant uncertainty about the pace at which the 
market for automobiles will recover--and the scale and timing of the 
recovery's peak--before the market returns to its long-term trend.
    The second component of the sales response model captures how price 
changes affect the number of vehicles sold, by applying an assumed 
price elasticity to the percentage change in average price (in each 
future year) to determine the percent change in sales from its 
projected baseline value. This price change does not represent an 
increase/decrease over the last observed year, but rather the 
percentage difference under each regulatory alternative relative to the 
estimated baseline price during that year. In the baseline, the average 
price is defined as the observed new vehicle price in 2019 (the last 
historical year before the simulation begins) plus the average 
regulatory cost associated with the No-Action Alternative.\588\ The 
central analysis in this final rule simulates multiple programs 
simultaneously (CAFE final standards, EPA final greenhouse gas 
standards, ZEV, and the California Framework Agreements), and the 
regulatory cost includes both technology costs and civil penalties paid 
for non-compliance (with CAFE standards) in a model year. Because the 
elasticity assumes no perceived change in the quality of the product, 
and the vehicles produced under different regulatory scenarios have 
inherently different operating costs, the price metric must account for 
this difference. The price to which the elasticity is applied in this 
analysis represents the residual price change between scenarios after 
accounting for 2.5 years' worth of fuel savings to the new vehicle 
buyer.
---------------------------------------------------------------------------

    \588\ The CAFE Model currently operates as if all costs incurred 
by the manufacturer as a consequence of meeting regulatory 
requirements, whether those are the cost of additional technology 
applied to vehicles in order to improve fleetwide fuel economy or 
civil penalties paid when fleets fail to achieve their standard, are 
``passed through'' to buyers of new vehicles in the form of price 
increases.
---------------------------------------------------------------------------

    The third and final component of the sales model is the dynamic 
fleet share module (DFS). Some commenters to previous rules noted that 
the market share of SUVs continues to grow, while conventional 
passenger car body-styles continue to lose market share. For instance, 
in the 2012 final rule, the agencies projected fleet shares based on 
the continuation of the baseline standards (MYs 2012-2016) and a fuel 
price forecast that was much higher than the realized prices since that 
time. As a result, that analysis assumed passenger car body-styles 
would comprise about 70 percent of the new vehicle market by 2025, 
which was internally consistent. The reality, however, has been quite 
different: In MY 2020, light truck models accounted for 57 percent of 
new light-duty vehicle sales.\589\ The CAFE Model includes the DFS 
model in an attempt to address these market realities. The DFS 
distributes the total industry sales across two different body-types: 
``cars'' and ``light trucks.'' While there are specific definitions of 
``passenger cars'' and ``light trucks'' that determine a vehicle's 
regulatory class, the distinction used in this phase of the analysis is 
more simplistic. All body-styles that are obviously cars--sedans, 
coupes, convertibles, hatchbacks, and station wagons--are defined as 
``cars'' for the purpose of determining fleet share. Everything else--
SUVs, smaller SUVs (crossovers), vans, and pickup trucks--are defined 
as ``light trucks''--even though they may not be treated as such for 
compliance purposes. The DFS uses two functions from the National 
Energy Modeling System (NEMS) used in the 2017 AEO to independently 
estimate the share of passenger cars and light trucks, respectively, 
given average new market attributes (fuel economy, horsepower, and curb 
weight) for each group and current fuel prices, as well as the prior 
year's market share and prior year's attributes. The two independently 
estimated shares are then normalized to ensure that they sum to one. 
These shares are applied to the total industry sales derived in the 
first stage of the sales response. This produces total industry volumes 
of car and light truck body styles. Individual model sales are then 
determined from there based on the following sequence: (1) Individual 
manufacturer shares of each body style (either car or light truck) 
times the total industry sales of that body style, then (2) each 
vehicle within a manufacturer's volume of that body-style is given the 
same percentage of sales as appear in the 2020 fleet. This implicitly 
assumes that consumer preferences for particular styles of vehicles are 
determined in the aggregate (at the industry level), but that 
manufacturers' sales shares of those body styles are consistent with MY 
2020 sales. Within a given body style, a manufacturer's sales shares of 
individual models are also assumed to be constant over time. This 
approach implicitly assumes that manufacturers are currently pricing 
individual vehicle models within market segments in a way that 
maximizes their profit. Without more information about each OEM's true 
cost of production and operation, fixed and variables costs, and both 
desired and achievable profit margins on individual vehicle models, 
there is no basis to assume that strategic shifts within a 
manufacturer's portfolio will occur in response to standards.
---------------------------------------------------------------------------

    \589\ Calculated from summary data tables accompanying EPA 
Automotive Trends Report, 2021 edition, https://www.epa.gov/automotive-trends/explore-automotive-trends-data#SummaryData. 
(Accessed: March 15, 2022).
---------------------------------------------------------------------------

    The DFS model shows passenger car styles gaining share with higher 
fuel prices and losing them when prices are decline. Similarly, as fuel 
economy increases in light truck models, which offer consumers other 
desirable attributes beyond fuel economy (ride height or interior 
volume, for example) their relative share increases. However, this 
approach does not suggest that consumers dislike fuel economy in 
passenger cars, but merely recognizes the fact that fuel economy has 
diminishing returns in terms of fuel savings. As the fuel economy of 
light trucks increases, the tradeoff between passenger car and light 
truck purchases increasingly involves a consideration of other 
attributes. The coefficients also show a relatively stronger preference 
for power improvements in cars than light trucks because that is an 
attribute where trucks have typically outperformed cars, just as cars 
have outperformed trucks for fuel economy.
    NHTSA received a several comments about the dynamic fleet share 
model. ICCT commented that the coefficient for horsepower for passenger 
cars was negative, implying that passenger cars with lower fuel economy 
and less power are more attractive to consumers.\590\ Both ICCT and IPI 
also noted the counterintuitive sign for fuel economy, and suggested 
that the model was inadequate because it estimates the share of cars 
and trucks independently and fails to consider other vehicle attributes 
such as sales prices.\591\ Neither IPI nor ICCT suggested revisions to 
the current DFS model structure that would address these concerns. 
Alternative approaches such as the simplified discrete choice model of 
market share suggested by ICCT or

[[Page 25861]]

assuming that fleet shares remain constant could be readily 
implemented, although both have potentially important drawbacks.
---------------------------------------------------------------------------

    \590\ ICCT, Appendix: Additional Comments, at 14.
    \591\ ICCT, Appendix: Additional Comments, at 14, 20; IPI, at 
29.
---------------------------------------------------------------------------

    The agency agrees with ICCT that a discrete choice model calibrated 
to aggregate market share data may avoid some of the challenges of 
discrete choice modeling using data on individual buyers' choices but 
notes that other impediments to using it would undoubtedly still 
arise--for example, accounting for future changes in the classification 
of some individual vehicle models, or for shifts in buyers' preferences 
toward car or truck-based designs. The agency also believes that 
assuming fixed fleet shares is clearly an unsatisfactory approach in 
light of both gradual longer-term changes in buyers' apparent 
preferences and the very rapid recent shifts in market shares for cars 
and light trucks.
    NHTSA agrees that a dynamic fleet share model that includes the 
attributes identified by commenters, such as IPI, would be preferable. 
In fact, the agency developed a number of simplified market share 
models for potential use in this analysis, each of which estimated the 
shares of cars and light trucks jointly using different combinations of 
attributes buyers are likely to consider when choosing among competing 
models. We also attempted to incorporate vehicle prices and develop 
specifications that would produce logically consistent coefficients for 
each variable they included. The agency was unable to produce a model 
that met all three criteria--including vehicle prices proved 
particularly troublesome--and these alternative models each suffered 
from their own limitations.\592\ For two main reasons, the agency 
ultimately decided to retain the DFS used in the proposal instead of 
employing one of the newer models it developed: First, the alternative 
models did not clearly meet the criteria we established to be 
considered a better model. Second, the agency feels that the DFS used 
in the proposal produced logically consistent results among the 
alternatives it considered in this analysis. As noted elsewhere in this 
rule, isolating the impact of alternatives is more an art of internal 
precision within the model than an exercise in ``external validity'' or 
accuracy. The agency will continue to explore alternative DFS models 
for future rulemakings.\593\
---------------------------------------------------------------------------

    \592\ See ``Exploration of alternate fleet share module'' in 
Docket No. NHTSA-2021-0053.
    \593\ As with all aspects of this analysis, uncertainty abounds. 
If NHTSA's current approach to modeling fleet share inaccurately 
overestimates the future fleet's proportion of light trucks, then 
NHTSA may have underestimated fuel savings and overestimated 
emissions of the regulatory alternatives included in this analysis.
---------------------------------------------------------------------------

    Over the course of past rulemakings, many commenters have 
encouraged the agency to consider vehicle attributes beyond price and 
fuel economy when estimating a sales response to fuel economy 
standards. Some have suggested that a more detailed representation of 
the new vehicle market would enable the agency to incorporate the 
effect of additional vehicle attributes on buyers' choices among 
competing models, reflect consumers' differing preferences for specific 
vehicle attributes, and provide the capability to simulate responses 
such as strategic pricing strategies by manufacturers intended to alter 
the mix of models they sell and enable them to comply with new CAFE 
standards. For these purposes, nearly all of those commenters have 
suggested that the agency develop a disaggregate model of buyers' 
vehicle choices.\594\
---------------------------------------------------------------------------

    \594\ Comments to this effect on the proposed rule were 
infrequent, and the only example generally cited much more detailed 
applications or advantages of discrete choice models; see Auto 
Innovators, Docket No. NHTSA-2021-0053-1492, at 56.
---------------------------------------------------------------------------

    A correctly specified choice model with parameters estimated from 
characteristics of individual shoppers (or households) and their 
choices among vehicle models--including decisions by some not to 
purchase new vehicles--offers the potential to produce consistent 
forecasts of total sales of new vehicles and the shares represented by 
cars and light trucks (as well as specific body styles and potentially 
even individual models). Developing such a model would also provide 
estimates of the value buyers attach to improved fuel economy and other 
vehicle attributes that were consistent with and reflected in its 
forecasts of total sales and market shares for individual vehicle 
types. For these reasons, the agency has invested considerable 
resources in developing such a discrete choice model of the new 
automobile market, although those investments have not yet produced a 
satisfactory and operational model.
    The agency's experience partly reflects the fact that discrete 
choice models are highly sensitive to their data inputs and estimation 
procedures, and even versions that fit well when calibrated to data 
from a single period--usually a cross-section of vehicles and shoppers 
or actual buyers--often produce unreliable forecasts for future 
periods, which the agency's regulatory analyses invariably require. 
This occurs because they are often unresponsive to relevant shifts in 
economic conditions or consumer preferences, and also because it is 
difficult to incorporate factors such as the introduction of new model 
offerings--particularly those utilizing advances in technology or 
vehicle design--or shifts in manufacturers' pricing strategies into 
their representations of choices and forecasts of future sales or 
market shares. For these reasons, most vehicle choice models have been 
better suited for analysis of the determinants of historical variation 
in sales patterns than to forecasting future sales volumes and market 
shares of particular categories.
    Although these challenges have so far precluded the agency from 
employing a discrete choice model in its regulatory analyses, we 
believe they are not insurmountable and recognize the considerable 
advantages such a model could offer.\595\ Thus, the agency intends to 
continue its attempts to develop some suitable variant of such a model 
for use in future fuel economy rulemakings.
---------------------------------------------------------------------------

    \595\ For an additional overview of the challenges of employing 
a discrete choice model, see TSD Section 4.2.1.
---------------------------------------------------------------------------

(b) Scrappage
    New and used vehicles are substitutes. When the price of a good's 
substitute increases (decreases), the demand curve for that good shifts 
upwards (downwards) and the equilibrium price and quantity supplied 
also increases (decreases). Thus, increasing the quality-adjusted price 
of new vehicles will result in an increase in equilibrium price and 
quantity of used vehicles. Since, by definition, used vehicles are not 
being ``produced'' but rather ``supplied'' from the existing fleet, the 
increase in quantity must come via a reduction in their scrappage 
rates. Practically, when new vehicles become more expensive, demand for 
used vehicles increases (and they become more expensive). Because used 
vehicles are more valuable in such circumstances, they are scrapped at 
a lower rate, and just as rising new vehicle prices push marginal 
prospective buyers into the used vehicle market, rising used vehicle 
prices force marginal prospective buyers of used vehicles to acquire 
older vehicles or vehicles with fewer desired attributes. The effect of 
fuel economy standards on scrappage is partially dependent on how 
consumers value future fuel savings and our assumption that consumers 
value only the first 30 months of fuel savings.
    Many competing factors influence the decision to scrap a vehicle, 
including the cost to maintain and operate it, the household's demand 
for VMT, the cost of alternative means of transportation,

[[Page 25862]]

and the value that can be attained through reselling or scrapping the 
vehicle for parts. A car owner will decide to scrap a vehicle when the 
value of the vehicle is less than the value of the vehicle as scrap 
metal, plus the cost to maintain or repair the vehicle. In other words, 
the owner gets more value from scrapping the vehicle than continuing to 
drive it, or from selling it. Typically, the owner that scraps the 
vehicle is not the first owner.
    While scrappage decisions are made at the household level, the 
agency is unaware of sufficient household data to capture scrappage at 
that level. Instead, the agency uses aggregate data measures that 
capture broader market trends. Additionally, the aggregate results are 
consistent with the rest of the CAFE Model as the model does not 
attempt to model how manufacturers will price new vehicles; the model 
instead assumes that all regulatory costs to make a particular vehicle 
compliant are passed onto the purchaser who buys the vehicle. It is 
more likely that manufacturers will defray a portion of the increased 
regulatory cost across its vehicles or to other manufacturers' buyers 
through the sale of credits.
    The most predictive element of vehicle scrappage is ``engineering 
scrappage.'' This source of scrappage is largely determined by the age 
of a vehicle and the durability of a specific model year vintage. The 
agency uses proprietary vehicle registration data from IHS/Polk to 
compute vehicle age and durability for each model year or vintage. 
Other factors affecting scrappage include fuel economy and new vehicle 
prices. For historical data on new vehicle transaction prices, the 
agency uses National Automobile Dealers Association (NADA) data.\596\ 
These data consist of the average transaction price of all light-duty 
vehicles; since the transaction prices are not broken-down by body 
style, the model may miss unique trends within a particular vehicle 
body style. The transaction prices are the amount consumers paid for 
new vehicles and exclude any trade-in value credited towards the 
purchase. This may be particularly relevant for pickup trucks, which 
have experienced considerable changes in average price as luxury and 
high-end options entered the market over the past decade. Future models 
will further consider incorporating price series that represent the 
price trends for cars, SUVs and vans, and pickups separately. Vehicle 
scrappage is also influenced by cyclical market trends, which the model 
captures using forecasts of GDP and fuel prices.
---------------------------------------------------------------------------

    \596\ The data can be obtained from NADA. For reference, the 
data for MY 2020 may be found at https://www.nada.org/nadadata/.
---------------------------------------------------------------------------

    Vehicle scrappage follows a roughly ``S-shaped'' pattern with 
increasing age--that is, when a model year (or ``vintage'') is 
relatively new few vehicles of its age are scrapped; progressively more 
are retired as they age and accumulate use, but after some age 
retirements again slow. Although fewer and fewer of the vehicles 
originally produced during a model year remain on the road as they age, 
the annual rate at which they are retired typically reaches a peak 
sometime around age 20 and declines gradually after that.\597\ The 
agency's model employs a logistic function to capture this relationship 
of vehicle scrappage rates to age.
---------------------------------------------------------------------------

    \597\ The retirement rate is usually measured by the number of 
vehicles originally produced during a model year that are retired 
during a subsequent (calendar) year, expressed as a fraction of the 
number that remained in use at its outset.
---------------------------------------------------------------------------

    Historical registration data show that vehicles produced during 
more recent model years generally last longer than those from earlier 
vintages, indicating that the durability of successive model years has 
improved over time, although there are occasional exceptions to this 
broader pattern. Annual scrappage rates for vehicles produced during 
more recent model years are also observed to be lower than those of 
earlier vintages up to a certain age, but are necessarily higher after 
that age to account for the fact that the share of original vehicles 
remaining in use ultimately converges toward the minimal share (zero, 
in the extreme) observed for earlier vintages.\598\
---------------------------------------------------------------------------

    \598\ Examples of why durability may have changed are new 
automakers entering the market or general changes to manufacturing 
practices like switching some models from a car chassis to a truck 
chassis. The agency caps model years' lifetimes at 40 years in its 
accounting; by that age a slightly larger share of each successive 
model year tends to remain in use, although this share so far 
remains below 2 percent of those originally produced.
---------------------------------------------------------------------------

    The agency includes indicator variables for each model year in its 
scrappage model to capture these historical improvements in vehicles' 
durability over successive model years. Additionally, to ensure that 
vehicles approaching the end of their assumed 40-year service life are 
retired, the agency applies a decay function to the number remaining in 
use after they reach age 30. Retirement rates for individual model 
years are modeled primarily as a polynomial function of age to capture 
the non-linear shape described above. The effective change in new 
vehicle prices projected in the model (defined as technology costs 
minus 30 months of fuel savings, as discussed previously) is also 
included in the model, which produces differing scrappage rates across 
regulatory alternatives since each one includes different estimates of 
technology costs and fuel savings. Finally, the model also includes 
year-to-year differences in U.S. GDP (to capture the effects of 
macroeconomic cycles on owners' decisions to keep older vehicles in 
use), fuel prices, and fuel costs for used vehicles of each age, as 
well as the share of vehicles originally produced during each model 
year remaining in use.
    In addition to the variables included in the scrappage model, the 
agency considered several other variables that may influence scrappage 
in the real world including, maintenance and repair costs, the value of 
scrapped metal, vehicle characteristics, the quantity of new vehicles 
purchased, higher interest rates, and unemployment. These variables 
were excluded from the model either because of a lack of underlying 
data or modeling constraints. Their exclusion from the model is not 
intended to reflect their unimportance, but rather highlights the 
practical constraints of modeling intricate decisions like scrappage.
    The agency received some comments on modeling approaches that could 
explicitly represent interactions between the new and used vehicle 
markets, such as the influence of prices for new models on demand for 
used vehicles (and the reverse), and the relationship between scrappage 
rates and consumers' decisions about replacing retired vehicles (e.g., 
Jacobsen as discussed in Section III.E.2.a) and FRIA Chapter 4.3.2). On 
scrappage rates specifically, the American Fuel & Petrochemical 
Manufacturers (AFPM) cautioned the agency against overestimating 
scrappage rates, highlighting the effect of current macroeconomic 
conditions on new and used car prices and thus on owners' decision to 
retire used vehicles.\599\ While we agree with the assertion of AFPM 
that scrappage rates are important in accurately representing fleet 
turnover and the resulting composition of the light duty vehicle fleet, 
the agency found it difficult to quantitatively isolate the effect of 
economic conditions on short-term scrappage decisions from longer term 
trends in vehicle durability and other factors affecting retirement 
rates when developing its scrappage model. For this reason, NHTSA has 
elected to maintain the existing treatment of scrappage for this rule, 
but will continue to monitor

[[Page 25863]]

research related to both short- and long-term scrappage patterns in the 
vehicle fleet.
---------------------------------------------------------------------------

    \599\ AFPM, Docket No. NHTSA-2021-0053-1530, at 18.
---------------------------------------------------------------------------

Changes in Vehicle Miles Traveled (VMT)
    The anticipated level of future vehicle use, usually measured by 
the number of vehicle-miles driven annually (VMT), directly influences 
most of the effects of raising fuel economy standards that decision-
makers consider in determining what standards to establish. Most 
important, the amount and value of fuel saved by requiring new cars and 
light trucks to achieve higher fuel economy both depend on the number 
of miles they are driven each year over their lifetimes, as well as of 
course on how much raising CAFE standards improves their fuel economy 
and on future fuel prices. Similarly, critical indirect impacts from 
raising fuel economy standards such as changes in emissions of criteria 
air pollutants and greenhouse gases, potential increases in fatalities 
and injuries, and congestion levels also depend directly on the 
consequences of higher standards for vehicle use.
    NHTSA's CAFE Model estimates total yearly VMT as the product of 
average annual usage per vehicle and the number of vehicles making up 
each future year's fleet, which itself depends on new vehicle sales 
during the current and previous years and owners' decisions about when 
to retire used vehicles. Since cars and light trucks of different model 
years (or ``vintages'') and body styles will experience different cost 
increases and varying increases in their fuel economy when CAFE 
standards are raised--particularly when standards increase over a 
succession of model years--the costs necessary to achieve their 
required fuel economy levels as well as the resulting fuel savings and 
indirect benefits will differ. Vehicles originally produced during a 
model year are gradually retired and the usage of those remaining in 
service tends to decline as they age (at least on average), so fuel 
savings and other benefits from requiring them to achieve higher fuel 
economy also decline gradually over their lifetimes. In any future 
calendar year, the contributions of progressively older model years to 
total benefits will also decline gradually, since fewer will remain in 
use and those that do will be driven less, although this pattern will 
also be affected by the increases in fuel economy required for earlier 
model years.\600\
---------------------------------------------------------------------------

    \600\ A vehicle's age during a future calendar year is equal to 
that calendar year minus the model year in which it was originally 
produced (and assumed to be sold); for example, model year 2020 cars 
and light trucks will be 10 or 11 years old during calendar year 
2030, depending on whether they were considered to be 0 or 1 year 
old during 2020. (The agency's analysis uses the former convention, 
so as an illustration, model year 2010 vehicles are considered to be 
11 years old during 2020.)
---------------------------------------------------------------------------

    Thus, accounting properly for the effects of vehicle use on the 
costs and benefits from establishing higher CAFE standards requires 
estimates of VMT in each future calendar year accounted for by vehicles 
of different types and original model years (which determines their 
current age during that year). The agency estimates VMT by vehicles of 
different types and ages during future calendar years as the product of 
the number of vehicles of each type and age in service during that year 
and their average annual use. Because vehicles' annual use throughout 
their lifetimes is influenced by their fuel economy--through its effect 
on the cost of driving each mile--the VMT accounted for by vehicles of 
each body type and model year will vary among regulatory alternatives 
that require larger increases in fuel economy from its baseline level.
    To develop estimates of average vehicle use by body type and model 
year for future calendar years, the agency used odometer readings 
collected at different dates for a very large sample of vehicles to 
estimate average annual use at each age for cars and light trucks of 
different body types (automobiles, SUVs/vans, and pickups). These 
initial ``mileage accumulation schedules'' summarize how much vehicles 
of each body type and age were driven during 2016, and provide a basis 
to estimate how much vehicles produced during future model years will 
be driven at each age throughout their lifetimes. As described in 
detail in TSD Chapter 4.3, these initial schedules are adjusted to 
incorporate the effects of both differences in fuel prices between 2016 
and future calendar years, and differences in the fuel economy of 
vehicles of each age during 2016 and those that will be of that same 
during each future calendar years.
    The agency's CAFE Model uses the estimates of future sales of new 
cars and light trucks and annual retirement rates for used vehicles of 
different ages constructed as described previously to project the 
number of vehicles of each type and age that will be in use during each 
future calendar year it analyzes. It combines these with the estimates 
of average vehicle use at each age for different vehicle types to 
calculate their total VMT and uses the shares operating on different 
fuels (gasoline, diesel, and electricity) and their on-road fuel 
efficiency to estimate total consumption of each fuel. Finally, the 
model applies per-mile and per-gallon emission rates to estimate total 
emissions accounted for vehicles of each type and age during future 
calendar years. For more aggregate reporting of costs and benefits, the 
agency sums these estimates to obtain total vehicle use, fuel 
consumption, emissions, and other measures by vehicle type in each 
calendar year, as well as lifetime travel, fuel use, emissions, etc. 
for vehicles of each type and model year.
    NHTSA's perspective is that total demand for car and light truck 
travel should not vary significantly among the regulatory alternatives 
it considers, since the basic travel demands of a typical household are 
unlikely to be influenced much by the differences in vehicle prices or 
driving costs likely to be associated with different CAFE standards. 
However, the method the CAFE Model uses to calculate total VMT 
described above (and in more detail in TSD Chapter 4.3), can create 
modest differences in total VMT across the range of regulatory 
alternatives, even without considering the potential effect of fuel 
economy differences among those alternatives no vehicle use. These 
arise from the effects of differences in new vehicle sales and 
retirement rates for used vehicles among alternatives on the 
composition of the vehicle fleet--its makeup by vehicle type and age or 
original model year--during future years. Although small, these 
differences in the representation of vehicle types and model years in 
the future fleet can have significant impacts on the incremental costs 
and benefits of different regulatory alternatives when those are 
measured against the baseline.
    To prevent the estimated effects of our standards from having 
unrealistic implications for household vehicle ownership or travel 
demand, the agency sought in this analysis to ensure that the fuel 
consumption, emissions, safety, and other impacts it reports for 
different regulatory alternatives reflect only differences in total 
vehicle use that are specifically attributable to their differing fuel 
economy requirements, and do not incorporate differences in the number 
of cars and light trucks in use under each alternative. To do this the 
CAFE Model constrains the level of future vehicle use under each 
regulatory alternative before applying the fuel economy rebound effect 
to match values projected using the Federal Highway Administration's 
VMT forecasting model. In future years where this total ``pre-rebound 
effect'' VMT calculated internally by the CAFE Model differs from the 
FHWA forecast, each model year cohort's average VMT

[[Page 25864]]

is adjusted up or down so that the two estimates match. This process 
ensures that any differences in total VMT among regulatory alternatives 
is attributable to the fuel economy rebound effect. It also ensures 
that the forecasts of total VMT for future years constructed using the 
``bottom up'' process of estimating VMT separately for each vehicle 
type and age and summing the results, as described immediately above, 
are consistent with forecasts of aggregate VMT that are based on an 
underlying theory of household travel demand and independent forecasts 
of its demographic and economic determinants.
    The agency's analysis of this final rule begins with the year 2020 
and relies on actual data rather than forecasts for that year wherever 
possible. The elements of the analysis that rely most heavily on 
macroeconomic inputs--aggregate demand for VMT, new vehicle sales, and 
used vehicle retirement rates--all reflect the economy's unexpectedly 
rapid return to pre-pandemic levels of activity and expected future 
growth, and these conditions prevail under each of the regulatory 
alternatives considered. The Federal Highway Administration (FHWA) 
publishes annual estimates of VMT for the light-duty vehicle fleet; 
while FHWA's definition of light-duty vehicles differs slightly from 
those subject to CAFE standards, over the period from 2016 through 2019 
FHWA's estimates of VMT have agreed closely with those generated 
internally by NHTSA's CAFE Model.601 602 In 2020, however, 
the effects of the COVID pandemic--including sharply reduced demand for 
travel and mandated travel restrictions--reduced light-duty VMT 
significantly from its 2019 level, and this decline persisted through 
much of 2021.
---------------------------------------------------------------------------

    \601\ See Highway Statistics 2017, Table VM-1, available at 
https://www.fhwa.dot.gov/policyinformation/statistics/2017/vm1.cfm. 
(Accessed: March 15, 2022) FHWA's estimates of VMT include travel by 
light-duty trucks up to 10,000 lbs. GVW, while the CAFE program 
excludes trucks with GVWs exceeding 8,500 lbs. FHWA reported light-
duty VMT of 2.86 trillion for calendar year 2016, while NHTSA's 
model generated an internal estimate of 2.85 trillion VMT by 
vehicles subject to CAFE standards. The two estimates did not 
compare as closely for subsequent years, but never differed by more 
than 2 percent.
    \602\ NHTSA's estimates of total VMT rely on estimates of 
average annual mileage for light-duty vehicles at each age, 
calibrated to 2016 data, together with the number of registered 
light-duty vehicles at each age. Chapter 4 of the TSD accompanying 
this rulemaking describes these data and the process NHTSA uses to 
estimate total VMT in detail.
---------------------------------------------------------------------------

    Although this downturn in travel activity was accurately reflected 
in FHWA's published estimates of light-duty vehicle travel for the year 
2020 and monthly travel volumes during 2021, it was not captured in the 
VMT estimates produced internally by NHTSA's CAFE Model because those 
rely on vehicle use and registration estimates that could not readily 
be adjusted to account for sharply reduced commuting, shopping, and 
recreational travel or for restrictions on vehicle use that were 
imposed in some locations. To avoid the problems that relying on the 
models' internally generated forecasts for 2020 and 2021 would have 
caused, the agency's analysis for this final rule relied on FHWA's 
published estimate of light-duty VMT for 2020 and extrapolated the 
volumes reported in that agency's monthly travel updates through 
October of 2021 to develop an estimate of annual VMT for 2021.
    The fuel economy rebound effect--a specific example of the well-
documented energy efficiency rebound effect for energy-consuming 
capital goods--refers to the tendency of motor vehicles' use to 
increase when their fuel economy is improved and the fuel cost to drive 
each mile declines as a result. A regulatory alternative that 
establishes more stringent CAFE standards than those assumed to prevail 
under the baseline scenario will increase the fuel economy of new cars 
and light trucks, thereby reducing their pre-mile fuel consumption and 
fuel costs and increasing the number of miles they are driven annually 
over their lifetimes. The assumed magnitude of this fuel economy 
rebound effect influences the overall costs and benefits associated 
with each regulatory alternative considered, as well as the estimates 
of its effects on fatalities and other safety measures. Thus, its 
value--together with fuel prices, technology costs, and other 
analytical inputs--is part of the body of information that agency 
decision-makers have considered in selecting the CAFE standards this 
final rule establishes. By magnifying the effect of higher fuel economy 
on vehicle use, larger values of the fuel economy rebound effect also 
reduce the economic and environmental benefits associated with 
increased fuel efficiency.
    The agency received a number of comments on the value of the 
rebound effect. Most commenters argued that the agency rebound 
selection of 15 percent was too high and suggested that the literature 
supported a rebound magnitude ranging from 5 to 10 percent; most 
commenters supported using a rebound of 10 percent.\603\ A few 
commenters argued that an even lower value such as 5 percent should be 
used instead.\604\ While Auto Innovators did not comment directly on 
the agency's choice of 15 percent, it argued that the agency's estimate 
of rebound did not take into consideration of ``attribute 
substitution,'' whereby a household will buy a less fuel efficient 
vehicle as their second vehicle and will make a decision on which 
vehicle to use depending on the purpose for any particular trip.\605\ 
The agency notes that Auto Innovators did not provide any guidance on 
the likely direction of this ``attribute substitution'' effect--which 
is not clear a priori--in its comment, nor provide any suggestions for 
how to account for it in the analysis.
---------------------------------------------------------------------------

    \603\ See California Attorney General et al., Docket No. NHTSA-
2021-0053-1526-A1, at 2; UCS, Docket No. NHTSA-2021-0053-1567-A1, at 
32; CBD et al., Joint Summary Comments, at 2-3; ICCT, A1, at 14; 
Lucid, Docket No. NHTSA-2021-0053-1584-A1, at 6; IPI, at 35-37; and 
CARB, Docket No NHTSA-2021-0053-1521-A2, at 2-3.
    \604\ See e.g., CFA, Docket No. NHTSA-2021-0053-1535, at 4-5.
    \605\ Auto Innovators, at 93-94.
---------------------------------------------------------------------------

    ICCT commented in general support of the methodology used to 
construct the vehicle mileage accumulation schedules, but suggested 
that the agency could further improve them by considering how increased 
durability of successive models could cause newer vehicles to be driven 
more as they age than their older counterparts.\606\ The agency notes 
that ICCT is correct that increased durability can increase VMT. NHTSA 
captures this possibility in the scrappage model, where more recent 
model years tend to be retained in service longer, and also in its 
application of the fuel economy rebound effect, where vehicles 
featuring higher fuel economy are assumed to be used more intensively 
throughout their lifetimes. The agency notes that the data and methods 
it used to develop the mileage accumulation schedules capture the 
increasing durability of recent model year to some extent, because as 
described in detail in TSD Chapter 4.3 those data include a range of 
model years observed over several decades, and increased durability is 
not a recent phenomenon. Treating model years as a ``panel'' when 
estimating the pattern of vehicle use with age explicitly accounts for 
both increases in the fraction of vehicles produced during successive 
model years that remain in use at each age and any accompanying 
increase in the average use of vehicles of different ages.
---------------------------------------------------------------------------

    \606\ ICCT, at 22-23.
---------------------------------------------------------------------------

    Several of the commenters also seemed to suggest that we should not 
consider the impacts of rebound driving at all since they are freely 
chosen.\607\ We note that rebound driving is an expected

[[Page 25865]]

result of this final rule, and that understanding how increased fuel 
efficiency will affect additional mobility deserves consideration even 
if there is an offsetting mobility benefit. In addition, the question 
of whether and how to consider the rebound effect and its consequences 
is an aspect of the agency's determination of what standard represents 
the ``maximum feasible,'' which is a separate question from the more 
technical issue of what the appropriate value for the rebound effect 
should be in the analysis.
---------------------------------------------------------------------------

    \607\ See, e.g., CBD et al., at 17.
---------------------------------------------------------------------------

    As described in detail in TSD Chapter 4.3.5, the agency conducted a 
thorough and detailed review of recent research on the fuel economy 
rebound effect, which includes several new estimates it had not 
previously considered and also incorporates statistical uncertainty 
surrounding different estimates. The agency's updated review shows that 
research measuring the response of vehicle use to fuel economy itself 
suggests a rebound effect ranging from 5 to 15 percent, while studies 
examining the association of vehicle use to fuel costs of driving 
suggest that the rebound effect is most likely to lie in the range from 
10 to 20 percent.
    Based on this updated analysis, the agency selected a rebound 
effect of 10 percent for this analysis, because it was well-supported 
by the totality of the evidence and aligned closely with the response 
of total vehicle use to fuel costs incorporated in FHWA's forecasting 
model (approximately 14 percent). This value is also consistent with 
the value used in EPA's recent final rule. To recognizing the wide 
range of uncertainty surrounding the true value of the fuel economy 
rebound effect, we also examine the sensitivity of estimated impacts to 
values ranging from 5 to 20 percent.
    To calculate levels of total light-duty that incorporate the fuel 
economy rebound effect, the CAFE Model interprets the assumed magnitude 
of the rebound effect as an elasticity of average vehicle use with 
respect to fuel cost per mile, and applies this to changes in fuel 
costs resulting from the higher fuel economy levels each regulatory 
alternative requires. It then adds the resulting proportional increases 
in average vehicle use to their values under the No-Action Alternative, 
as previously adjusted to reconcile the CAFE Model's estimate of total 
VMT with that produced by FHWA's travel forecasting model. TSD Chapter 
4.3 provides an extensive discussion of how the agency calculates 
changes in VMT to account for the rebound effect.
    Jacobsen and Liao commented on the agency's procedures for 
estimating VMT and incorporating the rebound effect, noting that while 
still in progress, their recent research shows that by raising prices 
for new cars and light trucks, higher CAFE standards increase the 
depreciation cost their owners incur in driving each mile.\608\ They 
assert that the response of vehicle use to higher per-mile 
depreciations costs outweighs its response to the reduction in fuel 
costs from required increases in their fuel economy, although they do 
not report empirical results demonstrating this effect. These 
commenters also argue that the reduction in sales of new vehicles in 
response to higher new car and light truck prices will reinforce this 
effect, because households owning fewer vehicles will drive less in 
total as complementarity between the number of vehicles households own 
and their trip-making frequency operates in reverse. They argue that as 
these two effects interact with the usual fuel economy rebound effect, 
higher CAFE standards will reduce average vehicle use on balance rather 
than increasing it as the agency estimates.\609\
---------------------------------------------------------------------------

    \608\ Jacobsen and Liao, NHTSA-2021-0053-0065, at 1.
    \609\ Jacobsen and Liao, at 2.
---------------------------------------------------------------------------

    The agency agrees that higher per-mile depreciation costs are 
likely by themselves to reduce vehicle use but notes that only some 
fraction of vehicles' total depreciation costs owes to their usage, 
with the remainder attributable to the passage of time and 
technological progress in new vehicle designs and utility. Empirical 
estimates of this breakdown are scarce, so it is difficult to assess 
how large the increase in per-mile depreciation costs associated with a 
given increase in new vehicles' prices might be. We also note that 
increasing durability of new cars and light trucks over time tends to 
reduce the depreciation costs associated with their use, simply because 
their lifetime use-related depreciation is distributed over a larger 
number of miles. The agency notes further that the increases in new car 
and light truck prices it estimates will occur as consequences of the 
alternatives it considered for this analysis are quite modest, 
particularly after they are adjusted to reflect their buyers' assumed 
valuation of the higher fuel economy they provide. Combined with their 
increased durability and the fact that only a fraction of their higher 
prices is reflected in increased use-related depreciation, the implied 
increases in their per-mile depreciation costs are likely to be 
extremely small. Finally, we also note that empirical estimates of the 
fuel economy rebound effect generally do not control for potential 
increases in vehicles' purchase prices and accompanying depreciation 
costs. As a consequence, the association between higher fuel economy 
(or lower per-mile fuel costs) and higher per-mile depreciation is 
likely to be incorporated to some extent in estimates the rebound 
effect, in which case they can be interpreted as the combined or net 
effect of these countervailing changes on vehicle use.
4. Changes to Fuel Consumption
    The agency combines modeled fuel economy levels with age and body-
style VMT estimates to determine changes in fuel consumption over time 
and across alternatives. The agency computes the amount of fuel 
consumed by dividing expected total travel by predicted MPG at the 
vehicle level and then aggregates to produce estimates of total fuel 
consumed in each alternative.\610\
---------------------------------------------------------------------------

    \610\ Total value of fuel consumed is computed across all fuel 
types and draws fuel price values (e.g., retail prices for gasoline 
and electricity) from the set of model inputs.
---------------------------------------------------------------------------

F. Simulating Environmental Impacts of Regulatory Alternatives

    In estimating the environmental impacts of each regulatory 
alternative we considered, the agency accounted for the projected 
application of many fuel-saving technologies to vehicles that could 
continue to use only gasoline or diesel fuel (including hybrid electric 
vehicles that do not require external charging), as well as the 
projected increased application of plug-in hybrid electric vehicles 
and, with some analytical constraints, battery electric vehicles.\611\ 
By reducing overall energy consumption and the production and use of 
petroleum-based fuels, the alternatives the agency considered would 
thus have important consequences for the environment and public health. 
These occur because each alternative would reduce tailpipe emissions of 
both GHGs and criteria air pollutants during vehicle operation, as well 
as ``upstream'' emissions that occur during petroleum extraction, 
transportation, and refining to produce fuel, as well as during the 
transportation, storage, and distribution of refined fuel. In turn, 
reduced emissions of GHGs and air pollutants would improve 
environmental quality, reduce the health consequences of

[[Page 25866]]

exposure to air pollution (whether climate-exacerbated or not), and 
mitigate economic damages attributable to changes in the global climate 
and air pollution levels.
---------------------------------------------------------------------------

    \611\ This document and FRIA do not consider the potential for 
manufacturers to respond to new standards for MYs 2024-2026 by 
introducing new BEV models in MYs 2024-2026. However, the 
accompanying Supplemental Environmental Impact Analysis (SEIS) does 
account for such potential introductions of new BEV models in these 
model years.
---------------------------------------------------------------------------

    This section provides an overview of how we develop the assumptions 
and parameters used to estimate emissions of criteria air pollutants, 
greenhouse gases, and air toxics. It also describes how we develop and 
apply estimates of the air quality and climate-related impacts of these 
emissions and their consequences for human health, focusing 
particularly on the rule's effects on emissions of criteria air 
pollutants that cause poor air quality and can damage human health. The 
agency's analysis utilizes the ``emissions inventory'' approach to 
estimate these impacts. Vehicle-related emissions inventories are often 
described as three-legged stools, since they depend on measures of 
vehicle activity (i.e., miles traveled, hours operated, or gallons of 
fuel burned), the number of vehicles in use, and emission factors per 
unit of vehicle activity.
    An emissions factor is a rate that measures the quantity of a 
pollutant released to the atmosphere per unit of vehicle activity.\612\ 
This analysis relies on vehicle-miles traveled (VMT) as its measure of 
vehicle activity, and emission rates are measured by emissions (in mass 
units) per vehicle-mile; the vehicle-related or ``tailpipe'' emission 
inventory for most pollutants is the product of their per-mile 
emissions factor and the appropriate estimate of the number of miles 
traveled. Exceptions include tailpipe emissions of sulfur oxides 
(SOX) and carbon dioxide (CO2), which are 
estimated by applying emissions factors per gallon of fuel consumed 
derived from the chemical properties of different fuels to the 
appropriate values of fuel consumption in gallons. Vehicle activity 
levels--both the number of miles traveled and the number of gallons of 
fuel consumed--are generated by the CAFE Model (as described in 
Sections III.E.3. and 4. above), while the per-mile and per-gallon 
emission factors have been extracted from other models developed by 
other Federal agencies. In this rulemaking, vehicle-related emissions 
also include those that occur throughout the process of supplying fuel 
and other forms of vehicle energy (such as electric power), and these 
are termed upstream emissions. The agency estimates these upstream 
emissions from the volume or energy content of fuel supplied and 
consumed by cars and light trucks, together with factors that express 
emissions of air pollutants and GHGs in mass per unit of fuel volume 
(usually grams per gallon) or fuel energy (e.g., grams per million Btu) 
supplied. Total upstream emissions of each pollutant are estimated as 
the product of the number of gallons of fuel supplied and the relevant 
per-gallon emission factor, or as the product of total energy supplied 
and emissions per unit of energy produced and delivered.
---------------------------------------------------------------------------

    \612\ U.S. EPA, Basics Information of Air Emissions Factors and 
Quantification, https://www.epa.gov/air-emissions-factors-and-quantification/basic-information-air-emissions-factors-and-quantification. (Accessed: March 15, 2022)
---------------------------------------------------------------------------

    For this rule, vehicle tailpipe (sometimes called ``downstream'') 
and upstream emission factors as well as estimates of total emissions 
from both sources were developed independently using separate data 
sources. Tailpipe emission factors are estimated from the highway 
emissions model developed for use in regulatory analysis by the U.S. 
Environmental Protection Agency's (EPA) National Vehicle and Fuel 
Emissions Laboratory, known as the Motor Vehicle Emission Simulator 
(MOVES). Upstream emission factors are estimated from a lifecycle 
emissions model developed by the U.S. Department of Energy's (DOE) 
Argonne National Laboratory, the Greenhouse Gases, Regulated Emissions, 
and Energy Use in Transportation (GREET) Model.\613\ For this final 
rule, we updated the CAFE Model to utilize data from the most current 
versions of each model, MOVES 3 and GREET 2021.
---------------------------------------------------------------------------

    \613\ U.S. Department of Energy, Argonne National Laboratory, 
Greenhouse gases, Regulated Emissions, and Energy use in 
Transportation (GREET) Model, Last Update: 11 Oct. 2021, https://greet.es.anl.gov/. (Accessed: March 15, 2022) Upstream emission 
factors for criteria air pollutants may be undercounted, but are 
nonetheless important.
---------------------------------------------------------------------------

    Adverse human health outcomes caused by exposure to harmful 
accumulations of criteria air pollutants, such as asthma episodes and 
respiratory or cardiovascular distress requiring hospitalization, are 
generally reported as incidences per ton of emissions of each pollutant 
(or its chemical precursors). The incidence per ton values used to 
estimate changes in health impacts were developed using several EPA 
studies and recently updated to better account for the specific sources 
of emissions estimated by the CAFE Model. Finally, EPA also applies 
estimates of the affected population's willingness to pay to avoid each 
incidence of these adverse health impacts and sums the results to 
obtain estimates of the economic cost of air pollutant emissions in 
dollars per ton, which can be interpreted as estimates of the economic 
benefit from reducing each ton of emissions of different pollutants. 
Chapter 5 of the TSD accompanying this final rule includes a detailed 
discussion of the procedures we used to simulate the environmental 
impacts of the different regulatory alternatives that were considered, 
and the implementation of these procedures within the CAFE Model is 
discussed in detail in the supporting Model Documentation. Further 
discussion of how the health impacts of upstream and tailpipe emissions 
of criteria air pollutants have been monetized and the resulting values 
used in this analysis can be found in Section III.G.2.b)(2). The Final 
SEIS accompanying this analysis also includes a detailed discussion of 
both criteria pollutant and GHG emissions and their impacts on human 
health as well as on the natural environment.
1. Activity Levels Used To Calculate Emissions Impacts
    The CAFE Model estimates the annual number of miles driven (VMT) 
for each individual car and light truck model produced in every future 
model year at each age over their lifetimes, which extend for a maximum 
of 40 years. Since a vehicle's age is equal to the current calendar 
year minus the model year in which it was originally produced, the age 
span of each vehicle model's lifetime corresponds to a sequence of 40 
calendar years beginning in the calendar year corresponding to the 
model year it was produced.\614\ These estimates reflect the gradual 
decline in the fraction of each car and light truck model's original 
model year production volume that is expected to remain in service 
during each year of its lifetime, as well as the well-documented 
decline in their typical use as they age. Using this relationship, the 
CAFE Model calculates total VMT for cars and light trucks in service 
during each calendar year spanned in this analysis.
---------------------------------------------------------------------------

    \614\ In practice, many vehicle models bearing a given model 
year designation become available for sale in the preceding calendar 
year, and their sales can extend through the calendar year following 
their designated model year as well. However, the CAFE Model does 
not attempt to distinguish between model years and calendar years; 
vehicles bearing a model year designation are assumed to be produced 
and sold in that same calendar year.
---------------------------------------------------------------------------

    Based on these estimates, the model also calculates quantities of 
each type of fuel or energy, including gasoline, diesel, and 
electricity, consumed in each calendar year. By combining these with 
estimates of each model's fuel or energy efficiency, the model also 
estimates the quantity and energy content of each type of fuel consumed 
(including gasoline, diesel, and electricity) by cars and light trucks 
at

[[Page 25867]]

each age, or viewed another way, during each calendar year of their 
lifetimes. As with the accounting of VMT, these estimates of annual 
fuel or energy consumption for each vehicle model and model year 
combination are combined to calculate the total volume of each type of 
fuel or energy consumed during each calendar year, as well as its 
aggregate energy content.
    The procedures the CAFE Model uses to estimate annual VMT for 
individual car and light truck models produced during each model year 
over their lifetimes and to combine these into estimates of annual 
fleet-wide travel during each future calendar year, together with the 
sources of its estimates of their survival rates and average use at 
each age, are described in detail in Section III.E.2. The data and 
procedures it employs to convert these estimates of VMT to fuel and 
energy consumption by individual model, and to aggregate the results to 
calculate total consumption and energy content of each fuel type during 
future calendar years, are also described in detail in that same 
section.
    The model documentation accompanying this final rule also describes 
these procedures in detail.\615\ The quantities of travel and fuel 
consumption estimated for the cross section of model years and calendar 
years constitutes a set of ``activity levels'' based on which the model 
calculates emissions. The model does so by multiplying activity levels 
by emission factors. As indicated in the previous section, the 
resulting estimates of vehicle use (VMT), fuel consumption, and fuel 
energy content are combined with emission factors drawn from various 
sources to estimate emissions of GHGs, criteria air pollutants, and 
airborne toxic compounds that occur throughout the fuel supply and 
distribution process, as well as during vehicle operation, storage, and 
refueling. Emission factors measure the mass of each GHG, or criteria 
pollutant emitted per vehicle-mile of travel, gallon of fuel consumed, 
or unit of fuel energy content. The following sections identifies the 
sources of these emission factors and explains in detail how the CAFE 
Model applies them to its estimates of vehicle travel, fuel use, and 
fuel energy consumption to estimate total annual emissions of each GHG, 
criteria pollutant, and airborne toxic.
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    \615\ CAFE Model documentation is available at https://www.nhtsa.gov/corporate-average-fuel-economy/compliance-and-effects-modeling-system.
---------------------------------------------------------------------------

2. Simulating Upstream Emissions Impacts
    Building on the methodology for simulating upstream emissions 
impacts used in prior CAFE rules, this final rule analysis uses 
emissions factors developed with the U.S. Department of Energy's 
Greenhouse gases, Regulated Emissions, and Energy use in Transportation 
(GREET) Model, specifically GREET 2021.\616\ The analysis includes 
emissions impacts estimates for regulated criteria pollutants,\617\ 
greenhouse gases,\618\ and air toxics.\619\
---------------------------------------------------------------------------

    \616\ U.S. Department of Energy, Argonne National Laboratory, 
Greenhouse gases, Regulated Emissions, and Energy use in 
Transportation (GREET) Model, Last Update: 11 Oct. 2021, https://greet.es.anl.gov/.
    \617\ Carbon monoxide (CO), volatile organic compounds (VOCs), 
nitrogen oxides (NOX), sulfur oxides (SOX), 
and particulate matter with 2.5-micron ([micro]m) diameters or less 
(PM2.5).
    \618\ Carbon dioxide (CO2), methane (CH4), 
and nitrous oxide (N2O).
    \619\ Acetaldehyde, acrolein, benzene, butadiene, formaldehyde, 
diesel particulate matter with 10-micron ([micro]m) diameters or 
less (PM10).
---------------------------------------------------------------------------

    The upstream emissions factors included in the CAFE Model input 
files include parameters for 2020 through 2050 in five-year intervals 
(e.g., 2020, 2025, 2030, and so on). For gasoline and diesel fuels, 
each analysis year includes upstream emissions factors for the four 
following upstream emissions processes: Petroleum extraction, petroleum 
transportation, petroleum refining, and fuel transportation, storage, 
and distribution (TS&D). In contrast, the upstream electricity 
emissions factor is only a single value per analysis year. We briefly 
discuss the components included in each upstream emissions factor here, 
and a more detailed discussion is included in Chapter 5 of the TSD 
accompanying this rule and the CAFE Model Documentation.
    The first step in the process for calculating upstream emissions 
includes any emissions related to the extraction, recovery, and 
production of petroleum-based feedstocks, namely conventional crude 
oil, oil sands, and shale oils. Then, the petroleum transportation 
process accounts for the transport processes of crude feedstocks sent 
for domestic refining. The petroleum refining calculations are based on 
the aggregation of fuel blendstock processes rather than the crude 
feedstock processes, like the petroleum extraction and petroleum 
transportation calculations. The final upstream process after refining 
is the transportation, storage, and distribution (TS&D) of the finished 
fuel product.
    The upstream gasoline and diesel emissions factors are aggregated 
in the CAFE Model based on the share of fuel savings leading to reduced 
domestic oil fuel refining and the share of reduced domestic refining 
from domestic crude oil.\620\ The CAFE Model applies a fuel savings 
adjustment factor to the petroleum refining process and a combined fuel 
savings and reduced domestic refining adjustment to both the petroleum 
extraction and petroleum transportation processes for both gasoline and 
diesel fuels and for each pollutant. These adjustments are consistent 
across fuel types, analysis years, and pollutants, and are unchanged 
from the previous CAFE analyses. Additional discussion of the 
methodology for estimating the share of fuel savings leading to reduced 
domestic oil refining is located in Chapter 6.2.4.4 of the TSD.
---------------------------------------------------------------------------

    \620\ Upstream emissions are underestimated to the extent that 
they do not account for any toxic pollutants (like mercury) and 
criteria pollutants (i.e., from refining/production in Mexico/
Canada, as such pollutants can cross boundaries), as well as certain 
greenhouse gas emissions, that originate outside the borders of the 
United States and are attributable to changes in gasoline 
consumption as a result of these standards.
---------------------------------------------------------------------------

    Upstream electricity emissions factors are also calculated using 
GREET 2021. GREET 2021 projects a national default electricity 
generation mix for transportation use from the latest Annual Energy 
Outlook (AEO) data.\621\ As discussed above, the CAFE Model uses a 
single upstream electricity factor for each analysis year.
---------------------------------------------------------------------------

    \621\ For this CAFE analysis, this was AEO 2021, released 
February 3, 2021, https://www.eia.gov/outlooks/archive/aeo21.
---------------------------------------------------------------------------

    The Environmental Defense Fund (EDF) submitted comments to the 
Draft SEIS docket stating that NHTSA's estimates of reductions in 
global GHG emissions associated with lower domestic consumption of 
gasoline and diesel and its consequences for U.S. imports of crude 
petroleum should incorporate empirical estimates of the specific 
sources of U.S. imports that would be reduced and the rates of GHG 
emissions associated with producing crude petroleum at each of those 
sources and transporting it to the U.S. for refining.\622\
---------------------------------------------------------------------------

    \622\ EDF, NHTSA-2021-0054-0016, at pp. 4-5.
---------------------------------------------------------------------------

    We do not have the detailed production and supply modeling 
capability that would be necessary to estimate reductions in U.S. 
imports of crude petroleum from specific sources, and the global nature 
of the market for crude petroleum suggests that those reductions are 
unlikely to be proportional to the volumes currently imported from 
different sources, as EDF

[[Page 25868]]

appears to assume. The global nature of the market for crude petroleum 
also means that reductions in U.S. purchases from specific sources 
would not necessarily be met by corresponding reductions in petroleum 
production and associated GHG emissions at those locations, since those 
producers' reduced exports to the U.S. might simply be redirected to 
supply other purchasers.
    In light of this situation, we believe the most reasonable 
assumption to use for estimating reductions in global GHG emissions 
associated with lower U.S. petroleum imports and global production is 
to apply the emission factors associated with crude petroleum 
production at different global locations and with current 
transportation patterns, weighted by each location's projected 
contribution to future global production. This is in fact the 
assumption implicitly reflected in the agency's reliance on GHG 
emission factors for crude petroleum transportation and distribution 
derived using GREET. Even this assumption is likely to lead to an 
overestimate of the reduction in global GHG emissions, since it implies 
that the estimated decline in U.S. imports will be fully reflected in 
an overall reduction in global petroleum production, rather than being 
partly or fully absorbed by other oil-consuming nations. We have 
therefore elected to retain this assumption and its current procedure 
for estimating reduced GHG emissions from petroleum production. These 
assumptions are discussed in further detail in Section 0.
    EDF also commented that that NHTSA's estimates of reductions in 
domestic emissions of criteria air pollutants resulting from lower U.S. 
production and consumption of transportation fuels and its assumed 
effect on U.S. petroleum imports should include reductions in emissions 
that occur during the transportation of imported petroleum ``. . . on 
U.S. soil or within established distances from our borders where 
emissions still affect U.S. ambient air quality.'' This would include 
emissions by tanker ships operating within U.S. Emission Control Areas 
(ECAs, which can extend as far as 200 miles from U.S. shores), 
including those to which petroleum is transferred when large oceangoing 
tankers cannot enter some U.S. ports, as well as emissions by 
petroleum-carrying barges, rail tank cars, and pipelines operating 
within U.S. borders.
    In fact, our analysis does include emissions that occur during 
transportation of crude petroleum as domestic emissions associated with 
petroleum imports. In effect, it assumes that transportation modes and 
shipment distances for moving crude petroleum from U.S. coastal ports 
to domestic refineries are similar to those for moving domestically 
extracted crude petroleum from oilfields or other domestic petroleum 
production facilities to U.S. refineries. Thus, some reductions in 
emissions that occur during transportation of imported crude petroleum 
within U.S. coastal and interior areas are included in the agency's 
estimates of total reductions in domestic emissions of criteria 
pollutants attributable to reduced U.S. petroleum imports. The agency 
believes this approach provides a satisfactory substitute for detailed 
estimation of movement distances and shipment modes for carrying 
imported crude petroleum from ports to refineries. This is discussed 
further in TSD Chapter 5.2 and TSD Chapter 6.2.4.2.
3. Simulating Tailpipe Emissions Impacts
    Tailpipe emission factors are generated using a regulatory model 
for on-road emission inventories from the U.S. Environmental Protection 
Agency, the Motor Vehicle Emission Simulator (MOVES3), November 2020 
release. MOVES3 is a state-of-the-science, mobile-source emissions 
inventory model for regulatory applications.\623\ MOVES3 tailpipe 
emission factors have been incorporated into the CAFE parameters, and 
these updates supersede tailpipe data previously provided by EPA from 
MOVES2014 for past CAFE analyses. MOVES3 accounts for a variety of 
processes related to emissions impacts from vehicle use, examples 
include exhaust and evaporative processes, among others.\624\
---------------------------------------------------------------------------

    \623\ U.S. Environmental Protection Agency, Office of 
Transportation and Air Quality, Motor Vehicle Emission Simulator 
(MOVES), Last Updated: September 2021, https://www.epa.gov/moves/latest-version-motor-vehicle-emission-simulator-moves. For the CAFE 
analysis, MOVES 3.0.1 was used to generate the emission factors.
    \624\ For CAFE modeling, the post-processing of emission factors 
for PM2.5 included exhaust processes (running, start, 
crankcase running, and crankcase start) and excluded brake and tire 
wear.
---------------------------------------------------------------------------

    The CAFE Model uses tailpipe emissions factors for all model years 
from 2020 to 2060 for criteria pollutants and air toxics. To maintain 
continuity in the historical inventories, only emission factors for MYs 
2020 and after were updated; all emission factors prior to MY 2020 were 
unchanged from previous CAFE rulemakings. In addition, the updated 
tailpipe data in the current CAFE reference case no longer account for 
any fuel economy improvements or changes in vehicle miles traveled from 
the 2020 final rule. In order to avoid double-counting effects from the 
previous rulemaking in the current rulemaking, the tailpipe baseline 
backs out 1.5 percent year-over-year stringency increases in fuel 
economy, and 0.3 percent VMT increases assumed each year (20 percent 
rebound on the 1.5 percent improvements in stringency). Note that the 
MOVES3 data do not cover all the model years and ages required by the 
CAFE Model; MOVES only generates emissions data for vehicles made in 
the last 30 model years for each calendar year being run. This means 
emissions data for some calendar year and vehicle age combinations are 
missing. To remedy this, we take the last vehicle age that has 
emissions data and forward fill those data for the following vehicle 
ages. Due to incomplete available data for years prior to MY 2020, 
tailpipe emission factors for MY 2019 and earlier have not been 
modified and continue to utilize MOVES2014 data.
    For tailpipe CO2 emissions, these factors are defined 
based on the fraction of each fuel type's mass that represents carbon 
(the carbon content) along with the mass density per unit of the 
specific type of fuel. To obtain the emission factors associated with 
each fuel, the carbon content is then multiplied by the mass density of 
a particular fuel as well as by the ratio of the molecular weight of 
carbon dioxide to that of elemental carbon. This ratio, a constant 
value of 44/12, measures the mass of carbon dioxide that is produced by 
complete combustion of mass of carbon contained in each unit of fuel. 
The resulting value defines the emission factor attributed to 
CO2 as the amount of grams of CO2 emitted during 
vehicle operation from each type of fuel. This calculation is repeated 
for gasoline, E85, diesel, and compressed natural gas (CNG) fuel types. 
In the case of CNG, the mass density and the calculated CO2 
emission factor are denoted as grams per standard cubic feet (scf), 
while for the remainder of fuels, these are defined as grams per gallon 
of the given fuel source. Since electricity and hydrogen fuel types do 
not cause CO2 emissions to be emitted during vehicle 
operation, the carbon content, and the CO2 emission factors 
for these two fuel types are assumed to be zero. The mass density, 
carbon content, and CO2 emission factors for each fuel type 
are defined in the Parameters file.
    The CAFE Model calculates CO2 tailpipe emissions 
associated with vehicle operation of the surviving on-road fleet by 
multiplying the number of gallons (or scf for CNG) of a specific fuel 
consumed by the CO2 emissions factor

[[Page 25869]]

for the associated fuel type. More specifically, the amount of gallons 
or scf of a particular fuel are multiplied by the carbon content and 
the mass density per unit of that fuel type, and then the model applies 
the ratio of carbon dioxide emissions generated per unit of carbon 
consumed during the combustion process.\625\
---------------------------------------------------------------------------

    \625\ Chapter 3, Section 4 of the CAFE Model Documentation 
provides additional description for calculation of CO2 
tailpipe emissions with the model.
---------------------------------------------------------------------------

4. Estimating Health Impacts From Changes in Criteria Pollutant 
Emissions
    The CAFE Model computes select health impacts resulting from three 
criteria pollutants: NOX, SOX,\626\ and 
PM2.5. Out of the six criteria pollutants currently 
regulated, NOX, SOX, and PM2.5 are 
known to be emitted regularly from mobile sources and have the most 
adverse effects to human health. These health impacts include several 
different morbidity measures, as well as a mortality estimate, and are 
measured by the number of instances predicted to occur per ton of 
emitted pollutant.\627\ The model reports total health impacts by 
multiplying the estimated tons of each criteria pollutant by the 
corresponding health incidence per ton value. The inputs that inform 
the calculation of the total tons of emissions resulting from criteria 
pollutants are discussed above. This section discusses how the health 
incidence per ton values were obtained. See Section III.G.2.b)(2) and 
Chapter 6.2.2 of the TSD accompanying this notice for information 
regarding the monetized damages arising from these health impacts.
---------------------------------------------------------------------------

    \626\ Any reference to SOX in this section refers to 
the sum of sulfur dioxide (SO2) and sulfate particulate 
matter (pSO4) emissions, following the methodology of the EPA papers 
cited.
    \627\ The complete list of morbidity impacts estimated in the 
CAFE Model is as follows: acute bronchitis, asthma exacerbation, 
cardiovascular hospital admissions, lower respiratory symptoms, 
minor restricted activity days, non-fatal heart attacks, respiratory 
emergency hospital admissions, respiratory emergency room visits, 
upper respiratory symptoms, and work loss days.
---------------------------------------------------------------------------

    The Final SEIS associated with this document also includes a 
detailed discussion of the criteria pollutants and air toxics analyzed 
and their potential health effects. Consistent with past analyses, we 
have performed full-scale photochemical air quality modeling and 
presented those results in the Final SEIS. That analysis provides 
additional assessment of the human health impacts from changes in 
PM2.5 and ozone associated with this rule. We note that 
compliance with CAFE standards is based on the average performance of 
manufacturers' production for sale throughout the U.S., and that the 
FRIA involves sensitivity analysis spanning a range of model inputs, 
many of which impact estimates of future emissions from passenger cars 
and light trucks. Chapter 6 of the FRIA includes a discussion of 
overall changes in health impacts associated with criteria pollutant 
changes across the different rulemaking scenarios.
    In previous rulemakings, health impacts were split into two 
categories based on whether they arose from upstream emissions or 
tailpipe emissions. In the current analysis, these health incidence per 
ton values have been updated to reflect the differences in health 
impacts arising from each emission source sector, according to the 
latest publicly available EPA reports that appropriately correspond to 
these sectors. Five different upstream emission source sectors 
(petroleum extraction, petroleum transportation, refineries, fuel 
transportation, storage and distribution, and electricity generation) 
are now represented. The tailpipe source sector is now disaggregated 
based on fuel and vehicle type. As the health incidences for the 
different source sectors are all based on the emission of one ton of 
the same pollutants, NOX, SOX, and 
PM2.5, the differences in the incidence per ton values arise 
from differences in the geographic distribution of the pollutants, a 
factor which affects the number of people impacted by the 
pollutants.\628\
---------------------------------------------------------------------------

    \628\ See Environmental Protection Agency (EPA). 2018. 
Estimating the Benefit per Ton of Reducing PM2.5 
Precursors from 17 Sectors. https://www.epa.gov/sites/production/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf.
---------------------------------------------------------------------------

    The CAFE Model health impacts inputs are based partially on the 
structure of EPA's 2018 TSD, Estimating the Benefit per Ton of Reducing 
PM2.5 Precursors from 17 Sectors (referred to here as the 
2018 EPA source apportionment TSD),\629\ which reported benefit per ton 
values for the years 2016, 2020, 2025, and 2030.\630\ For the years in 
between the source years used in the input structure, the CAFE Model 
applies values from the closest source year. For instance, 2020 values 
are applied for 2020-2022, and 2025 values are applied for 2023-2027. 
For further details, see the CAFE Model documentation, which contains a 
description of the model's computation of health impacts from criteria 
pollutant emissions.
---------------------------------------------------------------------------

    \629\ Environmental Protection Agency (EPA). 2018. Estimating 
the Benefit per Ton of Reducing PM2.5 Precursors from 17 
Sectors. https://www.epa.gov/sites/production/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf.
    \630\ As the year 2016 is not included in this analysis, the 
2016 values were not used.
---------------------------------------------------------------------------

    Despite efforts to be as consistent as possible between the 
upstream emissions sectors utilized in the CAFE Model with the 2018 EPA 
source apportionment TSD, the need to use up-to-date sources based on 
newer air quality modeling updates led to the use of multiple papers. 
In addition to the 2018 EPA source apportionment TSD used in the 2020 
final rule, we used additional EPA sources and conversations with EPA 
staff to appropriately map health incidence per ton values to the 
appropriate CAFE Model emissions source category. Very recently, EPA 
updated its approach to estimating the benefits of changes in 
PM2.5 and ozone,631 632 as well as the associated 
changes in health impacts per ton. These updates were based on 
information drawn from the recent 2019 PM2.5 and 2020 Ozone 
Integrated Science Assessments (ISAs), which were reviewed by the Clean 
Air Science Advisory Committee (CASAC) and the 
public.633 634 EPA has not updated its health incidence 
estimates for mobile sources to reflect these updates in time for this 
analysis. Instead, based on the recommendation of EPA staff, we use the 
same PM2.5 BPT estimates and health incidence values that we 
used in the NPRM, to ensure consistency between the values 
corresponding to different source sectors. The estimates used are based 
on the review of the 2009 PM ISA \635\ and 2012 p.m. ISA Provisional 
Assessment \636\ and include

[[Page 25870]]

a mortality risk estimate derived from the Krewski et al. (2009) \637\ 
analysis of the American Cancer Society (ACS) cohort and nonfatal 
illnesses consistent with benefits analyses performed for the analysis 
of the final Tier 3 Vehicle Rule (79 FR 23414, April 28, 2014),\638\ 
the final 2012 p.m. NAAQS Revision (78 FR 3154, Jan. 15, 2013),\639\ 
and the final 2017-2025 Light-duty Vehicle GHG Rule (77 FR 62624, Oct. 
15, 2012).\640\ We expect this lag in updating our health incidence and 
BPT estimates to have only a minimal impact on total PM benefits, since 
the underlying mortality risk estimate based on the Krewski study is 
identical to an updated PM2.5 morality risk estimate derived 
from an expanded analysis of the same ACS cohort. We are aware of EPA's 
work to update its mobile source BPT and health incidence estimates to 
reflect these recent updates for use in future rulemaking analyses, and 
we will work further with EPA in future rulemakings to update and 
synchronize approaches.
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    \631\ U.S. Environmental Protection Agency (U.S. EPA). 2021a. 
Regulatory Impact Analysis for the Final Revised Cross-State Air 
Pollution Rule (CSAPR) Update for the 2008 Ozone NAAQS. EPA-452/R-
21-002. March.
    \632\ U.S. Environmental Protection Agency (U.S. EPA). 2021b. 
Estimating PM2.5- and Ozone-Attributable Health Benefits. 
Technical Support Document (TSD) for the Final Revised Cross-State 
Air Pollution Rule Update for the 2008 Ozone Season NAAQS. EPA-HQ-
OAR-2020-0272. March.
    \633\ U.S. Environmental Protection Agency (U.S. EPA). 2019a. 
Integrated Science Assessment (ISA) for Particulate Matter (Final 
Report, 2019). U.S. Environmental Protection Agency, Washington, DC, 
EPA/600/R-19/188, 2019.
    \634\ U.S. Environmental Protection Agency (U.S. EPA). 2019a. 
Integrated Science Assessment (ISA) for Ozone and Related 
Photochemical Oxidants (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-20/012, 2020.
    \635\ U.S. Environmental Protection Agency (U.S. EPA). 2009. 
Integrated Science Assessment for Particulate Matter (Final Report). 
EPA-600-R-08-139F. National Center for Environmental Assessment-RTP 
Division, Research Triangle Park, NC. December. Available at: http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546.
    \636\ U.S. Environmental Protection Agency (U.S. EPA). 2012. 
Provisional Assessment of Recent Studies on Health Effect of 
Particulate Matter Exposure. EPA/600/R-12/056F. National Center for 
Environmental Assessment-RTP Division, Research Triangle Park, NC. 
December. Available at: https://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247132.
    \637\ Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. 
Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the 
American Cancer Society Study Linking Particulate Air Pollution and 
Mortality. HEI Research Report, 140, Health Effects Institute, 
Boston, MA.
    \638\ U.S. Environmental Protection Agency (2014). Control of 
Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and 
Fuel Standards Final Rule: Regulatory Impact Analysis, Assessment 
and Standards Division, Office of Transportation and Air Quality, 
EPA-420-R-14-005, March 2014. Available on the internet: http://www3.epa.gov/otaq/documents/tier3/420r14005.pdf.
    \639\ U.S. Environmental Protection Agency. (2012). Regulatory 
Impact Analysis for the Final Revisions to the National Ambient Air 
Quality Standards for Particulate Matter, Health and Environmental 
Impacts Division, Office of Air Quality Planning and Standards, EPA-
452-R-12-005, December 2012. Available on the internet: http://www3.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf.
    \640\ U.S. Environmental Protection Agency (U.S. EPA). (2012). 
Regulatory Impact Analysis: Final Rulemaking for 2017-2025 Light-
Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average 
Fuel Economy.
---------------------------------------------------------------------------

    The basis for the health impacts from the petroleum extraction 
sector is a 2018 oil and natural gas sector paper written by EPA staff 
(Fann et al.), which estimates health impacts for this sector in the 
year 2025.\641\ This paper defines the oil and gas sector's emissions 
not only as arising from petroleum extraction but also from 
transportation to refineries, while the CAFE/GREET component is 
composed of only petroleum extraction. After consultation with the 
authors of the EPA paper, we determined that these are the best 
available estimates for the petroleum extraction sector, 
notwithstanding this difference. Specific health incidences per 
pollutant were not reported in the paper, so EPA staff sent BenMAP 
health incidence files for the oil and natural gas sector upon request. 
DOT staff then calculated per ton values based on these files and the 
tons reported in the Fann et al. paper.\642\ The only available health 
impacts corresponded to the year 2025. Rather than trying to 
extrapolate, these 2025 values were used for all the years in the CAFE 
Model structure: 2020, 2025, and 2030.\643\ This simplification implies 
an overestimate of damages in 2020 and an underestimate in 2030.\644\
---------------------------------------------------------------------------

    \641\ Fann, N., Baker, K. R., Chan, E., Eyth, A., Macpherson, 
A., Miller, E., & Snyder, J. (2018). Assessing Human Health 
PM2.5 and Ozone Impacts from U.S. Oil and Natural Gas 
Sector Emissions in 2025. Environmental science & technology, 
52(15), 8095-8103 (hereinafter, Fann et al.).
    \642\ Nitrate-related health incidents were divided by the total 
tons of NOX projected to be emitted in 2025, sulfate-
related health incidents were divided by the total tons of projected 
SOX, and EC/OC (elemental carbon and organic carbon) 
related health incidents were divided by the total tons of projected 
EC/OC. Both Fann et al. and the 2018 EPA source apportionment TSD 
define primary PM2.5 as being composed of elemental 
carbon, organic carbon, and small amounts of crustal material. Thus, 
the EC/OC BenMAP file was used for the calculation of the incidents 
per ton attributable to PM2.5.
    \643\ These three years are used in the CAFE Model structure 
because it was originally based on the estimate provided in the 2018 
EPA source apportionment TSD.
    \644\ See EPA. 2018. Estimating the Benefit per Ton of Reducing 
PM2.5 Precursors from 17 Sectors. https://www.epa.gov/sites/production/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf, p. 9.
---------------------------------------------------------------------------

    We understand that uncertainty exists around the contribution of 
VOCs to PM2.5 formation in the modeled health impacts from 
the petroleum extraction sector; however, based on feedback to the 2020 
final rule, we believe that the updated health incidence values 
specific to petroleum extraction sector emissions may provide a more 
appropriate estimate of potential health impacts from that sector's 
emissions than the previous approach of applying refinery sector 
emissions impacts to the petroleum extraction sector. For further 
discussion of the BPT estimates corresponding to the health effects 
discussed in this section, see Section III.G.2.b)(2).
    The petroleum transportation sector and fuel TS&D sector do not 
correspond to any one EPA source sector in the 2018 EPA source 
apportionment TSD, so we use a weighted average of multiple different 
EPA sectors to determine the health impact per ton values for those 
sectors. We use a combination of different EPA mobile source sectors 
from two different papers, the 2018 EPA source apportionment TSD,\645\ 
and a 2019 mobile source sectors paper (Wolfe et al.) \646\ to generate 
these values. The health incidence per ton values associated with the 
refineries sector and electricity generation sector are drawn solely 
from the 2018 EPA source apportionment TSD.
---------------------------------------------------------------------------

    \645\ Environmental Protection Agency (EPA). 2018. Estimating 
the Benefit per Ton of Reducing PM2.5 Precursors from 17 
Sectors. https://www.epa.gov/sites/production/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf.
    \646\ Wolfe et al. 2019. Monetized health benefits attributable 
to mobile source emissions reductions across the United States in 
2025. https://pubmed.ncbi.nlm.nih.gov/30296769/.
---------------------------------------------------------------------------

    IPI expressed concern that the agency's domestic fuel refining 
share assumptions cause an underestimate in the health effects counted 
in this analysis.\647\ For discussion of NHTSA's domestic fuel refining 
assumptions, see Section III.G.2.b)(3), TSD Chapter 5.2, and TSD 
Chapter 6.2.
---------------------------------------------------------------------------

    \647\ IPI, Docket No. NHTSA-2021-0053-1579, at 39.
---------------------------------------------------------------------------

    The CAFE Model follows a similar process for computing health 
impacts resulting from tailpipe emissions as it does for calculating 
health impacts from upstream emissions. Previous rulemakings used the 
2018 EPA source apportionment TSD as the source for the health 
incidence per ton, matching the CAFE Model tailpipe emissions inventory 
to the ``on-road mobile sources sector'' in the TSD. However, a more 
recent EPA paper from 2019 (Wolfe et al.) \648\ computes monetized 
damage costs per ton values at a more disaggregated level, separating 
on-road mobile sources into multiple categories based on vehicle type 
and fuel type. Wolfe et al. did not report incidences per ton, but that 
information was obtained through communications with EPA staff. The 
Center for Biological Diversity, Chesapeake Bay Foundation, 
Conservation Law Foundation, Earthjustice, Environmental Law & Policy 
Center, Natural Resources Defense Council, Public Citizen, Inc., Sierra 
Club, and Union of Concerned Scientists, in their joint summary 
comments, stated that the estimates of the benefits of PM2.5 
reductions have been improved with the addition of the Wolfe et al. 
paper.\649\ We agree, and continue to use these sources in the final 
rulemaking analysis as the categories are more expansive and specific 
than the original 2018 source.
---------------------------------------------------------------------------

    \648\ Wolfe et al. 2019. Monetized health benefits attributable 
to mobile source emissions reductions across the United States in 
2025. https://pubmed.ncbi.nlm.nih.gov/30296769/.
    \649\ CBD et al., Docket No. NHTSA-2021-0053-1572, at 5.
---------------------------------------------------------------------------

    The Wisconsin Department of Natural Resources (WDNR) stated that 
``NHTSA

[[Page 25871]]

should work with EPA to offset any increases in sulfur dioxide 
emissions associated with the rule'' and that ``NHTSA should work with 
EPA to offset any short-term increases in NOX and VOC 
emissions associated with the rule,'' specifically citing the on-road 
emissions that contribute to ozone formation in Wisconsin. Furthermore, 
they state that ``NHTSA's analysis should be updated to reflect EPA's 
revised area designations for the 2015 ozone NAAQs.'' \650\
---------------------------------------------------------------------------

    \650\ WDNR, Docket No. NHTSA-2021-0053-0059, at 2, 4.
---------------------------------------------------------------------------

    While this final rulemaking will result in small short-term 
increases in criteria pollutants, the number of vehicle re-fueling 
events and emissions of certain criteria pollutants and precursors the 
emissions impact will vary from area to area depending on factors such 
as the composition of the local vehicle fleet and the amount of 
gasoline produced in the area. As discussed further in the Final SEIS, 
criteria pollutant impacts are by their nature diffuse and 
indeterminate, which makes the assessment of any potential mitigation 
measures difficult; however, NHTSA does not have jurisdiction to 
regulate criteria and air toxic pollutant emissions. However, as 
discussed further in the Final SEIS, NHTSA did update the Final SEIS 
analysis to reflect EPA's revised area designations for the 2015 ozone 
NAAQS, including nonattainment area designations in Wisconsin and the 
Chicago area.
    The Alliance for Automotive Innovation and CEI expressed the 
concern that the analysis overstates health effects. The Alliance 
argued that reductions in PM2.5 emissions ``will not provide 
public health benefits that are additive to the emissions reductions 
accomplished by EPA's mobile-source and stationary-source programs for 
criteria air pollutants.'' \651\ CEI objected to counting benefits from 
a reduction in PM emissions in areas that are not classified as 
nonattainment areas.\652\ As EPA stated in their recent GHG final rule 
for MYs 2023-2026 (86 FR 74434, Dec. 30, 2021),\653\ NAAQS are set with 
an ``adequate margin of safety'' but this ``does not represent a zero-
risk standard.'' As such, it is important to count health benefits from 
reductions in criteria pollutants, regardless of whether they occur in 
nonattainment areas or not. Furthermore, the relative magnitude of the 
health benefits in our analysis is minimal compared to the other costs 
and benefits and does not significantly change net benefits.
---------------------------------------------------------------------------

    \651\ Auto Innovators, Docket No. NHTSA-2021-0053-1492, at 90.
    \652\ Competitive Enterprise Institute, Docket No. NHTSA-2021-
0053-1546, at 3.
    \653\ EPA. Revised 2023 and Later Model Year Light-Duty Vehicle 
Greenhouse Gas Emissions Standards: Response to Comments (EPA-420-R-
21-027, December 2021) pp. 15-31.
---------------------------------------------------------------------------

    We are aware of other limitations of using national values of 
health incidences per ton associated with the BPT approach, which we 
discuss extensively in prior rules, the NPRM, and Chapter 5 of the TSD. 
That said, we believe that the BPT approach provides a reasonable 
estimate of how different levels of CAFE standards may impact public 
health.
    The methodology for generating values for each emissions category 
in the CAFE Model is discussed in further detail in Chapter 5 of the 
TSD. The Parameters file contains all of the health impact per ton of 
emissions values used in this final rule.

G. Simulating Economic Impacts of Regulatory Alternatives

    This section summarizes the agency's approach for measuring the 
economic costs and benefits that will result from establishing 
alternative CAFE standards for future model years. The benefit and cost 
measures the agency uses are important considerations, because as 
Office of Management and Budget (OMB) Circular A-4 states, benefits and 
costs reported in regulatory analyses must be defined and measured 
consistently with economic theory, and should also reflect how 
alternative regulations are anticipated to change the behavior of 
producers and consumers from a baseline scenario.\654\ For CAFE 
standards, those include vehicle manufacturers, buyers of new cars and 
light trucks, owners of used vehicles, and suppliers of fuel, all of 
whose behavior is likely to respond in complex ways to the level of 
CAFE standards that DOT establishes for future model years.
---------------------------------------------------------------------------

    \654\ White House Office of Management and Budget, Circular A-4: 
Regulatory Analysis, September 17, 2003 (https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/), Section E.
---------------------------------------------------------------------------

    It is important to report the benefits and costs of this final rule 
in a format that conveys useful information about how those impacts are 
generated and also distinguishes the impacts of those economic 
consequences for private businesses and households from the effects on 
the remainder of the U.S. economy. A reporting format will accomplish 
this objective to the extent that it clarifies who incurs the benefits 
and costs of the final rule, and shows how the economy-wide or 
``social'' benefits and costs of the final rule are composed of its 
direct effects on vehicle producers, buyers, and users, plus the 
indirect or ``external'' benefits and costs it creates for the general 
public.
    Table III-37 and Table III-38 present the incremental economic 
benefits and costs of the final rule and the alternatives (described in 
detail in Section IV) to increase CAFE standards for MYs 2024-26 at 
three percent and seven percent discount rates in a format that is 
intended to meet these objectives. The tables include costs that are 
transfers between different economic actors--these will appear as both 
a cost and a benefit in equal amounts (to separate affected parties). 
Societal cost and benefit values shown elsewhere in this document do 
not show costs that are transfers for the sake of simplicity but report 
the same net societal costs and benefits. The final rule and the 
alternatives would increase costs to manufacturers for adding 
technology necessary to enable new cars and light trucks to comply with 
fuel economy and emission regulations. It may also increase fine 
payments by manufacturers who would have achieved compliance with the 
less demanding baseline standards. Manufacturers are assumed to 
transfer these costs on to buyers by charging higher prices; although 
this reduces their revenues, on balance, the increase in compliance 
costs and higher sales revenue leaves them financially unaffected. 
Since the analysis assumes that manufacturers are left in the same 
economic position regardless of the standards, they are excluded from 
the tables.
---------------------------------------------------------------------------

    \655\ Average SC-GHG values are constructed using a 3 percent 
discount rate and are discounted back to present value using a 3 
percent discount rate.
---------------------------------------------------------------------------

BILLING CODE 4910-59-P

[[Page 25872]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.105


[[Page 25873]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.106

BILLING CODE 4910-59-C
    Compared to the baseline standards, the analysis shows that buyers 
of new cars and light trucks will incur higher purchasing prices and 
financing costs, which will lead to some buyers dropping out of the new 
vehicle market. Drivers of new vehicles will also experience a slight 
uptick in the risk of being injured in a crash because of mass 
reduction technologies employed to meet the increased standards. While 
this effect is not statistically significant, NHTSA provides these 
results for transparency, and to demonstrate that their inclusion does 
not affect NHTSA's policy decision. Because of the increasing price of 
new vehicles, some owners may delay retiring and replacing their older 
vehicles with newer models. In effect, this will transfer some driving 
that would have been done in newer vehicles under the baseline scenario 
to older models within the legacy fleet, thus increasing costs for 
injuries (both fatal and less severe) and property damages sustained in 
motor vehicle crashes. This stems from the fact that cars and light 
trucks have become progressively more protective in crashes over time 
(and also slightly less prone to certain types of crashes, such as 
rollovers). Thus, shifting some travel from newer to older models would 
increase injuries and damages sustained by drivers and passengers 
because they are traveling in less safe vehicles and not because it 
changes the risk profiles of drivers themselves. These costs are 
largely driven by assumptions regarding consumer valuation of fuel 
efficiency and an assumption that more fuel-efficient vehicles are less 
preferable to consumers than their total cost to improve fuel economy. 
The agency examines alternate assumptions regarding consumer valuation, 
as well as other assumptions that influence our safety impact estimates 
in a sensitivity analysis that can be found in the accompanying FRIA.
    In exchange for these costs, consumers will benefit from new cars 
and light trucks with better fuel economy. Drivers will experience 
lower costs as a consequence of new vehicles' decreased fuel 
consumption, and from fewer refueling stops required because of their 
increased driving range. They will experience mobility benefits as they

[[Page 25874]]

use newly purchased cars and light trucks more in response to their 
lower operating costs. On balance, consumers of new cars and light 
trucks produced during the model years subject to this final rule will 
experience significant economic benefits.
    Table III-37 and Table III-38 also show that the changes in fuel 
consumption and vehicle use resulting from this final rule will in turn 
generate both benefits and costs to society writ large. These impacts 
are ``external,'' in the sense that they are by-products of decisions 
by private firms and individuals that alter vehicle use and fuel 
consumption but are experienced broadly throughout society rather than 
by the firms and individuals who indirectly cause them. In terms of 
costs, additional driving by consumers of new vehicles in response to 
their lower operating costs will increase the external costs associated 
with their contributions to traffic delays and noise levels in urban 
areas, and these additional costs will be experienced throughout much 
of the society. While most of the risk of additional driving or 
delaying purchasing a newer vehicle are internalized by those who make 
those decisions, a portion of the costs are borne by other road users. 
Finally, since owners of new vehicles will be consuming less fuel, they 
will pay less in fuel taxes.
    Society will also benefit from more stringent standards. Increased 
fuel efficiency will reduce the amount of petroleum-based fuel consumed 
and refined domestically, which will decrease the emissions of carbon 
dioxide and other greenhouse gases that contribute to climate change, 
and, as a result, the U.S. (and the rest of world) will avoid some of 
the economic damages from future changes in the global climate. 
Similarly, reduced fuel production and use will decrease emissions of 
more localized air pollutants (or their chemical precursors), and the 
resulting decrease in the U.S. population's exposure to harmful levels 
of these pollutants will lead to lower costs from its adverse effects 
on health. Decreasing consumption and imports of crude petroleum for 
refining lower volumes of gasoline and diesel will also create some 
benefits throughout the U.S., in potential gains in energy security as 
businesses and households that are dependent on fuel are less subject 
to sudden and sharp changes in energy prices.
    On balance, Table III-37 and Table III-38 show that both consumers 
and society as a whole will experience net economic benefits from the 
final rule. The following subsections will briefly describe the 
economic costs and benefits considered by the agency. For a complete 
discussion of the methodology employed and the results, see TSD Chapter 
6 and FRIA Chapter 6, respectively. The safety implications of the 
final rule--including the monetary impacts--are addressed in Section 
III.H.
1. Private Costs and Benefits
(a) Costs to Consumers
(1) Technology Costs
    The final rule and the alternatives would increase costs to 
manufacturers for adding technology necessary to enable new cars and 
light trucks to comply with fuel economy and emission regulations. 
Manufacturers are assumed to transfer these costs on to buyers by 
charging higher prices. See Section III.C.6 and TSD Chapter 2.6.
(2) Consumer Sales Surplus
    Buyers who would have purchased a new vehicle with the baseline 
standards in effect but decide not to do so in response to the changes 
in new vehicles' prices due to more stringent standards in place will 
experience a decrease in welfare. The collective welfare loss to those 
``potential'' new vehicle buyers is measured by the forgone consumer 
surplus they would have received from their purchase of a new vehicle 
in the baseline.
    Consumer surplus is a fundamental economic concept and represents 
the net value (or net benefit) a good or service provides to consumers. 
It is measured as the difference between what a consumer is willing to 
pay for a good or service and the market price. OMB Circular A-4 
explicitly identifies consumer surplus as a benefit that should be 
accounted for in cost-benefit analysis. For instance, OMB Circular A-4 
states the ``net reduction in total surplus (consumer plus producer) is 
a real cost to society,'' and elsewhere elaborates that consumer 
surplus values be monetized ``when they are significant.'' \656\
---------------------------------------------------------------------------

    \656\ OMB Circular A-4, at 37-38.
---------------------------------------------------------------------------

    Accounting for the portion of fuel savings that the average new 
vehicle buyer demands, and holding all else equal, higher average 
prices should depress new vehicle sales and by extension reduce 
consumer surplus. The inclusion of consumer surplus is not only 
consistent with OMB guidance, but with other parts of the regulatory 
analysis. For instance, we calculate the increase in consumer surplus 
associated with increased driving that results from the decrease in the 
cost per mile of operation under more stringent regulatory 
alternatives, as discussed in Section III.G.1.b)(3). The surpluses 
associated with sales and additional mobility are inextricably linked 
as they capture the direct costs and benefits accrued by purchasers of 
new vehicles. The sales surplus captures the welfare loss to consumers 
when they forgo a new vehicle purchase in the presence of higher prices 
and the additional mobility measures the benefit increased mobility 
under lower operating expenses.
    The agency estimates the loss of sales surplus based on the change 
in quantity of vehicles projected to be sold after adjusting for 
quality improvements attributable to fuel economy. For additional 
information about consumer sales surplus, see TSD Chapter 6.1.2.
(3) Ancillary Costs of Higher Vehicle Prices
    Some costs of purchasing and owning a new or used vehicle scale 
with the value of the vehicle. Where fuel economy standards increase 
the transaction price of vehicles, they will affect both the absolute 
amount paid in sales tax and the average amount of financing required 
to purchase the vehicle. Further, where they increase the MSRP, they 
increase the appraised value upon which both value-related registration 
fees and a portion of insurance premiums are based. The analysis 
assumes that the transaction price is a set share of the MSRP, which 
allows calculation of these factors as shares of MSRP.
    For this final rule, NHTSA has revised its estimates of these 
ancillary costs to correct some mistakes in their accounting. First, 
NHTSA excludes financing costs from the per-vehicle analysis. The 
availability of vehicle financing is, if anything, a benefit to 
consumers that would lower the cost to consumers of fuel-economy 
technology by spreading out the costs over time. Second, NHTSA has 
reduced its estimate of insurance costs to avoid a double-counting 
issue it identified. Specifically, a portion of the insurance premium 
goes to covering replacement vehicles and including that portion of the 
insurance cost would be duplicative with estimates of the upfront 
technology cost on the replacement vehicle (which is already captured 
in the analysis and discussed above). For a detailed explanation of how 
the agency estimates these costs, see TSD Chapter 6.1.1.
    These costs are included in the consumer per-vehicle cost-benefit 
analysis but are not included in the societal cost-benefit analysis 
because they are assumed to be transfers from

[[Page 25875]]

consumers to governments, financial institutions, and insurance 
companies.
(b) Benefits to Consumers
(1) Fuel Savings
    The primary benefit to consumers of increasing CAFE standards are 
the additional fuel savings that accrue to new vehicle owners. Fuel 
savings are calculated by multiplying avoided fuel consumption by fuel 
prices. Each vehicle of a given body style is assumed to be driven the 
same as all the others of a comparable age and body style in each 
calendar year. The ratio of that cohort's VMT to its fuel efficiency 
produces an estimate of fuel consumption. The difference between fuel 
consumption in the baseline, and in each alternative, represents the 
gallons (or energy) saved. Under this assumption, our estimates of fuel 
consumption from increasing the fuel economy of each individual model 
depend only on how much its fuel economy is increased, and do not 
reflect whether its actual use differs from other models of the same 
body type. Neither do our estimates of fuel consumption account for 
variation in how much vehicles of the same body type and age are driven 
each year, which appears to be significant (see TSD Chapter 4.3.2). 
Consumers save money on fuel expenditures at the average retail fuel 
price (fuel price assumptions are discussed in detail in TSD Chapter 
4.1.2), which includes all taxes and represents an average across 
octane blends. For gasoline and diesel, the included taxes reflect both 
the Federal tax and a calculated average state fuel tax. Expenditures 
on alternative fuels (E85 and electricity, primarily) are also included 
in the calculation of fuel expenditures, on which fuel savings are 
based. And while the included taxes net out of the social benefit cost 
analysis (as they are a transfer), consumers value each gallon saved at 
retail fuel prices including any additional fees such as taxes. See TSD 
Chapter 6.1.3 for additional details. In the TSD, the agency considers 
the possibility that several of the assumptions made about vehicle use 
could lead to imprecision in projecting fuel savings. The agency notes 
that these simplifying assumptions are necessary to model fuel savings 
and likely have minimal impact to the accuracy of this analysis.
    CBD et al. commented that NHTSA underestimates the fuel savings in 
the analysis. CBD et al. argued that NHTSA needs to account for any 
fuel savings that may be achieved if CAFE standards cause gasoline 
prices to fall due to decreasing demand.\657\ The agency acknowledges 
that if fuel prices do decrease as a result of this rule, the analysis 
could understate the amount of fuel savings. However, given how 
pervasive fuel price projections are within the analysis, other 
estimates would be incorrect as well. For example, our model assumes 
that manufacturers will apply technology if the fuel savings in the 
first 30 months exceeds the technology costs. If prices drop as a 
result of better fuel economy, our standards would have a larger, 
negative impact on sales as fewer technology costs are `worth it' in 
the eyes of consumers. It is not readily apparent, then, whether 
holding fuel prices constant across alternatives would increase or 
decrease the net benefits attributable to the standards. Modeling fuel 
prices that respond dynamically is currently outside the ability of the 
model. Furthermore, since fuel prices are influenced by many different 
factors--many of which are outside the purview of United States--it's 
not clear if modeling gas prices dynamically would enhance the agency's 
analysis.
---------------------------------------------------------------------------

    \657\ CBD et al., Appendix, Docket No. NHTSA-2021-0053-1572, at 
31.
---------------------------------------------------------------------------

(2) Refueling Benefit
    Increasing CAFE standards, all else being equal, affects the amount 
of time drivers spend refueling their vehicles in several ways. First, 
they increase the fuel economy of ICE vehicles produced in the future, 
which increases vehicle range and decreases the number of refueling 
events for those vehicles. Conversely, to the extent that more 
stringent standards increase the purchase price of new vehicles, they 
may reduce sales of new vehicles and scrappage of existing ones, 
causing more VMT to be driven by older and less efficient vehicles, 
which require more refueling events for the same amount of VMT driven. 
Finally, sufficiently stringent standards may also change the number of 
electric vehicles that are produced, and shift refueling to occur at a 
charging station or at a residence, rather than at the pump--changing 
per-vehicle lifetime expected refueling costs.
    We estimate these savings by calculating the amount of refueling 
time avoided--including the time it takes to find, refuel, and pay--and 
multiplying it by DOT's value of time of travel savings estimate. For a 
full description of the methodology, refer to TSD Chapter 6.1.4.
(3) Additional Mobility
    Any increase in travel demand provides benefits that reflect the 
value to drivers and other vehicle occupants of the added--or more 
desirable--social and economic opportunities that become accessible 
with additional travel. Under the alternatives in this analysis, the 
fuel cost per mile of driving would decrease as a consequence of the 
higher fuel economy levels they require, thus increasing the number of 
miles that buyers of new cars and light trucks would drive as a 
consequence of the well-documented fuel economy rebound effect.
    The fact that drivers and their passengers elect to make more 
frequent or longer trips to gain access to these opportunities when the 
cost of driving declines demonstrates that the benefits they gain by 
doing so exceed the costs they incur. At a minimum, the benefits must 
equal the cost of the fuel consumed to travel the additional miles (or 
they would not have occurred). The cost of that energy is subsumed in 
the simulated fuel expenditures, so it is necessary to account for the 
benefits associated with those miles traveled here. But the benefits 
must also offset the economic value of their (and their passengers') 
travel time, other vehicle operating costs, and the economic cost of 
safety risks due to the increase in exposure that occurs with 
additional travel. The amount by which the benefits of this additional 
travel exceeds its economic costs measures the net benefits drivers and 
their passengers experience, usually referred to as increased consumer 
surplus.
    TSD Chapter 6.1.5 explains the agency's methodology for calculating 
additional mobility. The benefit of additional mobility over and above 
its costs is measured by the change in consumers' surplus. This is 
calculated using the rule of one-half, and is equal to one-half of the 
change in fuel cost per mile times the increase in vehicle miles 
traveled due to the rebound effect.
    In contrast to the societal cost-benefit analysis, calculation of 
average costs and benefits to consumers is done on a per-vehicle basis 
and is intended to describe how alternative standards affect the costs 
and benefits of owning vehicles from the consumers' perspective. The 
mobility costs and benefits per vehicle are affected by the assumption 
that total VMT before adding the rebound effect will be the same in the 
baseline and all alternative cases (See TSD Chapter 4.3.1). Because the 
standards affect vehicle sales and scrappage which changes the number 
of vehicles in the alternative cases, the

[[Page 25876]]

CAFE Model changes VMT per vehicle in the alternative cases to maintain 
a constant total non-rebounded VMT. When vehicle sales decrease in the 
alternative cases, VMT per vehicle increases. IPI and Drs. Jacobsen and 
Liao of the University of California at San Diego (UCSD) commented that 
changes in the size and age composition of the vehicle stock will 
change total VMT.\658\ IPI suggested VMT will change only ``slightly,'' 
while the UCSD commenters suggest reallocating only 50 percent of the 
difference in non-rebounded VMT between the baseline and alternative 
cases. We recognize that the assumption of constant non-rebounded VMT 
is an approximation, and we may consider the possibility of refining 
this method in the future.
---------------------------------------------------------------------------

    \658\ IPI, at 30; Jacobsen and Liao, at 2.
---------------------------------------------------------------------------

    When the size of the vehicle stock decreases in the alternative 
cases, VMT and fuel cost per vehicle increase. Because maintaining 
constant non-rebounded VMT assumes consumers are willing to pay the 
full cost of the reallocated vehicle miles, we offset the increase in 
fuel cost per vehicle by adding the product of the reallocated VMT and 
fuel cost per mile to the mobility value. This corrects an error in the 
NPRM per vehicle analysis, which included the fuel cost per vehicle of 
reallocated miles but not the mobility benefit per vehicle. Because we 
do not estimate other changes in cost per vehicle that could result 
from the reallocated miles (e.g., maintenance, depreciation, etc.) we 
do not estimate the portion of the transferred mobility benefits that 
would correspond to consumers' willingness to pay for those costs. We 
do not estimate the consumers' surplus associated with the reallocated 
miles because there is no change in total non-rebounded VMT and thus no 
change in consumers' surplus per consumer.
2. External Costs and Benefits
(a) Costs
(1) Congestion and Noise
    Increased vehicle use associated with the rebound effect also 
contributes to increased traffic congestion and highway noise. Although 
drivers obviously experience these impacts themselves, they do not 
fully value the costs these impacts impose on other road users and 
surrounding residents, just as they do not fully value the emissions 
impacts of their own driving. Congestion and noise costs are largely 
``external'' to the vehicle owners whose decisions about how much, 
where, and when to drive more in response to changes in fuel economy 
create these costs. Thus, unlike changes in the fuel costs drivers 
incur or the safety risks they assume when they decide to travel more, 
changes in congestion and noise costs are not offset by corresponding 
changes in the benefits drivers experience by making more frequent 
trips or traveling to more distant destinations.
    While largely external to individual drivers, congestion costs are 
limited to road users as a whole; since road users include a 
significant fraction of the U.S. population, however, we treat changes 
in congestion costs as part of this rule's broader economic impacts on 
society instead of as a private cost to those whose choices impose it. 
Costs resulting from road and highway noise are even more widely 
dispersed, because they are borne partly by surrounding residents, 
pedestrians, and other non-road users, and for this reason are also 
considered as a cost to the society as a whole.
    To estimate the economic costs associated with changes in 
congestion and noise caused by differences in miles driven for the 
proposal, NHTSA updated FHWA's 1997 Highway Cost Allocation Study's 
estimates of marginal congestion costs to reflect changes in three 
factors that affect them: The time delays caused by the contribution of 
additional travel to congestion, increases in typical vehicle 
occupancy, and the hourly value of each occupant's time. The agency 
assumed that delay per additional mile driven by cars and light trucks 
has increased in proportion to growth in annual vehicle travel per 
lane-mile of road and highway capacity in urban areas (where virtually 
all congestion occurs) since the date of the original FHWA study. Noise 
costs per additional mile driven were assumed to remain constant at 
their levels originally estimated by the FHWA study. Both congestion 
and noise costs were also updated to reflect changes in the economy-
wide price level since their original publication and make them 
comparable to other economic values used in this analysis. The agency 
previously relied on this study in its 2010 (75 FR 25324, May 7, 2010), 
2011 (76 FR 57106, Sept. 15, 2011), and 2012 (77 FR 62624, Oct. 15, 
2012) final rules, and, like the estimates used in the proposal, a 
revised version for the 2020 final rule (85 FR 24174, April 30, 2020). 
Updating the individual underlying components for congestion costs in 
this analysis improves their currency and internal consistency with the 
rest of the analysis.
    Some commenters objected to the agency's use of increases in 
vehicle volumes per mile of roadway to approximate the change in the 
incremental contribution to congestion and delays caused by additional 
car and light truck use. For example, CARB argued the revised values 
led the analysis to overestimate congestion costs. CARB claimed that 
the miscalculation arises from the scaling of vehicles per lane 
``because (1) it compares a figure for passenger cars to a figure for 
light-duty vehicles that includes sport-utility vehicles and vans, and 
(2) it is limited to interstate highways instead of all roads.'' \659\ 
CARB further argued that the revised numbers do not account for changes 
in average speeds and improved road designs. California Attorney 
General et al. concurred with CARB's comment and suggested using the 
1997 estimates updated only for inflation.\660\
---------------------------------------------------------------------------

    \659\ CARB, Attachment 2, NHTSA-2021-0053-1521, at 13.
    \660\ California Attorney General et al., Detailed Comments, 
NHTSA-2021-0053-1499, at 32.
---------------------------------------------------------------------------

    The agency disagrees with CARB's argument for several reasons. 
First, the agency's scaling of vehicle-miles per lane-mile uses figures 
that include all vehicle classes rather than those for light-duty 
vehicles alone. SUVs had only begun to enter the fleet in 1997; since 
then, they have increasingly substituted for passenger cars, and travel 
by both cars and SUVs is included in the figures that the agency 
compares for 1997 and more recent years.\661\ Today's SUVs are used 
interchangeably with passenger cars, and it is more than reasonable to 
assume that an additional SUV mile will produce the same marginal 
increase in congestion costs as an additional passenger car mile.
---------------------------------------------------------------------------

    \661\ See, e.g., Tom Voelk, Rise of S.U.V.s: Leaving Cars in 
Their Dust, With No Signs of Slowing, N.Y. Times, May 21, 2020, 
available at https://www.nytimes.com/2020/05/21/business/suv-sales-best-sellers.html.
---------------------------------------------------------------------------

    Second, the original 1997 FHWA estimate of congestion costs and the 
scaling that NHTSA used to update it both apply to all roads and 
highways, and this comparison is consistent with the approach NHTSA has 
taken across the last 5 rulemakings. Third, the comment did not explain 
the expected direction of changes in speed or provide support for the 
commenter's claim that better road design has mitigated the effect of 
increased traffic volumes on travel speeds. Further, the commenter's 
claims are difficult to reconcile: If we assume that better roads 
enable higher speeds despite increased traffic volumes, more frequent 
(and possibly more severe) crashes would result, and

[[Page 25877]]

incidents are an important contributor to congestion.\662\
---------------------------------------------------------------------------

    \662\ See, e.g., https://safety.fhwa.dot.gov/speedmgt/ref_mats/fhwasa1304/Resources3/08%20-%20The%20Relation%20Between%20Speed%20and%20Crashes.pdf. The agency 
also notes that if the average speed has increased, then our safety 
costs would require adjustment as well.
---------------------------------------------------------------------------

    In response to these comments, the agency also analyzed changes in 
estimates of congestion delays reported by the Texas Transportation 
Institute (TTI), which are widely cited, use well-documented methods, 
and offer the only available measure of long-term trends in the 
economic costs of traffic congestion and delays.\663\ TTI's estimates 
of congestion delays are derived using well-established patterns of 
travel throughout the day and relationships between vehicle travel 
volumes and travel speeds for major roads and highways, and more 
recently on highly detailed measures of actual hourly travel speeds and 
vehicle volumes. The agency's calculations using TTI's detailed 
historical database show that from 1997 (the date of the original FHWA 
study) through 2017 (the end year used in the agency's update), person-
hours of delay per vehicle-mile traveled increased 57 percent in the 
Nation's 100 largest urban areas and 52 percent in all (nearly 500) 
U.S. urban areas. More suggestively, incremental hours of delay per 
additional vehicle-mile traveled--a more direct measure of the impact 
of additional travel on congestion delays and one more comparable to 
that reported in the 1997 FHWA study--grew by 86 percent in the largest 
areas and by 131 percent in all U.S. urban areas over that same period. 
These calculations suggest that the 58 percent increase in person-hours 
of delay per additional vehicle-mile of travel reflected in the 
agency's updated estimate of incremental congestion costs is 
reasonable, so the agency has elected to retain its earlier estimate.
---------------------------------------------------------------------------

    \663\ For an overview and links to detailed reports and 
documentation, see https://mobility.tamu.edu/umr/.
---------------------------------------------------------------------------

(2) Fuel Tax Revenue
    As discussed previously in III.G.1.b)(1), a significant fraction of 
the fuel savings experienced by consumers includes avoided fuel taxes, 
which average nearly $0.50 per gallon when Federal, state, and local 
excise and sales taxes levied on gasoline are included. Fuel taxes are 
treated as a transfer within the agency's analysis, which includes an 
offsetting loss in revenue to government agencies as a cost of raising 
CAFE standards, and thus do not affect net benefits from this rule; the 
agency reports this offsetting loss to illustrate the potential impact 
on government agencies that rely on fuel tax revenue to support the 
activities they fund.\664\
---------------------------------------------------------------------------

    \664\ See OMB Circular A-4 for more information on transfer 
payments, and how they should be accounted for in regulatory 
analysis.
---------------------------------------------------------------------------

    CFA erroneously commented that lost gasoline taxes were improperly 
included--for the first time--as a cost of the rule.\665\ Not only have 
both EPA and NHTSA previously reported changes in gasoline tax payments 
by consumers and in revenues to government agencies, but NHTSA's 
proposal explains in multiple places that gasoline taxes are considered 
a transfer--a cost to governments and an identical benefit to consumers 
that has already been accounted for in reported fuel savings--and has 
no impact on net benefits. In contrast, Walter Kreucher commented that 
billions in gasoline tax revenue would be lost if we finalized stricter 
standards.\666\ As indicated above, however, any reduction in tax 
revenue received by governments that levy taxes on fuel is exactly 
offset by lower fuel tax payments by consumers, so from an economy-wide 
standpoint reductions in gasoline tax revenues are simply a transfer of 
economic resources and has no effect on net benefits.
---------------------------------------------------------------------------

    \665\ CFA, Docket No. NHTSA-2021-0053-1535, at 5.
    \666\ Walt Kreucher, Docket No. NHTSA-2021-0053-0013, at 14.
---------------------------------------------------------------------------

(b) Benefits
(1) Reduced Climate Damages
    Extracting and transporting crude petroleum, refining it to produce 
transportation fuels, and distributing fuel all generate additional 
emissions of GHGs and criteria air pollutants beyond those from cars' 
and light trucks' use of fuel. By reducing the volume of petroleum-
based fuel produced and consumed, adopting higher CAFE standards will 
thus mitigate global climate-related economic damages caused by 
accumulation of GHGs in the atmosphere, as well as the more immediate 
and localized health damages caused by exposure to criteria pollutants. 
Because they fall broadly on the U.S. population--and globally, in the 
case of climate damages--reducing them represents an external benefit 
from requiring higher fuel economy. The following subsections discuss 
the values used to estimate the economic consequences associated with 
climate damages and the discount rates applied to those benefits.
(a) Valuation of the Social Cost of Greenhouse Gases
    In the proposal, NHTSA estimated the global social benefits from 
the reductions in emissions of CO2, CH4, and 
N2O expected to result from this rule using the SC-GHG 
estimates presented in ``Technical Support Document: Social Cost of 
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive 
Order 13990'' (``February 2021 TSD''). These SC-GHG estimates are 
interim global values developed pursuant to E.O. 13990 for use in 
benefit-cost analysis.
    The SC-GHG estimates used in our analysis were developed over many 
years, using a transparent process, peer-reviewed methodologies, and 
input from the public. Specifically, in 2009, an interagency working 
group (IWG) that included experts from the DOT and other executive 
branch agencies and offices was established to support agencies in 
using the most comprehensive available science and to promote 
consistency in the SC-GHG values used across agencies. The IWG 
published SCC estimates in 2010 that were developed using three peer-
reviewed Integrated Assessment Models relating CO2 and other 
GHG emissions to climate change and its potential economic impacts, and 
updated these estimates in 2013 using new versions of each IAM. In 
August 2016, the IWG published estimates of the social cost of methane 
(SC-CH4) and nitrous oxide (SC-N2O) using 
methodologies consistent with the underlying the SCC estimates. E.O. 
13990 (issued on January 20, 2021) re-established an IWG, and directed 
it to publish interim SC-GHG values for CO2, CH4, 
and N2O within thirty days. Furthermore, the E.O. tasked the 
IWG with updating the methodologies used in calculating these SC-GHG 
values. The E.O. instructed the IWG to utilize ``the best available 
economics and science,'' and incorporate principles of ``climate risk, 
environmental justice, and intergenerational equity.'' \667\ The E.O. 
also instructed the IWG to take into account the recommendations from 
the NAS committee convened on this topic published in 2017.\668\ The 
February 2021 TSD provides a complete discussion of the IWG's initial 
review conducted under E.O. 13990, and

[[Page 25878]]

NHTSA incorporates that discussion by reference into this preamble.
---------------------------------------------------------------------------

    \667\ Executive Order on Protecting Public Health and the 
Environment and Restoring Science to Tackle the Climate Crisis. 
(2021). Available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-order-protecting-public-health-and-environment-and-restoring-science-to-tackle-climate-crisis/.
    \668\ National Academy of Sciences (NAS). (2017). Valuing 
Climate Damage: Updating Estimation of the Social Cost of Carbon 
Dioxide. Available at https://www.nap.edu/catalog/24651/valuing-climate-damages-updating-estimation-of-the-social-cost-of.
---------------------------------------------------------------------------

    NHTSA is using the IWG's interim values, published in February 2021 
in a technical support document, for this CAFE analysis.\669\ As a 
member of the IWG, DOT has thoroughly reviewed the inputs and 
methodological choices for these estimates, and DOT affirms that, in 
its expert judgment, the Interim Estimates reflect the best available 
science and economics and are the most appropriate values to use in the 
analysis of this rule. This use of the IWG estimates is the same 
approach as that taken in DOT regulatory analyses between 2009 and 
2016, and is consistent with the proposal.
---------------------------------------------------------------------------

    \669\ Interagency Working Group on Social Cost of Greenhouse 
Gases, United States Government. (2021). Technical Support Document: 
Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates 
under Executive Order 13990, available at https://www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf.
---------------------------------------------------------------------------

    NHTSA indicated in the NPRM that if the Interagency Working Group 
issued revised estimates of climate damages in time for NHTSA to 
evaluate whether to incorporate them into this final rule, NHTSA would 
consider using them. The IWG has not issued revised estimates.
    The following section provides further discussion of the discount 
rates that NHTSA uses in its regulatory analysis. For a full discussion 
of the agency's quantification of GHGs, see TSD Chapter 6.2.1 and the 
FRIA.
(b) Discount Rates for Climate Related Benefits
    A standard function of regulatory analysis is to evaluate tradeoffs 
between impacts that occur at different points in time. Many Federal 
regulations involve costly upfront investments that generate future 
benefits in the form of reductions in health, safety, or environmental 
damages. To evaluate these tradeoffs, the analysis must account for the 
social rate of time preference--the broadly observed social preference 
for benefits that occur sooner versus those that occur further in the 
future.\670\ This is accomplished by discounting impacts that occur 
further in the future more than impacts that occur sooner.
---------------------------------------------------------------------------

    \670\ This preference is observed in many market transactions, 
including by savers that expect a return on their investments in 
stocks, bonds, and other equities; firms that expect positive rates 
of return on major capital investments; and banks that demand 
positive interest rates in lending markets.
---------------------------------------------------------------------------

    OMB Circular A-4 affirmed the appropriateness of accounting for the 
social rate of time preference in regulatory analyses and recommended 
discount rates of 3 and 7 percent for doing so. The recommended 3 
percent discount rate was chosen to represent the ``consumption rate of 
interest'' approach, which discounts future costs and benefits to their 
present values using the rate at which consumers appear to make 
tradeoffs between current consumption and equal consumption 
opportunities deferred to the future. OMB Circular A-4 reports an 
inflation-adjusted or ``real'' rate of return on 10-year Treasury notes 
of 3.1 percent between 1973 and its 2003 publication date and 
interprets this as approximating the rate at which society is 
indifferent between consumption today and in the future.
    The 7 percent rate reflects the opportunity cost of capital 
approach to discounting, where the discount rate approximates the 
forgone return on private investment if the regulation were to divert 
resources from capital formation.\671\ OMB Circular A-4 cites pre-tax 
rates of return on capital as part of its selection of the 7 percent 
rate.\672\ The IWG rejected the use of the opportunity cost of capital 
approach to discounting reductions in climate-related damages, 
concluding that the ``consumption rate of interest is the correct 
discounting concept to use when future damages from elevated 
temperatures are estimated in consumption-equivalent units as is done 
in the IAMs used to estimate the SC-GHG (National Academies 2017).'' 
\673\ In fact, Circular A-4 indicates that discounting at the 
consumption rate of interest is the ``analytically preferred method'' 
when effects are presented in consumption-equivalent units.\674\ DOT 
concurs that in light of Circular A-4's guidance on discount rates 
spanning displacement of investments and/or consumption, and given the 
considerations that climate damages are modeled in consumption 
equivalent units and intergenerational equity, the use of consumption 
based discount rates is superior for estimating SC-GHG.
---------------------------------------------------------------------------

    \671\ As the IWG explained, use of the 7 percent opportunity 
cost of capital approach in fact ``at best creat[es] a lower bound 
on the estimate of net benefits that would only be met in an extreme 
case where regulatory costs fully displace investment.'' Interagency 
Working Group on Social Cost of Greenhouse Gases, United States 
Government, Technical Support Document: Social Cost of Carbon, 
Methane, and Nitrous Oxide, Interim Estimates under Executive Order 
13990, February 2021. NHTSA agrees and observes that this rule does 
not represent such an ``extreme case.'' NHTSA's analysis assumes 
that most of the rule's costs and benefits, including technology 
costs passed through to consumers, will affect consumption choices. 
The focus on consumption rates is therefore especially appropriate.
    \672\ OMB Circular A-4.
    \673\ Interagency Working Group on Social Cost of Greenhouse 
Gases, United States Government, Technical Support Document: Social 
Cost of Carbon, Methane, and Nitrous Oxide, Interim Estimates under 
Executive Order 13990, February 2021.
    \674\ OMB, Circular A-4. See also Declaration of Dominic J. 
Mancini. Submitted in Support of Defendants' Motion for a Stay 
Pending Appeal, Louisiana v. Biden, Case No. 2:21-cv-01074-JDC-KK 
(W.D. La., filed Feb. 19, 2022) (confirming the appropriateness of 
this approach to discounting).
---------------------------------------------------------------------------

    As the IWG states, ``GHG emissions are stock pollutants, where 
damages are associated with what has accumulated in the atmosphere over 
time, and they are long lived such that subsequent damages resulting 
from emissions today occur over many decades or centuries depending on 
the specific greenhouse gas under consideration.'' \675\ OMB Circular 
A-4 states that impacts occurring over such intergenerational time 
horizons require special treatment:
---------------------------------------------------------------------------

    \675\ Ibid.

    Special ethical considerations arise when comparing benefits and 
costs across generations. Although most people demonstrate time 
preference in their own consumption behavior, it may not be 
appropriate for society to demonstrate a similar preference when 
deciding between the well-being of current and future generations. 
Future citizens who are affected by such choices cannot take part in 
making them, and today's society must act with some consideration of 
their interest.\676\
---------------------------------------------------------------------------

    \676\ OMB Circular A-4.

    Furthermore, NHTSA notes that in 2015, OMB--along with the rest of 
the IWG--articulated that ``Circular A-4 is a living document, which 
may be updated as appropriate to reflect new developments and 
unforeseen issues,'' and that ``the use of 7 percent is not considered 
appropriate for intergenerational discounting. There is wide support 
for this view in the academic literature, and it is recognized in 
Circular A-4 itself.'' \677\ Following this statement from OMB, and in 
light of the need to weigh welfare to current and future generations, 
it would be inappropriate to apply an opportunity cost of capital rate 
to estimate SC-GHG.
---------------------------------------------------------------------------

    \677\ Interagency Working Group on the Social Cost of Carbon, 
United States Government, Response to Comments: Social Cost of 
Carbon for Regulatory Impact Analysis under Executive Order 12866, 
July 2015. Note that OMB, as a co-chair of the IWG, published the 
request for comments.
---------------------------------------------------------------------------

    In addition to the ethical considerations, Circular A-4 also 
identifies uncertainty in long-run interest rates as another reason why 
it is appropriate to use lower rates to discount intergenerational 
impacts, since recognizing such uncertainty causes the appropriate 
discount rate to decline gradually over progressively longer time 
horizons. Circular A-4 also acknowledges the difficulty in estimating 
appropriate discount rates for

[[Page 25879]]

``intergenerational'' time horizons, noting that ``[p]rivate market 
rates provide a reliable reference for determining how society values 
time within a generation, but for extremely long time periods no 
comparable private rates exist.'' \678\ The social costs of distant 
future climate damages--and by implication, the value of reducing them 
by lowering emissions of GHGs--are highly sensitive to the discount 
rate, and the present value of reducing future climate damages grows at 
an increasing rate as the discount rate used in the analysis declines. 
This ``non-linearity'' means that even if uncertainty about the exact 
value of the long-run interest rate is equally distributed between 
values above and below the 3 percent consumption rate of interest, the 
probability-weighted (or ``expected'') present value of a unit 
reduction in climate damages will be higher than the value calculated 
using a 3 percent discount rate. The effect of such uncertainty about 
the correct discount rate can be accounted for by using a lower 
``certainty-equivalent'' rate to discount distant future damages, 
defined as the rate that produces the expected present value of a 
reduction in future damages implied by the distribution of possible 
discount rates around what is believed to be the most likely single 
value.
---------------------------------------------------------------------------

    \678\ Ibid.
---------------------------------------------------------------------------

    The IWG identifies ``a plausible range of certainty-equivalent 
constant consumption discount rates: 2.5, 3, and 5 percent per year,'' 
each intended to reflect the effect of uncertainty surrounding 
alternative estimates of the correct discount rate. The IWG's 
justification for its selection of these rates is summarized in this 
excerpt from its 2021 guidance:

    The 3 percent value was included as consistent with estimates 
provided in OMB's Circular A-4 (OMB 2003) guidance for the 
consumption rate of interest. . . . The upper value of 5 percent was 
included to represent the possibility that climate-related damages 
are positively correlated with market returns, which would imply a 
certainty equivalent value higher than the consumption rate of 
interest. The low value, 2.5 percent, was included to incorporate 
the concern that interest rates are highly uncertain over time. It 
represents the average certainty-equivalent rate using the mean-
reverting and random walk approaches from Newell and Pizer (2003) 
starting at a discount rate of 3 percent. Using this approach, the 
certainty equivalent is about 2.2 percent using the random walk 
model and 2.8 percent using the mean reverting approach. Without 
giving preference to a particular model, the average of the two 
rates is 2.5 percent. Additionally, a rate below the consumption 
rate of interest would also be justified if the return to 
investments in climate mitigation are negatively correlated with the 
overall market rate of return. Use of this lower value was also 
deemed responsive to certain judgments based on the prescriptive or 
normative approach for selecting a discount rate and to related 
ethical objections that have been raised about rates of 3 percent or 
higher.

    Because the certainty-equivalent discount rate will lie 
progressively farther below the best estimate of the current rate as 
the time horizon when future impacts occur is extended, the IWG's 
recent guidance also suggests that it may be appropriate to use a 
discount rate that declines over time to account for interest rate 
uncertainty, as has been recommended by NAS and EPA's Science Advisory 
Board.\679\ The IWG noted that it will consider these recommendations 
and the relevant academic literature on declining rates in developing 
its final guidance on the social cost of greenhouse gases.
---------------------------------------------------------------------------

    \679\ Interagency Working Group on Social Cost of Greenhouse 
Gases, United States Government, Technical Support Document: Social 
Cost of Carbon, Methane, and Nitrous Oxide, Interim Estimates under 
Executive Order 13990, February 2021.
---------------------------------------------------------------------------

    The IWG 2021 interim guidance also presented new evidence on the 
consumption-based discount rate suggesting that a rate lower than 3 
percent may be appropriate. For example, the IWG replicated OMB 
Circular A-4's original 2003 methodology for estimating the consumption 
rate using the average return on 10-year Treasury notes over the last 
30 years and found a discount rate close to 2 percent. They also 
presented rates over a longer time horizon, finding an average rate of 
2.3 percent from 1962 to the present. Finally, they summarized results 
from surveys of experts on the topic and found a ``surprising degree of 
consensus'' for using a 2 percent consumption rate of interest to 
discount future climate-related impacts.\680\
---------------------------------------------------------------------------

    \680\ Ibid.
---------------------------------------------------------------------------

    NHTSA notes that the primary analysis of the NPRM estimated 
benefits from reducing emissions of CO2 and other GHGs using 
per-ton values of reducing their emissions that incorporated a 2.5 
percent discount rate for distant future climate damages, while it 
discounted costs and non-climate related benefits using a 3 percent 
rate. NHTSA also presented cost and benefits estimates in the primary 
analysis that reflected unit values of reducing GHG emissions 
constructed using a 3 percent discount rate for reductions in climate-
related damages, while discounting costs and non-climate related 
benefits at 7 percent. NHTSA believed at the time this approach 
represented an appropriate treatment of the intergenerational issues 
presented by emissions that result in climate-related damages over a 
very-long time horizon, and was within scope of the IWG's Technical 
Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide 
that recommends discounting future climate damages at rates of 2.5, 3, 
and 5 percent.\681\
---------------------------------------------------------------------------

    \681\ Interagency Working Group on Social Cost of Greenhouse 
Gases, United States Government, Technical Support Document: Social 
Cost of Carbon, Methane, and Nitrous Oxide, Interim Estimates under 
Executive Order 13990, February 2021.
---------------------------------------------------------------------------

    In addition, NHTSA emphasized the importance and value of 
considering the benefits calculated using all four SC-GHG estimates for 
each of three greenhouse gases. NHTSA included the social costs of 
CO2, CH4, and N2O calculated using the 
four different estimates recommended in the February 2021 TSD (model 
average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th 
percentile at 3 percent discount rate) in the FRIA.
    The IWG TSD does not address the question of how agencies should 
combine its estimates of benefits from reducing GHG emissions that 
reflect these alternative discount rates with the discount rates for 
nearer-term benefits and costs prescribed in OMB Circular A-4. However, 
the February 2021 TSD identifies 2.5 percent as the ``average 
certainty-equivalent rate using the mean-reverting and random walk 
approaches from Newell and Pizer (2003) starting at a discount rate of 
3 percent.'' \682\ As such, NHTSA believed using a 2.5 percent discount 
rate for climate-related damages was consistent with the IWG TSD.
---------------------------------------------------------------------------

    \682\ Ibid.
---------------------------------------------------------------------------

    As indicated above, NHTSA's PRIA presented cost and benefit 
estimates using a 2.5 percent discount rate for reductions in climate-
related damages and 3 percent for non-climate related impacts. NHTSA 
also presented cost and benefits estimates using a 3 percent discount 
rate for reductions in climate-related damages alongside estimates of 
non-climate related impacts discounted at 7 percent. This latter 
pairing of a 3 percent rate for discounting benefits from reducing 
climate-related damages with a 7 percent discount rate for non-climate 
related impacts is consistent with NHTSA's past practice.\683\ However, 
NHTSA's pairing in the PRIA of 2.5 percent for climate-related damage 
reductions with 3 percent for non-climate related impacts was novel.
---------------------------------------------------------------------------

    \683\ See, e.g., the 2012 and 2020 final CAFE rules.

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

[[Page 25880]]

    In this final rule, NHTSA has not selected a primary discount rate 
for the social cost of greenhouse gases and instead presents non-GHG 
related impacts of the final rule discounted at 3 and 7 percent 
alongside estimates of the social cost of greenhouse gases reflecting 
each of the three discount rates presented by the IWG. This approach 
was selected because, as NHTSA pointed out in the NPRM, the IWG does 
not specify which of the discount rates it recommends should be 
considered the agency's primary estimate. The agency's analysis showing 
our primary non-GHG impacts at 3 and 7 percent alongside climate-
related benefits discounted at each rate recommended by the IWG may be 
found in FRIA Chapter 6.5.6. For the sake of simplicity, most tables 
throughout this analysis pair both the 3 percent and the 7 percent 
discount rates with the social costs of greenhouse gases discounted at 
a 3 percent rate. To calculate the present value of climate benefits, 
we also use the same discount rate as the rate used to discount the 
value of damages from future GHG emissions, for internal 
consistency.\684\ We believe that this approach provides policymakers 
with a range of costs and benefits associated with the rule using a 
reasonable range of discounting approaches and associated climate 
benefits, as well as the 95th percentile value that illustrates the 
potential for climate change to cause damages that are much higher than 
the ``best guess'' damage estimates. This approach is also consistent 
with the options outlined by NAS's 2017 recommendations on how SC-GHG 
estimates can ``be combined in RIAs with other cost and benefits 
estimates that may use different discount rates.'' NAS reviewed 
``several options,'' including ``presenting all discount rate 
combinations of other costs and benefits with [SC-GHG] estimates.''
---------------------------------------------------------------------------

    \684\ This approach follows the same approach that the IWG's 
February 2021 TSD recommended ``to ensure internal consistency--
i.e., future damages from climate change using the SC-GHG at 2.5 
percent should be discounted to the base year of the analysis using 
the same 2.5 percent rate.''
---------------------------------------------------------------------------

(c) Comments and Responses About the Agency's Choice of Social Cost of 
Carbon Estimates and Discount Rates
    California Attorney General et al. commented that the 3 percent 
discount rate was too high, referencing the discussion in the IWG's 
interim guidance showing rates on 10-year Treasury notes hovering 
around 2 percent over the last 30 years. Our Children's Trust commented 
that the use of any discount rate on reductions in future climate 
damages is unconstitutional because it treats them ``as less valuable 
or not equal under the eyes of the law when it comes to life, liberty, 
personal security and a climate system that sustains human life, among 
other unalienable rights.'' AFPM argued that we should discount the 
benefit of reduced climate-related costs at the same rate as is used to 
discount other costs and benefits.\685\
---------------------------------------------------------------------------

    \685\ AFPM, NHTSA-2021-0053-1530, at 19-21.
---------------------------------------------------------------------------

    As noted above, NHTSA presented and considered a range of discount 
rates, including 2.5 percent and 5 percent. The above discussion also 
explained why it is important to adjust the discounting approach in the 
context of intergenerational effects and uncertainty about long-run 
interest rates. NHTSA disagrees, however, with the argument that the 
use of discounting where there are intergenerational effects is a 
violation of the Constitution. The impacts on future generations are 
reflected in the estimates used in this analysis.
    IPI et al. commented in general support of the agency's approach to 
estimating SC-GHG. They argued that the agency should acknowledge that 
the IWG's estimates are appropriate but may underestimate the effects 
of climate change,\686\ and that the transparent and rigorous 
methodology employed by IWG was based on the available science which 
adds credibility to their estimates.\687\ Their comment continued by 
arguing that the agency should continue to use a global estimate of 
SCC-GHG because doing so is supported by science and a domestic 
estimate would understate U.S. extraterritorial interests, damages such 
as security threats and transboundary damages that spillover into the 
U.S., and harm U.S. citizens and assets that are extraterritorial.\688\ 
Finally, IPI et al. commented that the agency's approach to discounting 
climate-related benefits was appropriate, but argued that the agency 
should consider aligning with EPA's methodology of reporting climate 
benefits at 3 percent for the majority of the tables and include a 
sensitivity analysis at a 2 percent discount rate.\689\ Many of the 
points raised by IPI et al. are aligned with the agency's approach in 
both the proposal and final rule.
---------------------------------------------------------------------------

    \686\ IPI et al., Docket No. NHTSA-2021-0053-1547, at 4-7.
    \687\ Id. at 31-41.
    \688\ Id. at 7-14.
    \689\ Id. at 14-31.
---------------------------------------------------------------------------

    Competitive Enterprise Institute recommended against the agency's 
use of the Interagency Working Group's Interim Estimates of the social 
cost of carbon. CEI argued that the degree of global warming mitigation 
projected by NHTSA is too small to generate climate benefits valued at 
the scale valued by NHTSA using the IWG Interim Estimates. CEI also 
argued that the 7 percent discount rate is the appropriate discount 
rate for climate damage reduction benefits and that using a lower rate 
would justify mitigation projects with a lower rate of return than 
could be found in private markets. CEI's rationale was that investing 
in higher rate of return projects today would pass along more wealth to 
future generations, making them better able to overcome the adversity 
posed by potential climate change. They argued that the SC-GHG is 
highly sensitive to the time horizon of the analysis and that the SC-
GHG drops significantly if the time horizon for estimating climate 
damages is shortened from 300 years to 150 years, and suggested that 
the outer years of the 300-year time-horizon were speculative. CEI also 
argued that the IWG uses an outdated equilibrium climate sensitivity 
distribution and that more recent studies present distributions with 
lower modal and central values. They argued that CO2 
emissions have important benefits to agriculture and plant growth 
through carbon fertilization, which increases internal plant water use 
efficiency. Finally, they argued that the IWG's assumptions regarding 
human adaptation mitigating the costs of climate change and projected 
baseline carbon emissions were unduly pessimistic.
    Estimating the social costs of future climate damages caused by 
emissions of greenhouse gases, or SC-GHG, requires analysts to make a 
number of projections that necessarily involve uncertainty--for 
example, about the likely future pattern of global emissions of GHGs--
and to model multifaceted scientific phenomena, including the effect of 
cumulative emissions and atmospheric concentrations of GHGs on climate 
measures including global surface temperatures and precipitation 
patterns. Each of these entail critical judgements about complex 
scientific and modeling questions. Doing so requires specialized 
technical expertise, accumulated experience, and expert judgment, and 
highly trained, experienced, and informed analysts can reasonably 
differ in their judgements.
    CEI's comments raise questions about the IWG's selection of the 
specific assumptions and parameter values it used to produce the 
estimates of the social costs of various GHGs that NHTSA relies on in 
this regulatory analysis, and contends that using alternative 
assumptions and values would reduce the IWG's recommended

[[Page 25881]]

values significantly. However, the agency notes that the IWG's 
membership includes experts in climate science, estimation of climate-
related damages, and economic valuation of those impacts, and that 
these members applied their collective expertise to review and evaluate 
available empirical evidence and alternative projections of important 
measures affecting the magnitude and cost of such damages. The agency 
also notes that the IWG members employed a collaborative, consensus-
based process to arrive at their collective judgements about the most 
reliable assumptions and parameter values. In addition, the IWG uses 
its consensus assumptions and estimates in conjunction with three 
different widely recognized, peer-reviewed models of climate economic 
impacts, and its recommended values represent a synthesis of the costs 
each one estimates on the basis of that common set of inputs. Finally, 
DOT uses its own judgment in applying the estimates in this analysis.
    Thus, the agency believes that the SC-GHG estimates developed by 
the IWG have two important advantages over other available estimates: 
First, they are the product of consensus estimates of the critical 
inputs necessary to estimate damage costs for GHGs; and second, they 
synthesize the results of multiple estimation methods represented in 
different widely regarded models. As a consequence, NHTSA views the 
IWG's recommended values as the most reliable among those that were 
available for it to use in its analysis. While the agency acknowledges 
that--as CEI notes--selecting certain input assumptions and parameter 
estimates different from those the IWG chose could reduce those values, 
it also agrees with the IWG that equally and perhaps more plausible 
assumptions and parameter values would have resulted in estimated SC-
GHG values that were far higher than those the group ultimately 
recommended. Furthermore, due to omitted damage categories, NHTSA 
concurs with the IWG that its estimates are likely conservative 
underestimates. Unlike the IWG's work, we feel that CEI, Children's 
Trust, and the other commenters did not address the inherent 
uncertainty in estimating the SC-GHG. Specifically, we note that any 
alternative model that attempts to project the costs of GHGs over the 
coming decades--and centuries--will be subject to the same uncertainty 
and criticisms raised by commenters. Commenters essentially ask NHTSA 
to replace this working group's expertise in favor of specific 
alternative perspectives presented outside of the full context of the 
IWG's significantly technical and multifaceted assessments. 
Furthermore, these alternative estimates are reliant on the commenters' 
specific set of assumptions of the future being correct.\690\ The IWG's 
analysis considered the possibility that its assumptions were either 
too conservative or extreme, and based its guidance on a robust review 
of potential outcomes.
---------------------------------------------------------------------------

    \690\ For example, CEI argued that the IWG estimates ``err[ed] 
on the side of alarm and regulatory ambition.'' However, if CEI is 
being overly optimistic about how mankind can deal with a changing 
climate or the possibility that carbon may have some benefits on 
agriculture, IWG's estimate could be an accurate--or even 
underestimate--of the SC-GHG.
---------------------------------------------------------------------------

    CEI commented that the probability distribution function the IWG 
uses to simulate the equilibrium climate sensitivity is outdated and 
that more recent empirical work suggests the distribution should have a 
lower central tendency. However, CEI's comment overlooked the seminal 
work published in 2021 by the Intergovernmental Panel on Climate Change 
(IPCC)--an organization of expert scientists with 195 members chartered 
by the United Nation and the World Meteorological Organization that 
reviews the scientific work of thousands of contributors all over the 
world and provides a comprehensive summary ``about what is known about 
the drivers of climate change, its impacts and future risks, and how 
adaptation and mitigation can reduce those risks.'' \691\ This work was 
subjected to a transparent review by experts and governments all around 
the world to ``ensure an objective and complete assessment and to 
reflect a diverse range of views and expertise.'' \692\ The IPCC's most 
recent report states that ``[i]mproved knowledge of climate processes, 
paleoclimate evidence and the response of the climate system to 
increasing radiative forcing gives a best estimate of equilibrium 
climate sensitivity of 3 degrees Celsius.'' \693\ This is the same 
value the IWG's probability distribution function uses as the median 
estimate of equilibrium climate sensitivity. While the IWG may choose 
to revisit the distribution it uses for simulating the equilibrium 
climate sensitivity in a future forthcoming update, it is clear that 
the distribution used for the interim values is reasonable and 
scientifically defensible.
---------------------------------------------------------------------------

    \691\ Intergovernmental Panel on Climate Change website, https://www.ipcc.ch/about/.
    \692\ Ibid.
    \693\ IPCC, 2021: Summary for Policymakers. In: Climate Change 
2021: The Physical Science Basis. Contribution of Working Group I to 
the Sixth Assessment Report of the Intergovernmental Panel on 
Climate Change [Masson-Delmotte, V., P. Zhai, A. Pirani, S.L. 
Connors, C. P[eacute]an, S. Berger, N. Caud, Y. Chen, L. Goldfarb, 
M. I. Gomis, M. Huang, K. Leitzell, E. Lonnoy, J.B.R. Matthews, T.K. 
Maycock, T. Waterfield, O. Yelek[ccedil]i, R. Yu and B. Zhou 
(eds.)]. Cambridge University Press. In Press. SPM-13.
---------------------------------------------------------------------------

    CEI also commented that we should use an SC-GHG in our main 
analysis that only reflects damages to the United States. As an initial 
matter, such an estimate would undermine the many rationales for a 
global estimate articulated by the IWG, which emphasizes the value of a 
global analysis to sufficiently and comprehensively estimate climate 
damages. NHTSA believes that continued reliance on the IWG's 
recommendations in this respect remains appropriate for all of the 
reasons outlined above, which underscore the reasonableness of the 
IWG's consensus-based approach.
    However, even beyond the recommendations of the IWG, NHTSA agrees 
with the IWG that climate change is a global problem and that the 
global SC-GHG values are appropriate for this analysis. Emitting 
greenhouse gases creates a global externality, in that GHG emitted in 
one country mix uniformly with other gases in the atmosphere and the 
consequences of the resulting increased concentration of GHG are felt 
all over the world.
    The effects of climate change are global and affect the United 
States through many different pathways. These include through 
destabilization that affects our national security, economic impacts 
due to interlinked global economies, in danger and risk to U.S. 
military assets abroad, harm to soldiers stationed outside the United 
States, increased migration to the United States due to climate events 
like drought, the provision of disaster aid in response to disasters 
caused by climate change, interruptions to supply chains from extreme 
weather events, and in many other ways. Given methodological 
challenges, it has not yet been possible to derive a robust social cost 
estimate that isolates impacts to the United States and its inhabitants 
and, in many respects, such an estimate represents an artificial 
distinction that fails to account for the comingling of interests 
throughout the world. The models used both for the Interim Estimates 
and for the 2020 rule's SC-GHG value do not organize all of the 
relevant economic and welfare impacts by country, and as such, it is 
not possible to develop robust estimates of U.S.-specific damages. As 
the Government Accountability Office concluded in a June 2020 report 
examining the SC-GHG values used in the 2020 rule, the models ``were 
not

[[Page 25882]]

premised or calibrated to provide estimates of the social cost of 
carbon based on domestic damages.'' \694\ Further, the report noted 
that NAS found that country-specific social costs of carbon estimates 
were ``limited by existing methodologies, which focus primarily on 
global estimates and do not model all relevant interactions among 
regions.'' \695\ It is also important to note that the 2020 rule's SC-
GHG values were never peer reviewed, and when their use in a specific 
regulatory action was challenged, a Federal court determined that use 
of a U.S.-only value had been ``soundly rejected by economists as 
improper and unsupported by science,'' and that the values themselves 
omitted key U.S.-specific damages including to supply chains, U.S. 
assets and companies, and geopolitical security. California v. 
Bernhardt, 472 F.Supp.3d 573, 613-14 (N.D. Cal. 2020).
---------------------------------------------------------------------------

    \694\ GAO, Social Cost of Carbon: Identifying a Federal Entity 
to Address the National Academies' Recommendations Could Strengthen 
Regulatory Analysis, GAO-20-254 (June 2020) at 29.
    \695\ Id. at 26.
---------------------------------------------------------------------------

    Furthermore, the United States cannot address the domestic 
consequences of climate change for the United States by itself. 
Instead, we need other nations to take action to reduce their own 
domestic emissions and to consider the benefits of their emission 
reductions to the United States. In order to ensure other nations take 
similar actions to reduce GHG emissions, the United States is actively 
involved in developing and implementing international commitments to 
secure reductions in GHG emissions. If the United States fails to 
consider the benefits (and harms) of its actions to other countries, 
our bargaining position is significantly weakened. It is hard to argue 
that a large emitter like China, for example, should consider the 
global consequences of its actions--including to the United States--if 
the United States fails to do so. As a result, the United States may 
fail to secure sufficient emission reduction commitments from its 
counterpart s to reduce adverse consequences from climate change that 
will affect the United States if it were to use U.S.-specific values 
for the SC-GHG. A wide range of scientific and economic experts have 
emphasized the issue of reciprocity as support for considering global 
damages of GHG emissions. Using a global estimate of damages in U.S. 
analyses of regulatory actions allows the United States to continue to 
actively encourage other nations, including emerging major economies, 
to take significant steps to reduce emissions. The only way to achieve 
an efficient allocation of resources for emissions reduction on a 
global basis--and so benefit the United States and its citizens--is for 
all countries to base their policies on global estimates of damages.
    Further, in practice, data and modeling limitations naturally 
restrain the ability of estimates of SC-GHG to include all of the 
important physical, ecological, and economic impacts of climate change, 
such that the estimates are a partial accounting of climate change 
impacts and will therefore tend to be underestimates of the marginal 
benefits of abatement. As an empirical matter, the development of a 
U.S.-specific SC-GHG is greatly complicated by the relatively few 
region- or country-specific estimates of the SC-GHG in the literature.
    Importantly, due to methodological constraints, NHTSA is not aware 
of a robust analysis that isolates damages to the United States. Due to 
these constraints, the SC-GHG value used in the 2020 final rule is an 
underestimate of damages to the United States, and as such is 
inappropriately low for purposes of informing the current analysis. 
However, NHTSA explored an analysis incorporating a U.S.-specific 
social cost of carbon as promoted by commenters such as CEI in order to 
comply with a preliminary injunction issued by the United States 
District Court for the Western District of Louisiana on February 11, 
2022, that enjoined NHTSA from, among other activities, ``[a]dopting, 
employing, treating as binding, or relying upon any [SC-GHG] estimates 
based on global effects,'' as well as from ``adopting, employing, 
treating as binding, or relying upon the work product of the [IWG].'' 
\696\ When NHTSA considered that analysis, the agency determined that 
the selected standards continue to remain maximum feasible.
---------------------------------------------------------------------------

    \696\ Louisiana v. Biden, Order, No. 2:21-CV-01074, ECF No. 99 
(W.D. La. Feb. 11, 2022). That injunction was subsequently stayed. 
Louisiana v. Biden, Order, No. 22-30087, Doc. No. 00516242341 (5th 
Cir. Mar. 16, 2022).
---------------------------------------------------------------------------

    Even with the underestimate of climate benefits, the analysis still 
contained numerous quantitative indicia that the new standards remained 
appropriate. For instance, fuel savings for the preferred alternative 
still exceeded the price increase due to the rule by $290.\697\ 
Likewise, a calendar year accounting using a 3 percent discount rate 
still revealed a net benefit for the preferred alternative of $28.1 
billion. Moreover, these figures--like any cost-benefit analysis 
results in a CAFE rulemaking--offered only one informative data point 
in addition to the host of considerations that NHTSA must balance by 
statute when determining maximum feasible standards. Even taking the 
severely reduced climate benefit estimates into account, the overall 
balance of other significant qualitative and quantitative 
considerations and factors support the selection of the preferred 
alternative, as described at length throughout this final rule. 
Accordingly, even the limited perspective of impacts urged by 
commenters such as CEI would not alter the standards necessitated in 
this rulemaking.
---------------------------------------------------------------------------

    \697\ This final rule is estimated to increase the price of 
model year 2029 vehicles by $1,087 and save consumer $1,387.
---------------------------------------------------------------------------

    NHTSA believes that the three issues raised by CEI and specifically 
addressed in this section on the IWG's interim values--regarding the 
use of opportunity cost of capital discounting, the use of global 
values for the social costs of greenhouse gases, and the probability 
distribution function of equilibrium climate sensitivity--are 
representative of their comments overall in that they choose to 
highlight areas of uncertainty and dynamics that would tend to reduce 
the social cost of carbon. In each case, CEI has chosen to ignore 
sources of uncertainty and dynamics that may increase the social cost 
of carbon and asserts scientific authority only where the cited papers 
or dynamics would tend to reduce it.
    Contrary to the position put forward by Children's Trust that it is 
unlawful to discount the estimated costs of SC-GHG, we also believe 
that discounting the SC-GHG estimate to develop a present value of the 
benefits of reducing GHG emissions is consistent with the law, and that 
the discounting approach used by the IWG is reasonable. Unsurprisingly, 
when the cost-benefit analysis is the predominant basis for an agency's 
decision, courts have previously reviewed and affirmed rules that 
discount climate-related costs.\698\ Courts have likewise advised 
agencies to approach cost-benefit analyses with impartiality, to ensure 
that important factors are captured in the analysis, including climate 
benefits,\699\ and to ensure that the decision rests ``on a 
consideration of the relevant factors.'' \700\ NHTSA has followed these 
principles here.
---------------------------------------------------------------------------

    \698\ See, e.g., E.P.A. v. EME Homer City Generation, L.P., 572 
U.S. 489 (2015).
    \699\ CBD v. NHTSA, 538 F.3d 1172, 1197 (9th Cir. 2008).
    \700\ State Farm, 463 U.S. 29, 43 (1983) (internal quotation 
marks omitted).
---------------------------------------------------------------------------

    For these reasons, NHTSA believes that the Interim Estimates 
employed in

[[Page 25883]]

this analysis and the results they produce are the most reliable 
estimates of what are inherently uncertain values it could have 
selected, and that the range of values used to examine the sensitivity 
of its results adequately incorporate the range of uncertainty 
surrounding the values used in its central analysis.
(2) Reduced Health Damages
    The CAFE Model estimates monetized health effects associated with 
emissions from three criteria pollutants: NOX, 
SOX, and PM2.5. As discussed in Section III.F 
above, although other criteria pollutants are currently regulated, we 
only calculate impacts from these three pollutants since they are known 
to be emitted regularly from mobile sources, have the most adverse 
effects to human health, and are based on EPA papers that estimate the 
benefits per ton of reducing these pollutants.
    CBD et al. stated that NHTSA improved the monetization of 
PM2.5 attributable to fuel economy standards (discussed 
further below); however, the commenters also argued that NHTSA should 
monetize benefits from reductions in ozone and air toxics.\701\
---------------------------------------------------------------------------

    \701\ CBD et al., Docket No. NHTSA-2021-0053-1572, at 5.
---------------------------------------------------------------------------

    As we discussed in the proposal, other pollutants, especially those 
that are precursors to ozone, are difficult to model due to the 
complexity of their formation in the atmosphere, and EPA does not 
calculate benefit-per-ton estimates for these. We will continue to 
explore this concept for future analyses. Chapter 5.4 of the TSD 
includes a section on uncertainty related to monetizing health impacts. 
The Final SEIS also includes a section describing the health effects of 
ozone and air toxics (see Section 4.1.1.2).
    The CAFE Model computes the monetized impacts associated with 
health damages from each pollutant by multiplying monetized health 
impact per ton values by the total tons of these pollutants, which are 
emitted from both upstream and tailpipe sources. Chapter 5 of the TSD 
accompanying this final rule includes a detailed description of the 
emission factors that inform the CAFE Model's calculation of the total 
tons of each pollutant associated with upstream and tailpipe emissions.
    These monetized health impacts per ton values are closely related 
to the health incidence per ton values described above in Section III.F 
and in detail in Chapter 5.4 of the TSD. We use the same EPA sources 
that provide health incidence values to determine which monetized 
health impacts per ton values to use as inputs in the CAFE Model. Like 
the estimates associated with health incidences per ton of criteria 
pollutant emissions, we use multiple EPA papers and conversations with 
EPA staff to appropriately account for monetized damages for each 
pollutant associated with the source sectors included in the CAFE 
Model, based on which papers contain the most up-to-date data 
corresponding to the relevant source sectors.\702\ The various emission 
source sectors included in the EPA papers do not always correspond 
exactly to the emission source categories used in the CAFE Model.\703\ 
In those cases, we map multiple EPA sectors to a single CAFE source 
category and compute a weighted average of the health impact per ton 
values.
---------------------------------------------------------------------------

    \702\ Environmental Protection Agency (EPA). 2018. Estimating 
the Benefit per Ton of Reducing PM2.5 Precursors from 17 
Sectors. https://www.epa.gov/sites/production/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf; Wolfe et al. 2019. 
Monetized health benefits attributable to mobile source emissions 
reductions across the United States in 2025. https://pubmed.ncbi.nlm.nih.gov/30296769/; Fann et al. 2018. Assessing Human 
Health PM2.5 and Ozone Impacts from U.S. Oil and Natural 
Gas Sector Emissions in 2025. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6718951/.
    \703\ The CAFE Model's emission source sectors follow a similar 
structure to the inputs from GREET. See Chapter 5.2 of the TSD 
accompanying this notice for further information.
---------------------------------------------------------------------------

    CBD et al. stated that the estimates of the benefits of 
PM2.5 reductions were improved by the addition of the Wolfe 
et al. paper to the sources used by NHTSA.\704\ We agree, and continue 
to use these sources in the final rulemaking analysis as they allow us 
to map sectors to categories that are more expansive and specific than 
the original 2018 source.
---------------------------------------------------------------------------

    \704\ CBD et al., at 5.
---------------------------------------------------------------------------

    EPA uses the value of a statistical life (VSL) to estimate 
premature mortality impacts, and a combination of willingness to pay 
estimates and costs of treating the health impact for estimating the 
morbidity impacts.\705\ EPA's 2018 TSD, ``Estimating the Benefit per 
Ton of Reducing PM2.5 Precursors from 17 Sectors,'' \706\ 
(referred to here as the 2018 EPA source apportionment TSD) contains a 
more detailed account of how health incidences are monetized. It is 
important to note that the EPA sources cited frequently refer to these 
monetized health impacts per ton as ``benefits per ton,'' since they 
describe these estimates in terms of emissions avoided. In the CAFE 
Model input structure, these are generally referred to as monetized 
health impacts or damage costs associated with pollutants emitted, not 
avoided, unless the context states otherwise.
---------------------------------------------------------------------------

    \705\ Although EPA and DOT's VSL values differ, DOT staff 
determined that using EPA's VSL was appropriate here, since it was 
already included in these monetized health impact values, which were 
best suited for the purposes of the CAFE Model.
    \706\ See Environmental Protection Agency (EPA). 2018. 
Estimating the Benefit per Ton of Reducing PM2.5 
Precursors from 17 Sectors. https://www.epa.gov/sites/production/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf.
---------------------------------------------------------------------------

    The Competitive Enterprise Institute questioned the use of the 
specific EPA studies that inform the BPT values that NHTSA uses, namely 
the Six Cities Study.\707\ We report only one BPT estimate in this 
final rule, based on the Krewski et al. study, to be consistent with 
EPA in their final GHG rule. We consulted with EPA staff at the Office 
of Air Quality Planning and Standards (OAQPS) on the most appropriate 
benefit per ton values to use for the various upstream and tailpipe 
emission categories. EPA bases its benefits analyses on peer-reviewed 
studies of air quality and health effects and peer-reviewed studies of 
the monetary values of public health and welfare improvements. Very 
recently, EPA updated its approach to estimating the benefits of 
changes in PM2.5 and ozone.708 709 These updates 
were based on information drawn from the recent 2019 PM2.5 
and 2020 Ozone Integrated Science Assessments (ISAs), which were 
reviewed by the Clean Air Science Advisory Committee (CASAC) and the 
public.710 711 EPA has not updated its mobile source BPT 
estimates to reflect these updates in time for this analysis. Instead, 
based on the recommendation of EPA staff, we use the same 
PM2.5 BPT estimates that we used in the NPRM to ensure 
consistency between the values corresponding to different source 
sectors. The BPT estimates used are based on the review of the 2009 PM 
ISA \712\ and 2012 PM ISA Provisional

[[Page 25884]]

Assessment \713\ and include a mortality risk estimate derived from the 
Krewski et al. (2009) \714\ analysis of the American Cancer Society 
(ACS) cohort and nonfatal illnesses consistent with benefits analyses 
performed for the analysis of the final Tier 3 Vehicle Rule,\715\ the 
final 2012 PM NAAQS Revision,\716\ and the final 2017-2025 Light-duty 
Vehicle GHG Rule.\717\ We expect this lag in updating our BPT estimates 
to have only a minimal impact on total PM benefits, since the 
underlying mortality risk estimate based on the Krewski study is 
identical to an updated PM2.5 morality risk estimate derived 
from an expanded analysis of the same ACS cohort. We are aware of EPA's 
work to update its mobile source BPT estimates to reflect these recent 
updates for use in future rulemaking analyses, and will work further 
with EPA in future rulemakings to update and synchronize approaches to 
BPT estimates.
---------------------------------------------------------------------------

    \707\ Competitive Enterprise Institute, Docket No. NHTSA-2021-
0053-1546, at 3.
    \708\ U.S. Environmental Protection Agency (U.S. EPA). 2021a. 
Regulatory Impact Analysis for the Final Revised Cross-State Air 
Pollution Rule (CSAPR) Update for the 2008 Ozone NAAQS. EPA-452/R-
21-002. March.
    \709\ U.S. Environmental Protection Agency (U.S. EPA). 2021b. 
Estimating PM2.5- and Ozone-Attributable Health Benefits. 
Technical Support Document (TSD) for the Final Revised Cross-State 
Air Pollution Rule Update for the 2008 Ozone Season NAAQS. EPA-HQ-
OAR-2020-0272. March.
    \710\ U.S. Environmental Protection Agency (U.S. EPA). 2019a. 
Integrated Science Assessment (ISA) for Particulate Matter (Final 
Report, 2019). U.S. Environmental Protection Agency, Washington, DC, 
EPA/600/R-19/188, 2019.
    \711\ U.S. Environmental Protection Agency (U.S. EPA). 2019a. 
Integrated Science Assessment (ISA) for Ozone and Related 
Photochemical Oxidants (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-20/012, 2020.
    \712\ U.S. Environmental Protection Agency (U.S. EPA). 2009. 
Integrated Science Assessment for Particulate Matter (Final Report). 
EPA-600-R-08-139F. National Center for Environmental Assessment--RTP 
Division, Research Triangle Park, NC. December. Available at: http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=216546.
    \713\ U.S. Environmental Protection Agency (U.S. EPA). 2012. 
Provisional Assessment of Recent Studies on Health Effect of 
Particulate Matter Exposure. EPA/600/R-12/056F. National Center for 
Environmental Assessment--RTP Division, Research Triangle Park, NC. 
December. Available at: https://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=247132.
    \714\ Krewski D., M. Jerrett, R.T. Burnett, R. Ma, E. Hughes, Y. 
Shi, et al. 2009. Extended Follow-Up and Spatial Analysis of the 
American Cancer Society Study Linking Particulate Air Pollution and 
Mortality. HEI Research Report, 140, Health Effects Institute, 
Boston, MA.
    \715\ U.S. Environmental Protection Agency (2014). Control of 
Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and 
Fuel Standards Final Rule: Regulatory Impact Analysis, Assessment 
and Standards Division, Office of Transportation and Air Quality, 
EPA-420-R-14-005, March 2014. Available on the internet: http://www3.epa.gov/otaq/documents/tier3/420r14005.pdf.
    \716\ U.S. Environmental Protection Agency. (2012). Regulatory 
Impact Analysis for the Final Revisions to the National Ambient Air 
Quality Standards for Particulate Matter, Health and Environmental 
Impacts Division, Office of Air Quality Planning and Standards, EPA-
452-R-12-005, December 2012. Available on the internet: http://www3.epa.gov/ttnecas1/regdata/RIAs/finalria.pdf.
    \717\ U.S. Environmental Protection Agency (U.S. EPA). (2012). 
Regulatory Impact Analysis: Final Rulemaking for 2017-2025 Light-
Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average 
Fuel Economy.
---------------------------------------------------------------------------

    Auto Innovators also suggested additional sensitivity analysis of 
BPT inputs, citing the EPA Science Advisory Board's ``recommended 
sensitivity analyses of alternative values of the dose-response 
function, differential toxicity by type of particle, and spatially-
dependent VSL values.'' \718\ We include other BPT values in one health 
effects sensitivity case described in Chapter 7 of the FRIA. Further 
sensitivity cases were not deemed necessary for the purposes of this 
analysis, since criteria pollutant health impacts make up a very small 
portion of overall benefits.
---------------------------------------------------------------------------

    \718\ Auto Innovators, Docket No. NHTSA-2021-0053-1492, at 92.
---------------------------------------------------------------------------

    Our Children's Trust objected to using discount rates when 
monetizing health benefits, stating that ``to apply a discount rate to 
monetized health impacts is also completely inappropriate and unlawful 
and discriminates against children.'' \719\ The health impacts of 
exposure to criteria pollutants occur well after exposure to air 
pollution (i.e., the impacts have long ``latency periods''), and 
therefore it is appropriate to reflect some difference in timing 
(through discounting) in the monetized values.
---------------------------------------------------------------------------

    \719\ Our Children's Trust, Docket No. NHTSA-2021-0053-1587, at 
3.
---------------------------------------------------------------------------

    We disagree with Our Children's Trust's assertion that applying a 
discount rate to health benefits is illegal. Our Children's Trust did 
not provide any specific laws that we were allegedly violating, nor are 
we aware of any such law. Guidance from OMB Circular A-4 recommends 
using discount rates of 3 and 7 percent in benefit-cost analyses and 
has been used for regulatory analyses for decades, including in the 
evaluation of regulations with health impacts similar to those of this 
final rule.
    However, OMB Circular A-4 also acknowledges the ethical 
considerations involved in analyzing impacts occurring over 
intergenerational time horizons:

Special ethical considerations arise when comparing benefits and 
costs across generations. Although most people demonstrate time 
preference in their own consumption behavior, it may not be 
appropriate for society to demonstrate a similar preference when 
deciding between the well-being of current and future generations. 
Future citizens who are affected by such choices cannot take part in 
making them, and today's society must act with some consideration of 
their interest.\720\
---------------------------------------------------------------------------

    \720\ OMB Circular A-4.

Factoring in competing social interests presents additional 
difficulties in weighing these ethical considerations. As of this time, 
we include health benefits at the 3 percent as well as 7 percent 
discount rate and will consider the question of lower discount rates 
for health benefits in future analyses.
    The CAFE Model health impacts inputs are based partially on the 
structure of the 2018 EPA source apportionment TSD, which reports 
benefits per ton values for the years 2020, 2025, and 2030. For the 
years in between the source years used in the input structure, the CAFE 
Model applies values from the closest source year. For instance, the 
model applies 2020 monetized health impact per ton values for calendar 
years 2020-2022 and applies 2025 values for calendar years 2023-2027. 
For some of the monetized health damage values, in order to match the 
structure of other impacts costs, we developed proxies for 7 percent 
discounted values for specific source sectors by using the ratio 
between a comparable sector's 3 and 7 percent discounted values. In 
addition, we used implicit price deflators from the Bureau of Economic 
Analysis (BEA) to convert different monetized estimates to 2018 
dollars, to be consistent with the rest of the CAFE Model inputs.
    This process is described in more detail in Chapter 6.2.2 of the 
TSD accompanying this final rule. In addition, the CAFE Model 
documentation contains more details of the model's computation of 
monetized health impacts. All resulting emissions damage costs for 
criteria pollutants are located in the Criteria Emissions Cost 
worksheet of the Parameters file.
(3) Reduction in Petroleum Market Externalities
    By amending existing standards, this action will reduce domestic 
consumption of gasoline, producing a corresponding decrease in the 
Nation's demand for crude petroleum, a commodity that is traded 
actively in a worldwide market. U.S. consumption and imports of 
petroleum products have three potential effects on the domestic economy 
that are often referred to collectively as ``energy security 
externalities.'' Increases in their magnitude are sometimes cited as 
possible social costs of increased U.S. demand for petroleum, and 
analogously, any reduction in their value in response to lower U.S. 
consumption or imports of petroleum represent potential economic 
benefits.
    First, the U.S. accounts for a sufficiently large (although 
declining) share of global petroleum demand such that changes in 
domestic consumption of petroleum products can affect global petroleum 
prices. Any increase in global petroleum prices that results from 
higher U.S. gasoline demand will cause a transfer of revenue from 
consumers of petroleum to oil suppliers worldwide, because consumers 
throughout the world are ultimately subject to the higher global price 
that results. Although this transfer is simply a shift of resources 
that produces no change in global economic welfare, the financial

[[Page 25885]]

drain it produces on the U.S. economy is sometimes cited as an external 
cost of increased U.S. petroleum consumption because consumers of 
petroleum products are unlikely to consider it. Similarly, a decline in 
U.S. consumption of petroleum-derived transportation fuel will reduce 
global petroleum demand and exert some downward pressure on worldwide 
prices. Although the resulting savings to worldwide consumers of 
petroleum products is again a transfer--this time from oil producers to 
consumers--it may reduce the financial drain on the U.S. economy caused 
by domestic oil production and imports.
    As the U.S. approaches self-sufficiency in petroleum production 
(the Nation became a net exporter of petroleum in 2020), any effect of 
reduced domestic demand on global petroleum prices increasingly results 
in a transfer from U.S. petroleum producers to domestic consumers of 
refined products.\721\ Thus not only does it leave net U.S. welfare 
unaffected, it also ceases even to be a financial burden on the U.S. 
economy. In fact, as the U.S. becomes a larger net petroleum exporter, 
any transfer from global consumers to petroleum producers would become 
a financial benefit to the U.S. economy, although uncertainty in the 
Nation's long-term import-export balance makes it difficult to project 
precisely how these effects might change in response to increased 
consumption.
---------------------------------------------------------------------------

    \721\ See https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php (accessed March 17, 2022).
---------------------------------------------------------------------------

    Higher U.S. petroleum consumption also increases domestic 
consumers' exposure to oil price shocks and by doing so impose 
potential costs on all U.S. petroleum users (including those outside 
the light duty vehicle sector, whose consumption would be unaffected by 
this final rule) from possible interruptions in the global supply of 
petroleum or rapid fluctuations in global oil prices. These potential 
costs arise from petroleum users' need to pay more for oil-based 
products, to switch energy sources, or adjust production methods 
rapidly in response to reduced supplies or higher prices, which they 
cannot recover once supplies are restored or prices return to pre-
disruption levels, and from losses in economic output while supplies 
are disrupted. Because users of petroleum products are unlikely to 
consider the effect of their increased purchases on the risk of these 
effects, their probability-weighted (or ``expected'') economic value is 
often cited as an external cost of increased U.S. consumption of 
petroleum products. Conversely, reducing domestic consumption of 
refined products reduces exposure to supply disruptions or rapid price 
changes and petroleum users' costs for adjusting rapidly to them, which 
will reduce the external economic costs associated with domestic 
petroleum consumption. When U.S. oil consumption is linked to the 
globalized and tightly interconnected oil market, as it is now, the 
only means of reducing the exposure of U.S. consumers to global oil 
shocks is to reduce their consumption. Thus the reduction in oil 
consumption driven by fuel economy standards creates an energy security 
benefit.
    This benefit is the original purpose behind the CAFE standards. Oil 
prices are inherently volatile, in part because geopolitical risk 
affects prices. International conflicts, sanctions, civil conflicts 
targeting oil production infrastructure, pandemic-related economic 
upheaval, and cartels have all had dramatic and sudden effects on oil 
prices in recent years. U.S. net exporter status does not insulate U.S. 
drivers from higher gas prices, because those prices are currently 
largely determined by oil prices set in the globally integrated market. 
Given these dynamics, the effective policies to protect consumers from 
oil price spikes are those that reduce the oil-intensity of the 
economy, including fuel economy standards.
    Finally, some analysts argue that domestic demand for imported 
petroleum may also influence U.S. military spending. Because the 
increased cost of military activities would not be reflected in the 
prices drivers pay at the gas pump, increased military spending to 
secure oil imports is often represented as a third category of external 
costs form increased U.S. petroleum consumption. NHTSA has received 
extensive comments to past actions on this topic.
    Each of these three factors would be expected to decrease--albeit 
by a limited magnitude--as a consequence of decreasing U.S. petroleum 
consumption resulting from more stringent CAFE standards. TSD Chapter 
6.2.4 provides a comprehensive explanation of the agency's analysis of 
these three impacts and explains how it values potential economic 
benefits from reducing each one. The agency's proposed rule also 
presented this same explanation and drew numerous comments, most 
asserting that the value the agency attached to reducing the expected 
economic costs of oil supply disruptions and price volatility was too 
low.
    As one illustration of the comments that the agency received on 
this issue, the Applied Economics Clinic (AEC) argued on behalf of the 
California Attorney General and the CARB that the expert assessment of 
the likelihood of petroleum supply disruptions underlying the agency's 
estimate of macroeconomic disruption costs estimated disruption 
probabilities that were far too low to be consistent with recent 
experience, causing the agency's cost estimate to be unrealistically 
low. AEC also noted that NHTSA's estimates were presented as a single 
value without acknowledging the range of uncertainty customarily 
estimated to surround it, and that other estimates reported in the same 
source on which NHTSA relies for its disruption costs are significantly 
higher. AEC argued that the agency should return to using the estimates 
of disruption probabilities and expected costs from Oak Ridge National 
Laboratories (ORNL) that it had relied on in previous analyses, whose 
central value it estimated at more than twice the figure the agency 
used to analyze its proposed rule. However, the agency notes that both 
ORNL's estimates of supply disruption costs and the alternative 
estimates presented in the source NHTSA relies on use exactly the same 
type of expert elicitation of the probabilities and magnitudes of 
disruptions used in the study from which NHTSA's cost estimates were 
derived, and also reflect less up to date assumptions about other 
factors such as petroleum prices and global petroleum supply 
elasticities that affect its cost estimates. For these reasons, the 
agency's analysis of this final rule continues to rely on its earlier 
estimates.
    In addition, AEC argues that net financial transfers between U.S. 
suppliers and consumers of petroleum products are unlikely to be zero 
in any single year because of year-to-year variation in U.S. gross 
imports and exports of petroleum, and that the agency's analysis should 
explicitly account for forecast variation in these volumes. The agency 
notes that this would force it to rely on inherently uncertain 
forecasts of U.S. and global petroleum production and demand, and in 
any case, would be unlikely to produce a significantly different 
outcome from the analysis presented here because AEC's assumption 
depends primarily on the Nation's net imports over the entire period it 
spans. Discounting of net transfers projected to occur in distant 
future years would also reduce their present values, particularly or 
distant future years.
    Finally, AEC also argues that even if net dollar-valued revenue 
transfers

[[Page 25886]]

between U.S. consumers and suppliers are zero, their net welfare 
impacts will not necessarily be neutral and should be accounted for. 
The agency notes that while this assertion is correct, accounting for 
the true welfare rather than the financial consequences of revenue 
transfers would require detailed information on the income 
distributions of U.S. consumers of petroleum products and of equity 
holders (and other investors) in domestically based oil companies, as 
well as estimates of the marginal utility of income and its variation 
over the income spectrum. This level of detail is well beyond the scope 
of the agency's analyses of other, much more significant economic 
impacts of this final rule, and employing it would complicate the 
analysis and its interpretation enormously without a commensurate 
improvement in its usefulness to decision-makers or the public.
    In the proposal, the agency reviewed its previous assumption that 
90 percent of any reduction in domestic petroleum refining to produce 
gasoline that results from the proposal would reduce U.S. petroleum 
imports, with the remaining 10 percent reducing domestic production. 
The California Attorney General requested that we revisit this 
assumption, asserting that only a small portion of U.S. gasoline demand 
is supplied by foreign-refined oils today. The agency neglected to make 
this change in the analysis supporting the proposal, and has refrained 
from revising the analysis for the final rule. While we believe that 
there remains a strong case to assume that any reduction in refining of 
crude petroleum to produce gasoline would reduce U.S. oil imports, 
rather than changing U.S. petroleum output, we are going to continue to 
evaluate assumption given the concerns raised by the California 
Attorney General. In the interim, we will continue to assume that 90 
percent of any reduction in domestic petroleum refining to produce 
gasoline that results from the proposal would reduce U.S. petroleum 
imports, with the remaining 10 percent reducing domestic production. We 
conducted a sensitivity analysis to scope the difference between the 
two assumptions and observed that the difference in estimated total and 
net benefits is less than 0.1 percent when viewed from either the model 
year or calendar year perspective and discounted at either 3 or 7 
percent.\722\
---------------------------------------------------------------------------

    \722\ See FRIA Chapter 7.
---------------------------------------------------------------------------

(4) Changes in Labor
    As vehicle prices rise, we expect consumers to purchase fewer 
vehicles than they would have at lower prices. If manufacturers produce 
fewer vehicles as a consequence of lower demand, manufacturers may need 
less labor to produce their fleet and dealers may need less labor to 
sell the vehicles. Conversely, as manufacturers add equipment to each 
new vehicle, the industry will require labor resources to develop, 
sell, and produce additional fuel-saving technologies.\723\ We also 
account for the possibility that new standards could shift the relative 
shares of passenger cars and light trucks in the overall fleet. Since 
the production of different vehicles involves different amounts of 
labor, this shift impacts the quantity of estimated labor.
---------------------------------------------------------------------------

    \723\ For the purposes of this analysis, DOT assumes a linear 
relationship between labor and production volumes.
---------------------------------------------------------------------------

    The analysis considers the direct labor effects that the CAFE 
standards have across the automotive sector. The facets include (1) 
dealership labor related to new light-duty vehicle unit sales; (2) 
assembly labor for vehicles, engines, and transmissions related to new 
vehicle unit sales; and (3) labor related to mandated additional fuel 
savings technologies, accounting for new vehicle unit sales. The labor 
utilization analysis is intentionally narrow in its focus and does not 
represent an attempt to quantify the overall labor or economic effects 
of this rulemaking because adjacent employment factors and consumer 
spending factors for other goods and services are uncertain and 
difficult to predict. We do not consider how direct labor changes may 
affect the macro economy and potentially change employment in adjacent 
industries. For instance, we do not consider possible labor changes in 
vehicle maintenance and repair, nor changes in labor at retail gas 
stations. We also do not consider possible labor changes due to raw 
material production, such as production of aluminum, steel, copper, and 
lithium, nor does the agency consider possible labor impacts due to 
changes in production of oil and gas, ethanol, and electricity.
    Auto Innovators recommended NHTSA consider the geographic 
differences in employment losses and gains in its labor analysis and 
present additional results based on such regional differences. Auto 
Innovators pointed out that the impacts of BEVs on U.S. employment, 
specifically in gasoline engine and transmission plants and supply 
chains, as well as in the petroleum and biofuels sector, may differ 
based on region. They also noted that the employment impacts of BEV 
production elsewhere should be studied.\724\ As discussed above, 
NHTSA's labor utilization analysis is intentionally narrow in focus and 
all effects are reported at a national level. While we appreciate the 
benefits of identifying how employment may shift between geographic 
areas as different suites of technologies are employed, identifying 
where to deploy resources and trainings within the Nation is outside 
the scope of this rulemaking. We may consider expanding the scope of 
the labor utilization analysis or reporting subnational results in 
future rulemaking analyses.
---------------------------------------------------------------------------

    \724\ Auto Innovators, at 122.
---------------------------------------------------------------------------

    All labor effects are estimated and reported at a national level, 
in person-years, assuming 2,000 hours of labor per person-year.\725\ 
These labor hours are not converted into monetized values because we 
assume that the labor costs are included into a new vehicle's 
purchasing price. The analysis estimates labor effects from the 
forecasted CAFE Model technology costs and from review of automotive 
labor for the MY 2020 fleet. The agency uses information about the 
locations of vehicle assembly, engine assembly, and transmission 
assembly, and the percent of U.S. content of vehicles collected from 
American Automotive Labeling Act (AALA) submissions for each vehicle in 
the reference fleet.\726\ The analysis assumes the portion of parts 
that are made in the U.S. will remain constant for each vehicle as 
manufacturers add fuel-savings technologies. This should not be 
misconstrued as a prediction that the percentage of U.S.-made parts--
and by extension U.S. labor--will remain constant, but rather that the 
agency does not have a clear basis to project where future productions 
may shift. The analysis also uses data from the 2016 National 
Automotive Dealers Association (NADA) annual report to derive 
dealership labor estimates. We considered using data from NADA's 2020 
report but concluded that 2020 was too affected by COVID-19 to be an 
appropriate basis to project future dealership labor values.
---------------------------------------------------------------------------

    \725\ The agencies recognize a few local production facilities 
may contribute meaningfully to local economies, but the analysis 
reports only on national effects.
    \726\ 49 CFR part 583.
---------------------------------------------------------------------------

    In sum, the analysis shows that the increased labor from production 
of new technologies used to meet the Preferred Alternative will 
outweigh any decreases attributable to the change in new vehicle sales. 
For a full description of the process the agency uses to estimate labor 
impacts, see TSD Chapter 6.2.5.

[[Page 25887]]

3. Costs and Benefits not Quantified
    In addition to the costs and benefits described above, Table III-37 
and Table III-38 each include two line-items without values. The first 
is maintenance and repair costs. Many of the technologies manufacturers 
apply to vehicles to meet CAFE standards are sophisticated and costly. 
The technology costs capture only the initial or ``upfront'' costs to 
incorporate this equipment into new vehicles; however, if the equipment 
is costlier to maintain or repair--which is likely either because the 
materials used to produce the equipment are more expensive or the 
equipment is significantly more complex than less fuel efficient 
alternatives and requires more time and labor--then consumers will also 
experience increased costs throughout the lifetime of the vehicle to 
keep it operational. The agency does not calculate the additional cost 
of repair and maintenance currently because it lacks a basis for 
estimating the incremental change attributable to the standards. NHTSA 
sought comment on how to estimate these costs from the public but did 
not receive any suggestions.
    The second item is the potential tradeoff with other vehicle 
attributes that could create an opportunity cost for some consumers. In 
addition to fuel economy, potential buyers of new cars and light trucks 
value other features such as their seating and cargo-carrying capacity, 
ride comfort, safety, and performance. Changing some of these other 
features, however, can sometimes affect vehicles' fuel economy, so 
manufacturers will carefully consider any tradeoffs among them when 
deciding how to comply with stricter CAFE standards. Currently the 
analysis assumes that these vehicle attributes will not change as a 
result of these rules,\727\ but in practice manufacturers may make 
practical design changes to meet the standards and minimize their 
compliance costs.
---------------------------------------------------------------------------

    \727\ See TSD Chapter 2.4.5.
---------------------------------------------------------------------------

    If manufacturers do so, they may lower compliance costs relative to 
those estimated here,\728\ but the change to other attributes could in 
theory involve an opportunity cost to consumers who value specific 
attributes, if those consumers cannot purchase a vehicle with those 
attributes. Similarly, if manufacturers could use the same technology 
to either improve efficiency or improve performance relative to current 
attributes, and choose to use the technology only to improve 
efficiency, the consumer may not experience the performance 
enhancement. Of course, unless automakers reach an absolute technology 
limit, which has not been observed, and unless there is a technical or 
engineering constraint that makes it impossible or much more expensive 
to add additional performance features after increasing fuel economy, 
they can still improve other vehicle attributes while improving fuel 
economy--as is always the case, those improvements would come at a 
cost, but that cost would be borne only by consumers who value the 
attribute improvement more than its cost. Because fuel efficiency 
improvements can save consumers money on net by reducing fuel 
expenditures, assuming consumers are completely financing their vehicle 
purchases, the fuel economy improvements can only reduce a consumer's 
``budget'' for other vehicle attributes to the extent that the monthly 
car payment increases due to the improvements by more than the fuel 
savings the technologies deliver.
---------------------------------------------------------------------------

    \728\ See Kate S. Whitefoot et al., Compliance by Design: 
Influence of Acceleration Trade-Offs on CO2 Emissions and 
Costs of Fuel Economy and Greenhouse Gas Regulations, 51 Env't Sci. 
& Tech. 10,307 (2018); Gloria Helfand & Reid Dorsey-Palmateer, The 
Energy Efficiency Gap in EPA's Benefit-Cost Analysis of Vehicle 
Greenhouse Gas Regulations: A Case Study, 6 J. Benefit Cost Analysis 
432 (2015).
---------------------------------------------------------------------------

    The agency has previously attempted to model the potential 
opportunity cost associated with changes in other vehicle attributes in 
sensitivity analyses. In those other rulemakings, the agency 
acknowledged that it is extremely difficult to quantify the potential 
changes to other vehicle attributes. To accurately do so requires 
extensive projections about which and how much of other attributes will 
be altered and a detailed accounting of how much value consumers 
assigned to those attributes. The agency modeled the opportunity cost 
associated with changes in other vehicle attributes using published 
empirical estimates of tradeoffs between higher fuel economy and 
improvements to other attributes, together with estimates of the values 
buyers attach to those attributes. The agency does not believe this is 
an appropriate methodology since there is considerable uncertainty in 
the literature about how much fuel economy consumers are willing to pay 
for and how consumers value other vehicle attributes. We note, for 
example, a recent EPA-commissioned study that ``found very little 
useful consensus'' regarding ``estimates of the values of various 
vehicle attributes,'' which ultimately were ``of little use for 
informing policy decisions.'' \729\
---------------------------------------------------------------------------

    \729\ EPA, Consumer Willingness to Pay for Vehicle Attributes: 
What is the Current State of Knowledge? (2018).
---------------------------------------------------------------------------

    As noted above, an analysis of opportunity costs optimally would 
need to assess compliance with these standards while allowing 
manufacturers to adjust vehicle attributes. This requires detailed 
information about how much different consumers value various vehicle 
attributes, which is not currently available. Such an analysis could 
show lower compliance costs for the standards, but could identify any 
opportunity costs where consumers value other vehicle attributes that 
are not incorporated into the vehicle they purchase.
    Still, there is some evidence that consumers are myopic with 
respect to future savings well beyond any attribute tradeoff. 
Gillingham et al. (2021) use an error in fuel efficiency marketing and 
subsequent change in the market equilibrium price for the vehicles in 
question to assess the willingness to pay for fuel efficiency and find 
that consumers are only willing to pay $0.16-0.39 per discounted value 
of a dollar of fuel savings. The intriguing feature of this study is 
that it uses identical cars made by Hyundia and Kia, which means the 
features of the car with and without the reported fuel savings are 
identical and the discount paid for future fuel saving cannot be 
attributed to an omitted feature. Therefore, the undervaluation 
observed in this study is not due to consumers valuing other vehicle 
attributes more than fuel economy. The findings of this paper are 
consistent with consumers displaying myopia--a term they use to 
``describe a range of behavioral phenomena that could cause 
undervaluation.''
    In comments to the NPRM, IPI provided extensive comments on this 
topic. IPI cited the 2019 EPA Automotive Trends Report as showing that 
horsepower and fuel economy have both steadily improved since 2008, and 
cited EPA's finding in the Midterm Evaluation that simultaneous 
improvements in fuel economy and other vehicle attributes likely 
indicates that any historical trade-off between the two is far less 
likely to be present in the context of advanced vehicle engines. IPI 
also stated that many technologies that improve fuel economy also 
improve other vehicle attributes, and those benefits would offset any 
opportunity costs. Further, IPI stated that:

Economic research has long recognized the various implicit subsidies 
and externalities

[[Page 25888]]

imposed on society by vehicles. These include: Accidents, road 
congestion, road and parking construction and maintenance costs, the 
space used for parking, and pollution. Drivers with higher 
horsepower vehicles are much more likely to speed--by 10 miles per 
hour or more--increasing the risk of accidents, damages, and 
fatalities. Vehicles with features that allow faster acceleration 
also cause a greater number of and more consequential accidents. 
Vehicles with internal combustion engines are more dangerous than 
those with electric engines due to the latter's additional crumple 
space. Heavier vehicles also increase the cost of road maintenance 
and repair. Vehicles with greater acceleration also may be driven in 
ways that consume more fuel and so emit more pollution. And as 
discussed below, certain status features like horsepower impose 
negative positional externalities on other drivers.\730\
---------------------------------------------------------------------------

    \730\ IPI, Docket No. NHTSA-2021-0053-1579-A1, at 22.

    IPI further states that these negative externalities associated 
with other vehicle attributes would also offset opportunity costs 
associated with reduced deployment of these attributes where valued by 
consumers.
    CFA commented that the agency should include a $.90 macroeconomic 
stimulus for every dollar of net reduction in driving expenses.\731\ 
CFA did not provide any details or support for their claim, nor did it 
describe how to handle factors like up-front costs. We find CFA's 
argument without support.
---------------------------------------------------------------------------

    \731\ CFA, Docket No. NHTSA-2021-0053-1535, at 5.
---------------------------------------------------------------------------

    A number of commenters argued that the agency should include the 
ancillary costs of electric vehicles, such as building additional 
charging stations,\732\ improving the grid,\733\ and potential tax 
credits given to individuals that purchase electric vehicles.\734\ As 
noted elsewhere in this rule and within many of the same comments, many 
of these issues are already being addressed by government at the 
Federal and state-level. Counting those costs here would be duplicative 
to include those costs in this rulemaking.
---------------------------------------------------------------------------

    \732\ See, e.g., NATSO and SIGMA, NHTSA-2021-0053-1570, at 10.
    \733\ Walter Kreucher, NHTSA-2021-0053-0013, at 14.
    \734\ Id. At 14.
---------------------------------------------------------------------------

H. Simulating Safety Effects of Regulatory Alternatives

    The primary objective of CAFE standards is to achieve maximum 
feasible fuel economy, thereby reducing fuel consumption. In setting 
standards to achieve this intended effect, the potential of the 
standards to affect vehicle safety is also considered. As a safety 
agency, we have long considered the potential for adverse safety 
consequences when establishing CAFE standards.
    This safety analysis includes the comprehensive measure of safety 
impacts from three factors:

    1. Changes in Vehicle Mass. Similar to previous analyses, we 
calculate the safety impact of changes in vehicle mass made to 
reduce fuel consumption and comply with the standards. Statistical 
analysis of historical crash data indicates reducing mass in heavier 
vehicles generally improves safety, while reducing mass in lighter 
vehicles generally reduces safety. Our crash simulation modeling of 
vehicle design concepts for reducing mass revealed similar effects. 
These observations align with the role of mass disparity in crashes; 
when vehicles of different masses collide, the smaller vehicle will 
experience a larger change in velocity (and, by extension, force), 
which increases the risk to its occupants. As discussed below, in 
our analysis, any effect of changes in mass on vehicle safety was 
not sufficiently precisely estimated to distinguish it from zero 
statistically.
    2. Impacts of Vehicle Prices on Fleet Turnover. Vehicles have 
become safer over time through a combination of new safety 
regulations and voluntary safety improvements. We expect this trend 
to continue as emerging technologies, such as advanced driver 
assistance systems, are incorporated into new vehicles. Safety 
improvements will likely continue regardless of changes to CAFE 
standards. As discussed in Section III.E.2, technologies added to 
comply with fuel economy standards have an impact on vehicle prices, 
therefore slowing the acquisition of newer vehicles and retirement 
of older ones. The delay in fleet turnover caused by the effect of 
new vehicle prices affects safety by slowing the penetration of new 
safety technologies into the fleet.
    The standards also influence the composition of the light-duty 
fleet. As the safety provided by light trucks, SUVs and passenger 
cars responds differently to technology that manufacturers employ to 
meet the standards--particularly mass reduction--fleets with 
different compositions of body styles will have varying numbers of 
fatalities, so changing the share of each type of light-duty vehicle 
in the projected future fleet impacts safety outcomes.
    3. Increased driving because of better fuel economy. The 
``rebound effect'' predicts consumers will drive more when the cost 
of driving declines. More stringent standards reduce vehicle 
operating costs, and in response, some consumers may choose to drive 
more. Additional driving increases exposure to risks associated with 
motor vehicle travel, and this added exposure translates into higher 
fatalities and injuries.

    The contributions of the three factors described above generate the 
differences in safety outcomes among regulatory alternatives.\735\ Our 
analysis makes extensive efforts to allocate the differences in safety 
outcomes between the three factors. Fatalities expected during future 
years under each alternative are projected by deriving a fleet-wide 
fatality rate (fatalities per vehicle mile of travel) that incorporates 
the effects of differences in each of the three factors from baseline 
conditions and multiplying it by that alternative's expected VMT. 
Fatalities are converted into a societal cost by multiplying fatalities 
with the DOT-recommended value of a statistical life (VSL) supplemented 
by economic impacts that are external to VSL measurements. Traffic 
injuries and property damage are also modeled directly using the same 
process and valued using costs that are specific to each injury 
severity level.
---------------------------------------------------------------------------

    \735\ The terms safety performance and safety outcome are 
related but represent different concepts. When we use the term 
safety performance, we are discussing the intrinsic safety of a 
vehicle based on its design and features, while safety outcome is 
used to describe whether a vehicle has been involved in an accident 
and the severity of the accident. While safety performance 
influences safety outcomes, other factors such as environmental and 
behavioral characteristics also play a significant role.
---------------------------------------------------------------------------

    All three factors influence predicted fatalities, but only two of 
them--changes in vehicle mass and in the composition of the light-duty 
fleet in response to changes in vehicle prices--impose increased risks 
on drivers and passengers that are not compensated for by accompanying 
benefits. In contrast, increased driving associated with the rebound 
effect is a consumer choice that reveals the benefit of additional 
travel. Consumers who choose to drive more have apparently concluded 
that the utility of additional driving exceeds the additional costs for 
doing so, including the crash risk that they perceive additional 
driving involves. As discussed in Chapter 7 of the accompanying TSD, 
the benefits of rebound driving are accounted for by offsetting a 
portion of the added safety costs.
    We categorize safety outcome through three measures of light-duty 
vehicle safety: Fatalities to occupants occurring in crashes, serious 
injuries sustained by occupants, and the number of vehicles involved in 
crashes that cause property damage but no injuries. Counts of 
fatalities to occupants of automobiles and light trucks are obtained 
from the Fatal Accident Reporting System (FARS). Estimates of the 
number of serious injuries to drivers and passengers of light-duty 
vehicles are tabulated from the General Estimates System (GES), an 
annual sampling of motor vehicle crashes occurring throughout the U.S. 
Weights for different types of crashes were used to expand the samples 
of each type to

[[Page 25889]]

estimates of the total number of crashes occurring during each year. 
Finally, estimates of the number of automobiles and light trucks 
involved in property damage-only (PDO) crashes each year were also 
developed using GES.
1. Changes in Vehicle Mass
    Similar to previous analyses, we calculate the safety impact of 
changes in vehicle mass made to reduce fuel consumption and comply with 
the standards. While reduction in mass should have a beneficial safety 
effect overall by reducing average fleet mass, a statistical analysis 
of historical crash data indicates that reducing mass in heavier 
vehicles generally improves safety, while reducing mass in lighter 
vehicles generally reduces safety. Our crash simulation modeling of 
vehicle design concepts for reducing mass revealed similar effects. 
These observations align with the role of mass disparity in crashes: 
When vehicles of different masses collide, the smaller vehicle will 
experience a larger change in velocity (and, by extension, force), 
which increases the risk to its occupants. As discussed below, while 
NHTSA's current analysis did not find a statistically significant 
relationship between mass and safety, it did find results that are 
directionally consistent with previous NHTSA and other studies, 
illustrating a common pattern across all studies is that changes in 
mass disparity are associated with changes in motor vehicle safety: 
Increased disparity increases fatality risk, while decreased disparity 
decreases risk. The historical relationship may be changing, however, 
and merits ongoing study, which NHTSA is pursuing.
2. Mass Reduction Impacts
    Vehicle mass reduction can be one of the more cost-effective means 
of improving fuel economy, particularly for makes and models not 
already built with much high-strength steel or aluminum closures or 
low-mass components. Manufacturers have stated that they will continue 
to reduce vehicle mass to meet more stringent standards, and therefore, 
this expectation is incorporated into the modeling analysis supporting 
the standards. Safety trade-offs associated with mass-reduction have 
occurred in the past, particularly before CAFE standards were 
attribute-based; past safety trade-offs may have occurred because 
manufacturers chose at the time, in response to CAFE standards, to 
build smaller and lighter vehicles. In cases where fuel economy 
improvements were achieved through reductions in vehicle size and mass, 
the smaller, lighter vehicles did not fare as well in crashes as 
larger, heavier vehicles, on average. We now, however, use attribute-
based standards, in part to reduce or eliminate the incentive to 
downsize vehicles to comply with CAFE standards, but we must continue 
to be mindful of the possibility of related safety trade-offs.
    For this final rule, we employed the modeling technique developed 
in the 2016 Puckett and Kindelberger report to analyze the updated 
crash and exposure data by examining the cross sections of the societal 
fatality rate per billion vehicle miles of travel (VMT) by mass and 
footprint, while controlling for driver age, gender, and other factors, 
in separate logistic regressions for five vehicle groups and nine crash 
types.\736\ We utilized the relationships between weight and safety 
from this analysis, expressed as percentage increases in fatalities per 
100-pound weight reduction (which is how mass reduction is applied in 
the technology analysis; see Section III.D.4, to examine the weight 
impacts applied in this CAFE analysis. The effects of mass reduction on 
safety were estimated relative to (incremental to) the regulatory 
baseline in the CAFE analysis, across all vehicles for MY 2021 and 
beyond.
---------------------------------------------------------------------------

    \736\ Puckett, S.M. and Kindelberger, J.C. (2016, June). 
Relationships between Fatality Risk, Mass, and Footprint in Model 
Year 2003-2010 Passenger Cars and LTVs--Preliminary Report. (Docket 
No. 2016-0068). Washington, DC: National Highway Traffic Safety 
Administration.
---------------------------------------------------------------------------

    In computing the impact of changes in mass on safety, we are faced 
with competing challenges. Research has consistently shown that mass 
reduction affects ``lighter'' and ``heavier'' vehicles differently 
across crash types. The 2016 Puckett and Kindelberger report found mass 
reduction concentrated among the heaviest vehicles is likely to have a 
beneficial effect on overall societal fatalities, while mass reduction 
concentrated among the lightest vehicles is likely to have a 
detrimental effect on fatalities. This represents a relationship 
between the dispersion of mass across vehicles in the fleet and 
societal fatalities: Decreasing dispersion is associated with a 
decrease in fatalities. Mass reduction in heavier vehicles is more 
beneficial to the occupants of lighter vehicles than it is harmful to 
the occupants of the heavier vehicles. Mass reduction in lighter 
vehicles is more harmful to the occupants of lighter vehicles than it 
is beneficial to the occupants of the heavier vehicles.
    To accurately capture the differing effect on lighter and heavier 
vehicles, we split vehicles into lighter and heavier vehicle 
classifications in the analysis. However, this poses a challenge of 
producing statistically meaningful results. There are limited relevant 
crash data to use for the analysis. Each partition of the data reduces 
the number of observations per vehicle classification and crash type, 
and thus reduces the statistical robustness of the results. The 
methodology we employed was designed to balance these competing forces 
as an optimal trade-off to accurately capture the impact of mass-
reduction across vehicle curb weights and crash types while preserving 
the potential to identify robust estimates.
    The boundary between ``lighter'' and ``heavier'' cars is 3,201 
pounds (which is the median mass of MY 2004-2011 cars in fatal crashes 
in CY 2006-2012, up from 3,106 pounds for MY 2000-2007 cars in CY 2002-
2008 in the 2012 NHTSA safety database, and up from 3,197 pounds for MY 
2003-2010 cars in CY 2005-2011 in the 2016 NHTSA safety database). 
Likewise, for truck-based LTVs, curb weight is a two-piece linear 
variable with the boundary at 5,014 pounds (again, the MY 2004-2011 
median, higher than the median of 4,594 pounds for MY 2000-2007 LTVs in 
CY 2002-2008 and the median of 4,947 pounds for MY 2003-2010 LTVs in CY 
2005-2011). CUVs and minivans are grouped together in a single group 
covering all curb weights of those vehicles; as a result, curb weight 
is formulated as a simple linear variable for CUVs and minivans. 
Historically, CUVs and minivans have accounted for a relatively small 
share of new-vehicle sales over the range of the data, resulting in 
fewer crash data available than for cars or truck-based LTVs. In sum, 
vehicles are distributed into five groups by class and curb weights: 
Passenger cars <3,201 pounds; passenger cars 3,201 pounds or greater; 
truck-based LTVs <5,014 pounds; truck-based LTVs 5,014 pounds or 
greater; and all CUVs and minivans.
    Table III-39 presents the estimated percent increase in U.S. 
societal fatality risk per ten billion VMT for each 100-pound reduction 
in vehicle mass, while holding footprint constant, for each of the five 
vehicle classes.

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[GRAPHIC] [TIFF OMITTED] TR02MY22.107

    Techniques developed in the 2011 (preliminary) and 2012 (final) 
Kahane reports have been retained to test statistical significance and 
to estimate 95 percent confidence bounds (sampling error) for mass 
effects and to estimate the combined annual effect of removing 100 
pounds of mass from every vehicle (or of removing different amounts of 
mass from the various classes of vehicles), while holding footprint 
constant. Confidence bounds estimate only the sampling error internal 
to the data used in the specific analysis that generated the point 
estimate. Point estimates are also sensitive to the modification of 
components of the analysis, as discussed at the end of this section. 
However, this degree of uncertainty is methodological in nature rather 
than statistical.
    None of the estimated effects has 95-percent confidence bounds that 
exclude zero, and thus are not statistically significant at the 95-
percent confidence level. We have evaluated these results and provided 
them for the purposes of transparency. Sensitivity analyses have 
confirmed that the exclusion of these statistically insignificant 
results would not affect our policy determination, because the net 
effects of mass reduction on safety costs are small relative to 
predominant estimated benefit and cost impacts. Among the estimated 
effects, the most important effects of mass reduction are, as expected, 
concentrated among the lightest and heaviest vehicles. Societal 
fatality risk is estimated to: (1) Increase by 1.2 percent if mass is 
reduced by 100 pounds in the lighter cars; and (2) decrease by 0.61 
percent if mass is reduced by 100 pounds in the heavier truck-based 
LTVs. These estimates align with the predominant view regarding the 
relationship between mass disparity in the vehicle fleet and societal 
fatalities: All else being equal, making the heaviest vehicles lighter 
(i.e., reducing mass disparity in the fleet) will reduce societal 
fatalities, while making the lightest vehicles lighter (i.e., 
increasing mass disparity) will increase societal fatalities. IPI 
commented that we ``should give additional weight to externalities such 
as pedestrian fatalities and the impact of increased weight 
distribution between vehicles.'' \737\ Pedestrian fatalities are 
weighted within the above analysis directly proportional to their 
frequency among all societal fatalities involving light-duty vehicles. 
Any change to the weighting of pedestrian fatalities would thus involve 
valuing the societal cost of a pedestrian fatality as being worth a 
different amount from other fatalities involving light-duty vehicle 
crashes. IPI did not provide a basis to support their proposal to value 
fatalities based on occupancy status differently. We are confident that 
the current (and historical) specification of relationships among 
vehicle curb weights and societal fatality risk represents the role of 
mass disparity in societal fatality risk appropriately, by scaling 
societal fatality risk as a positive function of mass disparity through 
the intuitive coefficients for the lightest and heaviest vehicles (and 
through muted coefficients for vehicles with mass closer to the 
median).
---------------------------------------------------------------------------

    \737\ IPI, Docket No. NHTSA-2021-0053-1579, at 3, 22.
---------------------------------------------------------------------------

    The ACC commented that groups including NAS/NASEM have noted that 
future improvements in vehicle design could weaken the relationship 
between mass disparity and societal fatality rates over time.\738\ We 
acknowledge this view, and remain confident that our approach is the 
best available representation of the relationship between mass 
disparity and societal fatality rates subject to the data available for 
analysis, and note again that in our analysis, any effect of changes in 
mass on vehicle safety was not sufficiently precisely estimated to 
distinguish it from zero at all standard confidence levels used in the 
scientific literature.
---------------------------------------------------------------------------

    \738\ ACC, Docket No. NHTSA-2021-0053-1564-A1, at 7.
---------------------------------------------------------------------------

    Multiple commenters proposed that, due to the limited statistical 
significance of the estimates, it would be more appropriate to assume 
that changes in vehicle mass in response to CAFE standards will have no 
effect on societal fatalities.\739\ NHTSA's current analysis did not 
find a statistically significant relationship between mass and safety. 
This may reflect the effects of a decreased sample size (the current 
study was based on 32 percent fewer fatal cases than the Kahane 2012 
study), as well as possible mitigating effects from newer safety 
technologies or vehicle designs. While not finding statistical 
significance, NHTSA's current study did find results that are 
directionally consistent with previous NHTSA studies and a fleet 
simulation study by George Washington University.\740\ The common 
pattern across all studies is that changes in mass disparity are 
associated with changes in motor vehicle safety: Increased disparity 
increases fatality risk, while decreased disparity decreases risk. The 
agency will

[[Page 25891]]

continue to conduct research on the effects of mass disparity on 
vehicle safety in an effort to identify the impacts of evolving vehicle 
fleets.
---------------------------------------------------------------------------

    \739\ IPI, at 30-1; Consumer Reports, Docket No. NHTSA-2021-
0053-1576, Appendix 9, at 17-8; CARB, Docket No. NHTSA-2021-0053-
1537, Appendix 11, at 269; CBD et al., Docket No. NHTSA-2021-0053-
1572, Appendix 2, at 20; CBD et al., Appendix 1, at 4.
    \740\ In response to questions of whether designs and materials 
of more recent model year vehicles may have weakened the historical 
statistical relationship between mass, size, and safety, NHTSA 
updated its public database for statistical analysis consisting of 
crash data. The database incorporates the full range of real-world 
crash types. NHTSA also sponsored a study conducted by George 
Washington University to develop a fleet simulation model and study 
the impact and relationship of light-weighted vehicle design with 
crash injuries and fatalities. That study is discussed in detail in 
Chapter 7.1.5 of the TSD. The study focused on vehicles from MY 2001 
to MY 2011, as discussed in the TSD, and found results that are 
directionally consistent with NHTSA's statistical analyses of 
vehicle mass and fatality risk.
---------------------------------------------------------------------------

    We have assessed whether the inclusion of these results would 
affect the overall analysis. Because the impacts are very small, we 
concluded that it does not have a significant effect on the analysis or 
any effect on the choice of standards. Given this conclusion, we 
maintain that it is reasonable for the analysis to use the best 
available estimates of the impacts of mass reduction that results from 
changes in mass disparities on crash fatalities, even if the estimates 
are not statistically significant at the 95-percent confidence level. 
The estimated statistical significance is limited, but the results 
offer some evidence that the relevant point estimates are meaningfully 
different from zero (e.g., approximately five to six times more likely 
to be non-zero than zero). They are also consistent with a time series 
of estimates that represent a relationship that is consistent with 
predominant views regarding mass disparity. We believe it would be 
inappropriate to ignore these data or to use values of zero for the 
rulemaking analysis. Specifically, negative point estimates for heavier 
LTVs and positive point estimates for lighter passenger cars have been 
found consistently across prior rulemakings. Smaller estimates 
corresponding to vehicles near the median of the fleet curb weight 
distribution are likely to be less informative due to both statistical 
(i.e., small coefficients are less likely to be statistically 
significant for a given level of sampling error) and physical (i.e., a 
given change in mass will have a smaller effect on societal fatalities 
for vehicles near the median mass) concerns.
    An additional factor supporting continuing to quantify the safety 
impacts related to changes in mass is the sensitivity analysis 
including passenger cars with AWD summarized below; when including cars 
with AWD, the estimated coefficients are likewise consistent with 
previous NHTSA analyses and have statistical significance near the 95-
percent confidence level. Chapter 5 of the FRIA discusses four 
sensitivity analyses that were presented for public comment in the 
NPRM. We did not identify any comments on the alternative approaches; 
in turn, we will defer the decision whether to incorporate the results 
into the CAFE Model to subsequent rulemakings. The relevant alternative 
with respect to statistical significance centers on aligning passenger 
cars with the rest of the sample by including cars that are equipped 
with AWD. In previous analyses, passenger cars with AWD were excluded 
from the analysis because they represented a sufficiently low share of 
the vehicle fleet that statistical relationships between AWD status and 
societal fatality risk were highly prone to being conflated with other 
factors associated with AWD status (e.g., location, luxury vehicle 
status). However, the share of AWD passenger cars in the fleet has 
grown. Approximately one-quarter of the passenger cars in the database 
have AWD, compared to an approximately five-percent share in the MY 
2000-2007 database. Furthermore, all other vehicle types in the 
analysis include AWD as an explanatory variable. Thus, we find 
expanding the sample size to include a considerable portion of the 
real-world fleet (i.e., passenger cars with AWD) to be a meaningful 
consideration.
    Including passenger cars with AWD in the analysis has little effect 
on the point estimate for lighter passenger cars (increase in societal 
fatality rates of approximately 1.1 percent per 100-pound mass 
reduction, versus 1.2 percent in the central analysis). However, this 
revision has a strong effect on the point estimate for heavier 
passenger cars (increase in societal fatality rates of between 0.84 and 
0.89 percent per 100-pound mass reduction, versus 0.42 percent in the 
central analysis). This result supports a hypothesis that, after taking 
AWD status into account, mass reduction in heavier passenger cars is a 
more important driver of societal fatality rates than previously 
estimated. Although this result could be spurious, estimated 95-percent 
confidence bounds (from -0.57 to 2.80 percent for lighter passenger 
cars, and from -0.14 to 1.82 percent for heavier passenger cars for the 
CYs evaluated in the sensitivity analysis) indicate that accounting for 
AWD status reduces uncertainty in the point estimate.
    A more detailed description of the mass-safety analysis can be 
found in Chapter 7 of the accompanying TSD.
3. Sales/Scrappage Impacts
    The sales and scrappage responses to higher vehicle prices 
discussed in Section III.E.2 have important safety consequences and 
influence safety through the same basic mechanism, fleet turnover. In 
the case of the scrappage response, delaying fleet turnover keeps 
drivers in older vehicles which tend to be less safe than newer 
vehicles.\741\ Similarly, the sales response slows the rate at which 
newer vehicles, and their associated safety improvements, enter the on-
road population. The sales response also influences the mix of vehicles 
on the road--with more stringent CAFE standards leading to a higher 
share of light trucks sold in the new vehicle market, assuming all else 
is equal. This occurs because there is diminishing value to marginal 
improvements in fuel economy (there are fewer gallons to be saved), and 
as the difference in consumption between light trucks and passenger 
cars diminishes, the other attributes of the trucks will likely lead to 
increases in their market share--especially under lower gas prices. 
Light trucks have higher rates of fatal crashes when interacting with 
passenger cars and, as earlier discussed, different directional 
responses to mass reduction technology based on the existing mass and 
body style of the vehicle.
---------------------------------------------------------------------------

    \741\ See Passenger Vehicle Occupant Injury Severity by Vehicle 
Age and Model Year in Fatal Crashes, Traffic Safety Facts Research 
Note, DOT-HS-812-528, National Highway Traffic Safety 
Administration, April 2018, and The Relationship Between Passenger 
Vehicle Occupant Injury Outcomes and Vehicle Age or Model Year in 
Police-Reported Crashes, Traffic Safety Facts Research Note, DOT-HS-
812-937, National Highway Traffic Safety Administration, March, 
2020.
---------------------------------------------------------------------------

    Any effects on fleet turnover (either from delayed vehicle 
retirement or deferred sales of new vehicles) will affect the 
distribution of both ages and model years present in the on-road fleet. 
Because each of these vintages carries with it inherent rates of fatal 
crashes, and newer vintages are generally safer than older ones, 
changing that distribution will change the total number of on-road 
fatalities under each regulatory alternative. Similarly, the dynamic 
fleet share model captures the changes in the fleet's composition of 
cars and trucks. As cars and trucks have different fatality rates, 
differences in fleet composition across the alternatives will affect 
fatalities.
    At the highest level, the agency calculates the impact of the sales 
and scrappage effects by multiplying the VMT of a vehicle by the 
fatality risk of that vehicle. For this analysis, calculating VMT is 
rather simple: The agency uses the distribution of miles calculated in 
TSD Chapter 4.3. The trickier aspect of the analysis is creating 
fatality rate coefficients. The fatality risk measures the likelihood 
that a vehicle will be involved in a fatal accident per mile driven. 
The agency calculates the fatality risk of a vehicle based on the 
vehicle's model year, age, and style, while controlling for factors 
which are

[[Page 25892]]

independent of the intrinsic nature of the vehicle, such as behavioral 
characteristics. Using this same approach, the agency designed separate 
models for fatalities, non-fatal injuries, and property damaged 
vehicles.
    The fatality risk projections described above capture the 
historical evolution of safety. Given that modern technologies are 
proliferating faster than ever and offer greater safety benefits than 
traditional safety improvements, the agency augmented the fatality risk 
projections with knowledge about forthcoming safety improvements. The 
agency applied detailed empirical estimates of the market uptake and 
improving effectiveness of crash avoidance technologies to estimate 
their effect on the fleet-wide fatality rate, including explicitly 
incorporating both the direct effect of those technologies on the crash 
involvement rates of new vehicles equipped with them, as well as the 
``spillover'' effect of those technologies on improving the safety of 
occupants of vehicles that are not equipped with these 
technologies.\742\
---------------------------------------------------------------------------

    \742\ These technologies included Forward Collision Warning 
(FCW), Crash Imminent Braking (CIB), Dynamic Brake Support (DBS), 
Pedestrian AEB (PAEB), Rear Automatic Braking, Semi-automatic 
Headlamp Beam Switching, Lane Departure Warning (LDW), Lane Keep 
Assist (LKA), and Blind Spot Detection (BSD). While Autonomous 
vehicles offer the possibility of significantly reducing or 
eventually even eliminating the effect of human error in crash 
causation, a contributing factor in roughly 94 percent of all 
crashes, there is insufficient information and certainty regarding 
autonomous vehicles eventual impact to include them in this 
analysis.
---------------------------------------------------------------------------

    The agency's approach to measuring these impacts is to derive 
effectiveness rates for these advanced crash-avoidance technologies 
from safety technology literature. The agency then applies these 
effectiveness rates to specific crash target populations for which the 
crash avoidance technology is designed to mitigate and adjusted to 
reflect the current pace of adoption of the technology, including the 
public commitment by manufactures to install these technologies. The 
products of these factors, combined across all 6 advanced technologies, 
produce a fatality rate reduction percentage that is applied to the 
fatality rate trend model discussed above, which projects both vehicle 
and non-vehicle safety trends. The combined model produces a projection 
of impacts of changes in vehicle safety technology as well as 
behavioral and infrastructural trends. A much more detailed discussion 
of the methods and inputs used to make these projections of safety 
impacts from advanced technologies is included in Chapter 7 of the 
accompanying TSD.
    Securing America's Future Energy commented that our analysis should 
account for improvements in safety over time as crash-avoidance 
technologies become more prevalent in the vehicle fleet.\743\ We agree 
with this approach, and have accounted for this expected effect in this 
and the previous rulemaking by projecting baseline fatality and injury 
rates to decrease as a function of the adoption of crash-avoidance 
technologies.
---------------------------------------------------------------------------

    \743\ Securing America's Future Energy, Docket No. NHTSA-2021-
0053-1513-A1, at 14-15.
---------------------------------------------------------------------------

4. Rebound Effect Impacts
    The additional VMT resulting from the rebound effect is accompanied 
by more exposure to risk, though rebound miles are not imposed on 
consumers by regulation. They are a freely chosen activity resulting 
from reduced vehicle operational costs and reflect the perceived 
benefit of additional travel. Consumers who choose to drive more have 
concluded that the utility of additional driving exceeds the additional 
costs for doing so, including the crash risk that they perceive 
additional driving involves. As such, we believe a large portion of the 
safety risks associated with additional driving are offset by the 
benefits drivers gain from added driving. The level of risk 
internalized by drivers is uncertain. This analysis assumes that 
consumers internalize 90 percent of this risk, which mostly offsets the 
societal impact of any added fatalities from this voluntary consumer 
choice. A more detailed discussion of the rebound effect is contained 
in TSD Chapter 7.4.
5. Value of Safety Impacts
    Fatalities, nonfatal injuries, and property damage crashes are 
valued as a societal cost within the CAFE Model's cost and benefit 
accounting. Their value is based on the comprehensive value of a 
fatality, which includes lost quality of life and is quantified in the 
value of a statistical life (VSL) as well as economic consequences such 
as medical and emergency care, insurance administrative costs, legal 
costs, and other economic impacts not captured in the VSL alone. These 
values were derived from data in Blincoe et al. (2015), adjusted to 
2018 dollars, and updated to reflect the official DOT guidance on the 
value of a statistical life. Nonfatal injury costs, which differ by 
severity, were weighted according to the relative incidence of injuries 
across the Abbreviated Injury Scale (AIS). To determine this incidence, 
the agency applied a KABCO/MAIS translator to GES KABCO based injury 
counts from 2010 through 2015. This produced the MAIS based injury 
profile. This profile was used to weight nonfatal injury unit costs 
derived from Blincoe et al., adjusted to 2018 economics and updated to 
reflect the official DOT guidance on the value of a statistical life. 
Property-damaged vehicle costs were also taken from Blincoe et al. and 
adjusted to 2018 economics. VSL does not affect property damage. This 
gives societal values of $10.8 million for each fatality, $132,000 for 
each nonfatal injury, and $7,100 for each property damaged vehicle.
    Multiple commenters proposed that we should focus on how the policy 
alternatives affect fatality rates rather than total fatalities, 
reflecting concerns that fatalities occurring in incremental travel due 
to improved fuel economy (i.e., the rebound effect) should not be 
represented as a safety impact associated with a given change in fuel 
economy standards.\744\ As discussed above, we agree that consumers who 
choose to drive more are doing so because they value the benefit of 
increased driving more than the associated costs. We also agree that 
effects on the fatality rate is a useful method for assessing a policy 
change. However, the numerical projection of changes to fatalities is 
needed for the purpose of conducting a cost-benefit analysis and 
Circular A-4. As summarized above, we have already acknowledged the 
differential roles of direct changes in safety (i.e., changes in 
fatality rates that are independent of the volume of incremental VMT) 
and changes in safety outcomes (i.e., changes in fatalities influenced 
by incremental VMT) by offsetting 90 percent of the safety costs 
associated with rebound VMT.
---------------------------------------------------------------------------

    \744\ Office of the California Attorney General, et al., Docket 
No. NHTSA-2021-0053-1499, at 2-3; CBD et al., Docket No. NHTSA-2021-
0053-1572, at 3.
    \745\ Walter Kreucher, Docket No. NHTSA-2021-0053-0015, at 9.
---------------------------------------------------------------------------

    Walter Kreucher commented broadly on EV battery safety, mentioning 
vehicle recalls due to battery fire risks and Tesla's BEV fire 
mitigation guidelines.\745\ Mr. Kreucher did not address whether he 
felt this was an issue that warranted inclusion in our analysis, nor 
did he offer any empirical research concerning the potential fire risk 
of BEVs. Conversely, Tesla commented that BEVs are safer than their ICE 
counterparts and will improve safety because of ``[t]he basic 
characteristics of EV design, including small or no motors in front, 
large crush space for energy absorption, lack of combustible fuel, and 
low centered

[[Page 25893]]

batteries that result in extremely low center of gravity and nearly 
perfect weight distribution.'' \746\ Tesla did not provide any 
empirical or engineering research to support its claim.
---------------------------------------------------------------------------

    \746\ Tesla, Docket No. NHTSA-2021-0053-1480-A1, at 10.
---------------------------------------------------------------------------

    While it may be true that the safety risks associated with BEVs and 
ICE vehicles are different, at this point we lack empirical evidence in 
the record that one technology is safer. Furthermore, there is an 
insufficient sample size of crashes involving BEVs in our database to 
identify differences in safety effects. As such, we treat the different 
powertrain technologies equally for the purposes of CAFE. We recognize 
that commenters' concerns are relevant and note that NHTSA is 
establishing a Battery Safety Initiative.\747\ This effort will 
continue to collect and analyze data, perform research, develop 
standards and guidelines, and work with other Federal partners to 
investigate and understand causes of fire due to safety defect. NHTSA 
is conducting research on high-voltage battery safety, including 
expanded research into battery prognostics and diagnostics systems that 
can detect issues before fires begin. At the same time, NHTSA is 
working closely with industry, EMS groups, and other government 
agencies to enhance battery safety during a crash and develop best 
practices for emergency responders.
---------------------------------------------------------------------------

    \747\ https://www.nhtsa.gov/battery-safety-initiative#research.
---------------------------------------------------------------------------

6. Impacts of the Final Standards on Safety
    Table III-40 through Table III-42 summarize the projected impacts 
of the standards on safety broken down by factor. These impacts are 
summarized over the lifetimes of MY 1981 through 2029 vehicles for all 
light passenger vehicles (including passenger cars and light trucks). 
Economic impacts are shown separately under both 3 and 7 percent 
discount rates. Model years 1981 through 2029 were examined because 
they represent the model years that might be affected by shifts in 
fleet composition due to the impact of higher new vehicle prices on 
sales of new vehicles and retention of older vehicles. Earlier years 
will be affected by slower scrappage rates and we expect the impacts of 
these standards will be fully realized in vehicle designs by MY 2029. 
We note again that the results described below for mass changes are 
based on a statistical analysis of the relationship between changes in 
mass and safety that could not be estimated with sufficient precision 
to distinguish it from zero at standard confidence levels used in the 
scientific literature. As such, the fatality numbers presented below 
could in reality be zero, or negative.
BILLING CODE 4910-59-P

[[Page 25894]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.108


[[Page 25895]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.109

[GRAPHIC] [TIFF OMITTED] TR02MY22.110


[[Page 25896]]


    As seen in the tables, all three safety factors--changes in mass, 
fleet turnover, and rebound--increase as the standards become more 
stringent. As expected, rebound fatalities grow at a constant rate as 
vehicles become more fuel efficient and are used more frequently. Mass 
reduction has a relatively minimal impact on safety. This may point to 
the fleet becoming more homogeneous and hence less mass disparate in 
crashes, or the use of new materials in vehicle construction. 
Alternatively, the model may be capturing that there is little room for 
more mass reductions in particular models. The slowing of fleet 
turnover due to higher vehicle prices has the largest impact of the 
three factors on fatalities.
    FRIA Chapter 5.6 discusses the results of the analysis in more 
detail and FRIA Chapter 5.7 provides an overview of sensitivity 
analyses performed to isolate the uncertainty parameters of each of the 
three safety impacts.

IV. Regulatory Alternatives Considered in This Final Rule

A. Basis for Alternatives Considered

    Agencies typically consider regulatory alternatives as a way of 
evaluating the comparative effects of different potential ways of 
accomplishing their desired goal. NEPA requires agencies to compare the 
potential environmental impacts of their actions to those of a 
reasonable range of alternatives. Executive Orders 12866 and 13563, as 
well as OMB Circular A-4, also request that agencies to evaluate 
regulatory alternatives in their rulemaking analyses.
    Alternatives analysis begins with a ``No-Action'' Alternative, 
typically described as what would occur in the absence of any 
regulatory action. This notice includes a No-Action Alternative, 
described below, and four ``action alternatives.'' The new standards 
may, in places, be referred to as the ``Preferred Alternative,'' which 
is NEPA parlance, but NHTSA intends ``new standards,'' ``final 
standards,'' and ``Preferred Alternative'' to be used interchangeably 
for purposes of this rulemaking.
    Regulations regarding implementation of NEPA require agencies to 
``rigorously explore and objectively evaluate all reasonable 
alternatives, and for alternatives which were eliminated from detailed 
study, briefly discuss the reasons for their having been eliminated.'' 
This does not amount to a requirement that agencies evaluate the widest 
conceivable spectrum of alternatives. Rather, the range of alternatives 
must be reasonable and consistent with the purpose and need of the 
action.
    The different regulatory alternatives are defined in terms of 
percent-increases in CAFE stringency from year to year. Readers should 
recognize that those year-over-year changes in stringency are not 
measured in terms of mile per gallon differences (as in, 1 percent more 
stringent than 30 miles per gallon in one year equals 30.3 miles per 
gallon in the following year), but rather in terms of shifts in the 
footprint functions that form the basis for the actual CAFE standards 
(as in, on a gallon per mile basis, the CAFE standards change by a 
given percentage from one model year to the next). The rate of change 
can be the same or different from year to year, and the rate of change 
can be different for cars and for trucks. For this final rule, NHTSA 
believes that the alternatives considered here represent a reasonable 
range of possible final agency actions.

B. Regulatory Alternatives and Final CAFE Standards for MYs 2024-2026

    The regulatory alternatives considered by the agency are presented 
here as the percent-increases-per-year that they represent. The 
sections that follow will present the alternatives as the literal 
coefficients which define standards curves increasing at the given 
percentage rates and will also further explain the basis for the 
alternatives selected.
[GRAPHIC] [TIFF OMITTED] TR02MY22.111

    As for past rulemaking analyses, NHTSA has analyzed each of the 
regulatory alternatives in a manner that estimates manufacturers' 
potential application of technology in response to the corresponding 
CAFE requirements and the estimated market demand for fuel economy, 
considering estimated fuel prices, estimated product development 
cadence, and the estimated availability, applicability, cost, and 
effectiveness of fuel-saving technologies. The analysis sometimes shows 
that specific manufacturers could increase CAFE levels beyond 
requirements in ways estimated to ``pay buyers back'' very quickly 
(i.e., within 30 months) for the corresponding additional costs to 
purchase new vehicles through avoided fuel outlays. Consistent with the 
analysis published with the 2020 final rule, this analysis shows that 
if battery costs decline as projected while fuel prices increase as 
projected, BEVs should become increasingly attractive on this basis, 
such that the modeled application of BEVs (and some other technologies) 
clearly outstrips regulatory requirements after the mid-2030s.
    The analysis accompanying the 2020 final rule presented such 
results for CAFE standards as well as--

[[Page 25897]]

separately--CO2 standards. New in this rulemaking, DOT has 
modified the CAFE Model to account for the combined effect of both CAFE 
and CO2 standards, simulating technology application 
decisions each manufacturer could possibly make when faced with both 
CAFE standards and CO2 standards (and also estimated market 
demand for fuel economy). This capacity was exercised in order to 
account for CO2 standards applicable under the baseline 
National Program (i.e., the CO2 standards in place when the current 
rulemaking was initiated). Also, for this final rule, DOT has further 
modified the CAFE Model to account for the ``Framework'' agreements 
California has reached with BMW, Ford, Honda, Volkswagen, and Volvo, 
and for the ZEV mandate that California and the ``Section 177'' states 
have adopted. The TSD elaborates on these model capabilities. Generally 
speaking, the model treats each manufacturer as applying the following 
logic when making technology decisions:
    What do I need to carry over from last year?
    What should I apply more widely in order to continue sharing (of, 
e.g., engines) across different vehicle models?
    What new PHEVs or BEVs do I need to build in order to satisfy the 
ZEV mandates?
    What further technology, if any, could I apply that would enable 
buyers to recoup additional costs within 30 months after buying new 
vehicles?
    What additional technology, if any, should I apply in order to 
respond to CAFE and CO2 standards?
    All of the regulatory alternatives considered here include, for 
passenger cars, the following coefficients defining the combination of 
baseline Federal CO2 standards and the California Framework 
Agreements.
[GRAPHIC] [TIFF OMITTED] TR02MY22.112

    Coefficients a, b, c, d, e, and f define the baseline Federal 
CO2 standards for passenger cars. Analogous to coefficients 
defining CAFE standards, coefficients a and b specify minimum and 
maximum passenger car CO2 targets in each model year. 
Coefficients c and d specify the slope and intercept of the linear 
portion of the CO2 target function, and coefficients e and f 
bound the region within which CO2 targets are defined by 
this linear form. Coefficients g, h, i, and j define the CO2 
targets applicable to BMW, Ford, Honda, Volkswagen, and Volvo, pursuant 
to the agreements these manufacturers have reached with California. 
Beyond 2026, the MY 2026 Federal standards apply to all manufacturers, 
including these five manufacturers. The coefficients shown in Table IV-
3 define the corresponding CO2 standards for light trucks.
[GRAPHIC] [TIFF OMITTED] TR02MY22.113


[[Page 25898]]


    All of the regulatory alternatives considered here also include 
NHTSA's estimates of ways each manufacturer could introduce new PHEVs 
and BEVs in response to ZEV mandates. As discussed in greater detail 
below, these estimates force the model to convert specific vehicle 
model/configurations to either a BEV200, BEV300, or BEV400 at the 
earliest estimated redesign. These ``ZEV Candidates'' define an 
incremental response to ZEV mandates (i.e., beyond PHEV and BEV 
production through MY 2020) comprise the following shares of 
manufacturers' MY 2020 production for the U.S. market as shown in Table 
IV-4.
[GRAPHIC] [TIFF OMITTED] TR02MY22.114

BILLING CODE 4910-59-C
    For example, while Tesla obviously need not introduce additional 
BEVs to comply with ZEV mandates, our analysis indicates Nissan could 
need to increase BEV offerings modestly to do so, and Mazda and some 
other manufacturers may need to do considerably more than Nissan to 
introduce new BEV offerings.
    This representation of CO2 standards and ZEV mandates 
applies equally to all regulatory alternatives, and NHTSA's analysis 
applies the CAFE Model to examine each alternative treating each 
manufacturer as responding jointly to the entire set of requirements. 
This is distinct from model application of BEVs for compliance purposes 
under the compliance simulations of the different action alternatives 
which inform decision-makers regarding potential effects of the 
standards.
    Chapter 1 of the TSD contains extensive discussion of the 
development of the No-Action Alternative and explains the reasons for 
and effect of apparent ``over-compliance'' with the No-Action 
Alternative, which reduces costs and benefits attributable to the new 
CAFE standards and other action alternatives. In the proposal preceding 
this document, NHTSA sought comment broadly on its approach to 
developing the No-Action Alternative for the final rule, and also 
specifically sought comment on whether and how to add to the No-Action 
Alternative for the final rule an estimation of GHG standards that 
California and the Section 177 states might separately enforce if 
California's waiver of CAA preemption was re-established.
    Comments were mixed regarding whether commenters agreed that it was 
appropriate for NHTSA to account for State ZEV standards as part of the 
No-Action Alternative, with state and local government commenters,\748\ 
electric vehicle manufacturers,\749\ and alternative-fueled vehicle 
organizations \750\ supporting their inclusion, and other automaker 
commenters,\751\ NADA,\752\ AVE,\753\ and Mr. Kreucher \754\ opposing 
their inclusion. NCAT, for example, stated that ``[i]t would be an 
absurd interpretation of EPCA to find that the agency should create a 
fictional baseline that does not reflect the alternative fuel vehicles 
that are already being sold and those that will be required to be sold 
under ZEV mandates and GHG emissions standards in the future, in 
particular as alternative fuel vehicles are an increasingly substantial 
part of the U.S. market.'' \755\ NCAT argued that

[[Page 25899]]

there was no conflict between the statutory prohibition in 49 U.S.C. 
32902(h) on considering the fuel economy of dedicated alternative 
fueled vehicles and the statutory requirement in 49 U.S.C. 32902(f) to 
consider ``other motor vehicle standards of the Government,'' because 
``ZEV mandates or vehicle GHG emissions standards . . . do not involve 
consideration of `fuel economy . . .' '' \756\ NCAT went so far as to 
argue that NHTSA had overstated costs for all of the regulatory 
alternatives by not including more ZEV penetration in its 
baseline.\757\ CARB, California Attorney General et al., and South 
Coast Air Quality Management District (South Coast (South Coast AQMD) 
all agreed that if EPA reinstated the waiver for California's programs 
prior to NHTSA finalizing these standards, then including those 
standards in the baseline would be reasonable. As California Attorney 
General et al. put it, ``It is plainly reasonable for an agency to 
include the preexisting legal obligations of regulated parties in No 
Action baselines, since these baselines aim to capture, as accurately 
as possible, how regulated parties would behave but for the regulatory 
changes under consideration.'' \758\ Rivian urged NHTSA to expand its 
analysis by including Minnesota, Nevada, and Virginia as additional 
``Section 177'' states.\759\ Commenters opposing NHTSA's inclusion of 
the ZEV program in the baseline generally argued that it was contrary 
to the prohibition in 49 U.S.C. 32902(h) against considering the fuel 
economy of dedicated alternative fueled vehicles in determining maximum 
feasible standards.
---------------------------------------------------------------------------

    \748\ California Attorney General et al., Docket No. NHTSA-2021-
0053-1499, at 3; CARB, Docket No. NHTSA-2021-0053-1521, at 9; South 
Coast AQMD, Docket No. NHTSA-2021-0053-1477, at 2.
    \749\ Lucid, Docket No. NHTSA-2021-0053-1584, at 5; Rivian, 
Docket No. NHTSA-2021-0053-1562, at 2; Tesla, Docket No. NHTSA-2021-
0053-1480-A1, at 8.
    \750\ NCAT, Docket No. NHTSA-2021-0053-1508, at 2, 6-7.
    \751\ Auto Innovators, Docket No. NHTSA-2021-0053-1492, at 45-
46; Stellantis, Docket No. NHTSA-2021-0053-1527, at 12; Kia, Docket 
No. NHTSA-2021-0053-1525, at 2.
    \752\ NADA, Docket No. NHTSA-2021-0053-1471, at 4-5.
    \753\ AVE, Docket No. NHTSA-2021-0053-1488-A1, at 5.
    \754\ Walt Kreucher, Docket No. NHTSA-2021-0053-0013, at 3.
    \755\ NCAT, at 2.
    \756\ Id.
    \757\ Id., at 8.
    \758\ California State Attorney General et al., at 3.
    \759\ Rivian, at 2.
---------------------------------------------------------------------------

    NHTSA has kept the ZEV program in the No-Action Alternative for the 
analysis supporting this final rule. We disagree with comments from 
Auto Innovators and others that 32902(h) prohibits inclusion of ZEVs in 
the analytical baseline. Section 32902(h) states that in setting 
standards, including ``[w]hen deciding maximum feasible fuel economy,'' 
NHTSA ``may not consider the fuel economy of dedicated automobiles.'' 
The baseline is supposed to reflect the world in the absence of further 
CAFE standards. The baseline is not itself the decision on what 
standards are maximum feasible. Auto Innovators also commented that if 
NHTSA relied on the ``other motor vehicle standards of the Government'' 
factor as a basis for accounting for ZEV programs in its analytical 
baseline, that would violate the statutory construction rule of 
generalia specialibus non derogant (generally, a specific statutory 
provision prevails over a more general one, if in conflict). NHTSA is 
not relying on the ``other motor vehicle standards of the Government'' 
factor as a basis for accounting for ZEV programs in the baseline. 
Rather, NHTSA is including other relevant legal requirements that 
automakers will meet during the regulatory timeframe in order to 
reflect the state of the world without the CAFE standards. Unless the 
baseline accurately reflects the world without the CAFE standards, the 
regulatory analysis will not identify the effects of the CAFE 
standards. It is perfectly possible to give meaningful effect \760\ to 
the 49 U.S.C. 32902(h) prohibition by not allowing the CAFE Model to 
rely on ZEV (or other dedicated alternative fuel) technology during the 
rulemaking time frame, while still acknowledging the clear reality that 
the state ZEV programs exist, and manufacturers are complying with 
them, just like the agency acknowledges that electric vehicles exist in 
the fleet independent of the ZEV program. EPA issued a notice to 
reconsider its SAFE 1 (SAFE 1 rule; 84 FR 51310, Sept. 27, 2019) 
actions that included the waiver withdrawal of California's ZEV sales 
mandate and greenhouse gas emission standards in April 2021.\761\ EPA 
has since published its final decision regarding the reconsideration of 
its SAFE 1 actions with the result that the waiver issued in 2013 for 
the ZEV sales mandate and greenhouse gas emission standards is back in 
force.\762\ NHTSA withdrew its SAFE 1 rule on December 29, 2021.\763\ 
California, and the Section 177 states (subject to the criteria in 
Section 177), are free to enforce the ZEV mandate, and manufacturers 
are building ZEVs in response to it. These standards are real and would 
be in force whether or not NHTSA increased the stringency of the CAFE 
standards. By accounting for them in the baseline, NHTSA acknowledges 
this reality; by withholding ZEV technology as a model option during 
the rulemaking timeframe, NHTSA respects the 49 U.S.C. 32902(h) 
prohibition. This is how we give effect to Section 32902(h). NHTSA 
agrees with NCAT that it would be an absurd result to build a fictional 
baseline that pretended as though these standards, and the vehicles 
produced in response to them, were not real. Agency decision-makers 
would not be well-informed as to the consequences of different 
regulatory actions with a baseline that ignored these non-NHTSA 
standards.
---------------------------------------------------------------------------

    \760\ The reason that NHTSA knows this effect is meaningful is 
because compliance with all regulatory alternatives is more cost-
effective under the ``unconstrained'' or ``EIS'' model runs, in 
which NHTSA allows the model to build BEVs, than under the 
``standard-setting'' runs, in which NHTSA implements the 32902(h) 
restrictions.
    \761\ 86 FR 22421 (Apr. 28, 2021).
    \762\ 87 FR 14332 (Mar. 14, 2022).
    \763\ 86 FR 74236 (Dec. 29, 2021).
---------------------------------------------------------------------------

    Nor does NHTSA agree that reflecting ZEV mandates in the baseline 
somehow ``thwarts Congress' intent'' in providing compliance boosts for 
dedicated and dual-fueled alternative fuel vehicles. ZEVs produced in 
response to ZEV mandates are not produced to comply with CAFE 
standards, even if they improve manufacturers' compliance with CAFE 
standards, because those vehicles are going to be produced anyway to 
comply with the ZEV mandates. Manufacturers get the full compliance 
benefit of these vehicles in the CAFE program.
    It thus seems both reasonable and preferable to try to give 
meaningful effect to Section 32902(h), while meaningfully informing 
decision-makers about the effects of their decision. We also note that 
in the sensitivity analyses for this final rule, NHTSA ran a case in 
which ZEV compliance was not reflected in the baseline. As documented 
in the FRIA, not accounting for ZEV mandates would have increased 
estimated incremental benefits and costs attributable to new CAFE 
standards by about 3 percent.\764\ Chapter 7 of the FRIA discusses this 
finding in more detail. These small differences were not dispositive 
for NHTSA in choosing the Preferred Alternative; nor would removing ZEV 
from the baseline in the main analysis have led NHTSA to reach a 
different conclusion regarding maximum feasible CAFE standards.
---------------------------------------------------------------------------

    \764\ While Rivian encouraged NHTSA to add Minnesota, Nevada, 
and Virginia to the list of ZEV states, NHTSA believes that 
accounting for these States' recent adoption of ZEV mandates would 
only have slightly impacted the 3 percent difference, and also would 
not have impacted NHTSA's conclusions.
---------------------------------------------------------------------------

    Some commenters also addressed NHTSA's question of whether to 
include state GHG standards in the baseline. Arguments for and against 
including state GHG standards in the baseline were fairly similar to 
those regarding ZEV mandates. Tesla, however, argued that because 
``California and the Section 177 states have written the GHG standards 
into their EPA approved SIPs,'' . . .``these more stringent standards 
have remained in place and [are] enforceable while the waiver gets 
reinstated because EPA never compelled any of these SIPs to be

[[Page 25900]]

amended or revised to remove the purportedly preempted standards.'' 
\765\
---------------------------------------------------------------------------

    \765\ Tesla, at 8.
---------------------------------------------------------------------------

    As explained in the NPRM, NHTSA does not currently have the 
capability to model a sub-national fleet concurrently with a national 
fleet and remains concerned about potentially important differences 
between the Section 177 states that would complicate finding a workable 
approach to doing so. NHTSA thus has not reflected the state GHG 
standards in this final rule analysis, despite Tesla's recommendation. 
That said, noting that all of the vehicles that manufacturers 
ultimately sell in these States will be among those vehicles that 
manufacturers produce for sale in the United States, NHTSA anticipates 
that if California and other States enforce requirements regarding the 
average CO2 performance of vehicles sold in these States, 
and NHTSA concurrently enforces requirements regarding the average fuel 
economy levels of vehicles produced for sales nationwide, manufacturers 
will be able to meet the State-level requirements by selling different 
proportions of vehicles in states with GHG requirements than in states 
that lack them. Manufacturers could sell a higher proportion of 
vehicles (such as the BEVs and PHEVs some of these States also 
encourage through ZEV mandates) with CO2 levels well below 
corresponding CO2 targets in these States than in the rest 
of the country, and by selling a smaller proportion of vehicles (such 
as some performance and luxury models, and some sport-utility vehicles) 
that perform especially poorly relative to CO2 targets.\766\
---------------------------------------------------------------------------

    \766\ Examples of such vehicles can be identified in the 
published vehicle-level model results (in the archive posted at 
https://www.nhtsa.gov/corporate-average-fuel-economy/cafe-
compliance-and-effects-modeling-system'') (accessed: March 15, 2022) 
by comparing ``CO2 Rated'' and ``CO2 Target'' values for specific 
vehicle model/configurations.
---------------------------------------------------------------------------

    A few commenters addressed NHTSA's inclusion in the baseline of the 
California Framework Agreements with BMW, Ford, Honda, Volkswagen, and 
Volvo, binding those companies to more stringent GHG standards than the 
2020 final rule would have required. Rivian \767\ and NCAT agreed that 
including the Framework Agreements was appropriate. For example, NCAT 
commented that it was reasonable to consider the Framework Agreements, 
because the five manufacturers involved represent a significant portion 
of the market, and the agreements are contractual.\768\ NADA argued, in 
contrast, that ``The OEMs that entered those agreements represent only 
about a third of U.S. vehicle sales,'' and that ``their actions should 
not be incorporated into the baseline for any revised CAFE standards 
with which all OEMs must comply,'' because ``That OEMs representing the 
other two-thirds of U.S. vehicle sales did not enter similar agreements 
is telling and raises significant questions as to whether the 
`framework' standards are reasonable and appropriate.'' \769\
---------------------------------------------------------------------------

    \767\ Rivian, at 2.
    \768\ NCAT, at 7-8.
    \769\ NADA, at 4-5.
---------------------------------------------------------------------------

    In response, NHTSA reiterates that the purpose of a baseline is to 
reflect the world in the absence of further regulatory action by NHTSA, 
so that NHTSA can then attempt to evaluate the effects of taking 
different regulatory actions. Only the Framework-Agreement 
manufacturers were reflected in the baseline, not the fleet as a whole. 
Because those agreements were contractual, NHTSA found it reasonable to 
assume that automakers would meet their terms and that this approach 
would best reflect the state of the world in the absence of further 
regulatory action by NHTSA, and therefore included them in the baseline 
for this analysis. NADA's comment more likely pertains to the 
feasibility of standards that would require similar (or higher) levels 
of fuel economy improvement from all manufacturers. The feasibility of 
different alternatives will be discussed in Section VI of this 
preamble.
    Other commenters indicated that NHTSA should, in effect, assume 
that manufacturers would never increase CAFE beyond levels required by 
CAFE standards, i.e., that there is no real-world market-driven 
increase in fuel economy (regardless of fuel price) that could or 
should be reflected in NHTSA's analysis.\770\ NHTSA has carefully 
considered these comments, and finds that the comments conflict with 
the historical record showing manufacturers sometimes achieving CAFE 
levels beyond those required by CAFE standards. Historical record 
aside, NHTSA recognizes that future fuel prices cannot be predicted 
with certainty yet will almost certainly impact manufacturers' and 
buyers' future decisions. The aforementioned comments imply an approach 
that would not respond at all to fuel prices, such that manufacturers' 
estimated application of technology would be the same if gasoline costs 
more than $7 per gallon as if gasoline costs less than $2 per gallon. 
Under NHTSA's analytical approach, fuel economy increases beyond 
requirements grow as fuel prices increase, and the sensitivity analysis 
documented in the FRIA accompanying this document suggests that to 
ignore this response would have led NHTSA to overstate significantly 
the incremental benefits and costs of new CAFE standards. Commenters 
have provided no basis for predicting with confidence how manufacturers 
and buyers will act in the future, or any logical basis to assume that 
fuel prices will not impact their decisions. NHTSA maintains that fuel 
prices are almost certain to play a role, and that it remains 
reasonable to NHTSA to assume that having met fuel economy 
requirements, manufacturers may apply additional fuel-saving 
technologies that pay back within the first 30 months of vehicle 
ownership.
---------------------------------------------------------------------------

    \770\ See, e.g., UCS, Docket No. NHTSA-2021-0053-1567, at 25-29.
---------------------------------------------------------------------------

1. No-Action Alternative
    The No-Action Alternative (also referred to as ``Alternative 0'') 
applies the CAFE target curves set in 2020 for MYs 2024-2026, which 
raised stringency by 1.5 percent per year for both passenger cars and 
light trucks.
BILLING CODE 4910-59-P

[[Page 25901]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.115

[GRAPHIC] [TIFF OMITTED] TR02MY22.116

    These equations are presented graphically in Figure IV-1 and Figure 
IV-2, where the x-axis represents vehicle footprint and the y-axis 
represents fuel economy, showing that in ``CAFE space,'' targets are 
higher in fuel economy for smaller footprint vehicles and lower for 
larger footprint vehicles.

[[Page 25902]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.117


[[Page 25903]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.118

    NHTSA must also set a minimum standard for domestically 
manufactured passenger cars, which is often referred to as the 
``MDPCS.'' Any time NHTSA establishes or changes a passenger car 
standard for a model year, the MDPCS must also be evaluated or re-
evaluated and established accordingly, but for purposes of the No-
Action Alternative, the MDPCS is as it was established in the 2020 
final rule, as shown in Table IV-7.
[GRAPHIC] [TIFF OMITTED] TR02MY22.119

    As the baseline against which the Action Alternatives are measured, 
the No-Action Alternative includes several policies and agreements 
already in effect as well as manufacturer choices that NHTSA believes 
will occur absent the revised CAFE standards. First, as discussed 
extensively above, NHTSA has included California's ZEV mandate as part 
of the No-Action Alternative. Second, NHTSA has included the agreements 
made between California and BMW, Ford, Honda, VWA, and Volvo, because 
these agreements by their terms are contracts, even though they were 
entered into voluntarily.\771\ NHTSA did so by including EPA's baseline 
(i.e., 2020) GHG standards in its analysis, and then introducing more 
stringent GHG target functions during MYs 2022-2026 consistent with 
those agreements, but treating only these five manufacturers as subject 
to these more stringent target functions. As in past analyses, NHTSA's 
analysis further assumes that, beyond any technology applied in 
response to CAFE standards, EPA GHG standards, California/OEM 
agreements, and ZEV mandates applicable in California and the Section 
177 states, manufacturers will also make any additional fuel economy 
improvements estimated to reduce

[[Page 25904]]

owners' estimated average fuel outlays during the first 30 months of 
vehicle operation by more than the estimated increase in new vehicle 
price.
---------------------------------------------------------------------------

    \771\ See https://ww2.arb.ca.gov/news/framework-agreements-clean-cars.
---------------------------------------------------------------------------

    NHTSA accomplished much of this through expansion of the CAFE Model 
after the prior rulemaking. The previous version of the model had been 
extended to apply to GHG standards as well as CAFE standards but had 
not been published in a form that simulated simultaneous compliance 
with both sets of standards. As discussed at greater length in the 
current CAFE Model documentation, the updated version of the model 
simulates all the following simultaneously:

Compliance with CAFE standards
Compliance with GHG standards applicable to all manufacturers
Compliance with alternative GHG standards applicable to a subset of 
manufacturers
Compliance with ZEV mandates
Further fuel economy improvements applied if sufficiently cost-
effective for buyers

    As explained in the NPRM, the impacts of all the alternatives 
evaluated here are against the backdrop of these other obligations 
applicable to and voluntary actions taken by automakers. This is 
important to remember, because it means that automakers will be taking 
actions to comply with these other obligations or voluntarily that will 
at times affect fuel economy even in the absence of new CAFE standards, 
and that costs and benefits attributable to those actions are therefore 
not attributable to CAFE standards.
2. Alternative 1
    Alternative 1 would increase CAFE stringency for MY 2024 by 9.14 
percent for passenger cars and 11.02 percent for light trucks and 
increase stringency in MYs 2025 and 2026 by 3.26 percent per year for 
both passenger cars and light trucks.\772\
---------------------------------------------------------------------------

    \772\ Increases of MY 2024 stringencies as compared to MY 2023 
are based on computed averages of manufacturers' required CAFE 
levels. Increases of MYs 2025 and 2026 stringencies are based on 
mathematical progression of coefficients defining applicable fuel 
economy targets.
[GRAPHIC] [TIFF OMITTED] TR02MY22.120

[GRAPHIC] [TIFF OMITTED] TR02MY22.121

    These equations are represented graphically in Figure IV-3 and 
Figure IV-4.
---------------------------------------------------------------------------

    \773\ For this and other action alternatives, readers may note 
that the cutpoint for large trucks is further to the right than in 
the 2020 final rule. The 2020 final rule (and its preceding NPRM) 
did not contain an adjustment to the right cutpoint that had been 
finalized in 2012. Because comments were not received to the NPRM, 
the lack of adjustment was finalized. Considering the question again 
for this action, NHTSA believes that moving the cutpoint to the 
right for large trucks (consistent with the intent and requirements 
in 2012) is reasonable, given the rate of increase in stringency for 
this action. NHTSA did not receive any comments addressing this 
change.

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

[[Page 25905]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.122


[[Page 25906]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.123

    Under this alternative, the MDPCS is as shown in Table IV-10.
    [GRAPHIC] [TIFF OMITTED] TR02MY22.124
    
3. Alternative 2
    Alternative 2 would increase CAFE stringency at 8 percent per 
year.\774\
---------------------------------------------------------------------------

    \774\ Increases of MY 2024-2026 stringencies are based on 
mathematical progression of coefficients defining applicable fuel 
economy targets.

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

[[Page 25907]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.125

[GRAPHIC] [TIFF OMITTED] TR02MY22.126

    Under this alternative, the MDPCS is as shown in Table IV-13.
    [GRAPHIC] [TIFF OMITTED] TR02MY22.127
    
4. Alternative 2.5
    In the proposal preceding this final rule, NHTSA sought comment on 
a possible modification to Alternative 2, which would have increased 
the stringency of CAFE standards by 10 percent between MYs 2025 and 
2026, rather than by 8 percent. Shown graphically, this possibility 
appeared as shown in Figure IV-5.

[[Page 25908]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.128

    The coefficients associated with this alternative have been 
determined as follows:
[GRAPHIC] [TIFF OMITTED] TR02MY22.129

[GRAPHIC] [TIFF OMITTED] TR02MY22.130


[[Page 25909]]


    These equations are represented graphically in Figure IV-6 and 
Figure IV-7.
[GRAPHIC] [TIFF OMITTED] TR02MY22.131


[[Page 25910]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.132

    Under the alternative, the MDPCS is as follows in Table IV-16.
    [GRAPHIC] [TIFF OMITTED] TR02MY22.133
    
    NHTSA considered this alternative as a way to evaluate the effects 
of CAFE standards that could be considered a middle ground between 
Alternative 2 and Alternative 3 allowing for a slower ramp in 
stringency than Alternative 3 but providing additional lead time to 
return to a fuel consumption trajectory similar to the standards 
announced in 2012.
5. Alternative 3
    Alternative 3 would increase CAFE stringency at 10 percent per 
year.\775\ In the NPRM preceding this document, NHTSA calculated that 
Alternative 3 would result in total lifetime fuel savings from vehicles 
produced during MYs 2021-2029 similar to total lifetime fuel savings 
that would have occurred if NHTSA had promulgated final CAFE standards 
for MYs 2021-2025 at the augural levels announced in 2012. In addition, 
Alternative 3 contemplated capturing fuel savings as if NHTSA had

[[Page 25911]]

also promulgated MY 2026 standards that reflected a continuation of 
that average rate of stringency increase (4.48 percent for passenger 
cars and 4.54 percent for light trucks).
---------------------------------------------------------------------------

    \775\ Increases of MY 2024-2026 stringencies are based on 
mathematical progression of coefficients defining applicable fuel 
economy targets.
[GRAPHIC] [TIFF OMITTED] TR02MY22.134

[GRAPHIC] [TIFF OMITTED] TR02MY22.135

    These equations are represented graphically in Figure IV-8 and 
Figure IV-9. For this final rule, NHTSA retained this definition of 
Alternative 3.

[[Page 25912]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.136


[[Page 25913]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.137

    Under this alternative, the MDPCS is as follows in Table IV-19.
    [GRAPHIC] [TIFF OMITTED] TR02MY22.138
    
    NHTSA considered this alternative as a way to evaluate the effects 
of CAFE standards that would return to a fuel consumption trajectory 
similar to the standards announced in 2012.
    Besides the aforementioned alternatives, some commenters indicated 
that NHTSA should also consider action alternatives less stringent than 
the No-Action Alternative, while others indicated that NHTSA should 
also consider action alternatives more stringent than Alternative 3. 
CEI, for example, argued that less stringent alternatives would result 
in better safety outcomes, and that not including such alternatives was 
arbitrary and capricious, such that NHTSA must commence a new 
rulemaking.\776\ Noting the considerable overcompliance estimated to 
potentially occur given reference case fuel price projections, NHTSA 
concludes that alternatives less stringent than the No-Action 
Alternative would clearly have fallen short of the maximum feasible, as 
cost-effective technology to address even modest energy-related 
economic externalities would have been forgone. Considering such 
alternatives would not have been a fruitful use of agency resources in 
this rulemaking. Moreover, NHTSA has accounted for safety

[[Page 25914]]

considerations as part of its determination of which standards would be 
maximum feasible, as discussed in Section VI.
---------------------------------------------------------------------------

    \776\ CEI, Docket No. NHTSA-2021-0053-1546, at 2, 8.
---------------------------------------------------------------------------

    On the other hand, Securing America's Future Energy commented that 
NHTSA should explore more stringent alternatives ``if the analysis 
indicates that it will achieve greater fuel economy and there is no 
obvious obstacle to automakers meeting the more stringent standard.'' 
\777\ Our Children's Trust and Elders Climate Action both asked NHTSA 
to consider alternatives that led to greater ZEV penetration. Our 
Children's Trust asked specifically for ``at least one alternative 
tiered to a fully electric fleet by 2030'' and also ``at least one 
alternative that is aligned with putting the United States 
transportation system vehicle fleet on an emission reductions pathway 
consistent with <350 ppm CO2 by 2100.'' \778\ Elders Climate 
Action asked that the rulemaking be reopened for MY 2026 in order to 
consider an alternative that would impose a zero emission vehicle 
standard that would be fully phased in by 2030, beginning with 30 
percent ZEV in MY 2026.\779\
---------------------------------------------------------------------------

    \777\ Securing America's Future Energy, Docket No. NHTSA-2021-
0053-1513, at 8.
    \778\ Our Children's Trust, Docket No. NHTSA-2021-0053-1587, at 
4.
    \779\ Elders Climate Action, Docket No. NHTSA-2021-0053-1589, at 
2-3.
---------------------------------------------------------------------------

    In response, while NHTSA appreciates these comments, NHTSA notes 
that under Alternative 3, average CAFE requirements would increase by 
nearly 30 percent over a three-year period. While developing 
circumstances may warrant consideration of even more aggressive 
regulatory alternatives in future CAFE rulemakings, NHTSA cannot ignore 
that manufacturers will begin producing MY 2024 vehicles in less than 
two years, and that designs and contractual arrangements (e.g., with 
suppliers) for many MY 2026 vehicles are likely already somewhat firmly 
established, such that alternatives more aggressive than Alternative 3 
would likely not be economically practicable. NHTSA also does not 
believe it likely has authority to establish a specific ZEV-mandate-
type standard as requested by Elders Climate Action, given the 
restrictions in 49 U.S.C. 32902(h). With regard to the request that 
NHTSA create and consider an alternative ``that is aligned with putting 
the United States transportation system vehicle fleet on an emission 
reductions pathway consistent with <350 ppm CO2 by 2100,'' 
in this action, NHTSA is regulating only the fuel economy of new light-
duty vehicles. NHTSA does not have an integrated model of global 
emissions with which we could assess precisely what emissions reduction 
pathway for the entire U.S. transportation system (and then, the new 
light-duty fleet in particular) would need to be on in order to achieve 
this goal. NHTSA will discuss this question further with relevant 
interagency partners and consider whether it can be better answered as 
part of a subsequent rulemaking.

V. Effects of the Regulatory Alternatives

A. Effects on Vehicle Manufacturers

    Each of the regulatory alternatives NHTSA considered for this final 
action would increase the stringency of both passenger car and light 
truck CAFE standards in each of MYs 2024-2026 as compared to the 
standards set in 2020. To estimate the potential impacts of each of 
these alternatives, NHTSA has, as for all recent rulemakings, assumed 
that standards would continue unchanged after the last model year (in 
this case, 2026) to be covered by newly issued standards. NHTSA 
recognizes that it is possible that the size and composition of the 
fleet (i.e., in terms of distribution across the range of vehicle 
footprints) could change over time, affecting the average fuel economy 
requirements under both the passenger car and light truck standards, 
and for the overall fleet. If fleet changes ultimately differ from 
NHTSA's projections, average requirements could, therefore, also differ 
from NHTSA's projections.
    Following are both the proposed and final estimated required 
average fuel economy values for the passenger car, light truck, and 
total fleets for each regulatory alternative that the agency 
considered. Overall, the estimated required fuel economy values are 
generally the same as the proposal, although for some years the values 
have changed minimally. These minimal changes result from the final 
rule modeling input revisions, where technology assumptions and costs 
influence the estimated capabilities of the fleet to attain the 
required values. We note that in the case of every fleet, the final MY 
2029 values did not change from the proposal to the final estimated 
values.
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    Manufacturers do not always comply exactly with each CAFE standard 
in each model year. To date, some manufacturers have tended to 
regularly exceed one or both requirements. Many manufacturers make use 
of EPCA's provisions allowing CAFE compliance credits to be applied 
when a fleet's CAFE level falls short of the corresponding requirement 
in a given model year. Some manufacturers have paid civil penalties 
(i.e., fines) required under EPCA when a fleet falls short of a 
standard in a given model year and the manufacturer lacks compliance 
credits sufficient to address the compliance shortfall. As discussed in 
the accompanying FRIA and TSD, NHTSA simulates manufacturers' responses 
to each alternative given a wide range of input estimates (e.g., 
technology cost and efficacy, fuel prices), and, per EPCA requirements, 
setting aside the potential that any manufacturer would respond to CAFE 
standards in MYs 2024-2026 by applying CAFE compliance credits or 
introducing new models of alternative fuel vehicles. Many of these 
inputs are subject to uncertainty and, in any event, as in all CAFE 
rulemakings, NHTSA's analysis merely illustrates one set of ways 
manufacturers could potentially respond to each regulatory alternative. 
For this final rule, NHTSA estimates that manufacturers' responses to 
standards defining each alternative could lead average fuel economy 
levels to increase through MY 2029 as shown in the following tables. 
Changes are shown to occur in MY 2023 even though NHTSA is not 
explicitly proposing to regulate that model year because NHTSA 
anticipates that manufacturers could potentially make changes as early 
as that model year to affect future compliance positions (i.e., multi-
year planning) for the model years being regulated.
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    While these increases in average fuel economy reflect currently 
estimated changes in the composition of the fleet (i.e., the relative 
shares of passenger cars and light trucks), they result almost wholly 
from the projected application of fuel-saving technology. As mentioned 
above, NHTSA's analysis merely illustrates one set of ways 
manufacturers could potentially respond to each regulatory alternative. 
Manufacturers' actual responses will almost assuredly differ from 
NHTSA's current estimates.
    At the time of the proposal, NHTSA estimated that manufacturers' 
application of advanced gasoline engines (i.e., gasoline engines with 
cylinder deactivation, turbocharging, high or variable compression 
ratios) could increase through MY 2029 under the No-Action Alternative 
and through at least MY 2024 under each of the action alternatives. 
However, NHTSA also estimated that in MY 2024, reliance on advanced 
gasoline engines could begin to decline under the more stringent action 
alternatives, as manufacturers shift toward electrification (which 
includes hybridization). Based on the updated analysis used for the 
final rule, these trends continue to mirror the trends identified in 
the proposal, but at more aggressive rates. Overall, advanced gasoline 
engine penetration rates increase. Under Alternatives 2, 2.5, and 3, 
the shift to electrification appears to continue, notably for both 
passenger cars and light trucks under Alternative 3.
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    As in the NPRM, the aforementioned estimated shift to 
electrification under the more stringent regulatory alternatives is the 
most pronounced for hybrid-electric vehicles (i.e., ``mild'' ISG HEVs 
and ``strong'' P2 and Power-Split HEVs) for the total fleet under the 
final rule analysis, which may be a result of the reduction in strong 
hybrid costs. Passenger cars adopt hybridization at a slightly higher 
rate than light trucks; this is most likely a result of the adjustments 
to off-cycle credit caps analyzed for the final rule.

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    As in the NPRM, under the more stringent action alternatives, NHTSA 
estimates that manufacturers could increase production of plug-in 
hybrid electric vehicles (PHEVs) well over current rates. The PHEV 
rates decrease for the final rule resulting from the increase in SHEVs, 
which in turn result from the previously mentioned cost reductions for 
that technology.
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    For this notice and accompanying FRIA, NHTSA's analysis excludes 
the introduction of new dedicated alternative fuel vehicle (AFV) models 
during MYs 2024-2026 as a response to CAFE standards.\780\ However, 
NHTSA's analysis does consider the potential that manufacturers might 
respond to CAFE standards by introducing new BEV models outside of MYs 
2024-2026, and NHTSA's analysis does account for the potential that ZEV 
mandates could lead manufacturers to introduce new BEV models even 
during MYs 2024-2026. Also accounting for shifts in fleet mix, NHTSA 
projects increased production of BEVs through MY 2029. As shown in the 
following tables, there is a slight

[[Page 25923]]

reduction in estimated BEV penetration rates, which, again, is 
attributable to an increase in SHEV rates resulting from estimated cost 
reductions for those technologies.
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    \780\ The Final SEIS does not make this analytical exclusion.
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    The FRIA provides a wider-ranging summary of NHTSA's estimates of 
manufacturers' potential application of fuel-saving technologies 
(including other types of technologies, such as advanced transmissions, 
aerodynamic improvements, and reduced vehicle mass) in response to each 
regulatory alternative. Appendices I and II of the accompanying FRIA 
provide much more detailed and comprehensive results, and the 
underlying CAFE Model output files provide all information, including 
the specific combination of technologies estimated to be applied to 
every specific vehicle model/configuration in each of MYs 2020-2050.
    As with the NPRM, NHTSA's analysis shows manufacturers' regulatory 
costs for CAFE standards, CO2 standards, and ZEV mandates 
increasing through MY 2029, and (logically) increasing more under the 
more stringent alternatives. NHTSA estimates that relative to the 
continued application of MY 2020 technologies, manufacturers' 
cumulative costs during MYs 2023-2029 could total $137b under the No-
Action Alternative, and $179b, $224b, $237b, and $268b under 
alternatives 1, 2, 2.5 and 3, respectively, when accounting for fuel-
saving technologies estimated to be added under each regulatory 
alternative (including air conditioning improvements and other off-
cycle technologies), and also accounting for CAFE civil penalties that 
NHTSA estimates some manufacturers could elect to pay rather than 
achieving full compliance with CAFE standards in some model years. The 
table below shows how these costs are estimated to vary among 
manufacturers, accounting for differences in the quantities of vehicles 
produced for sale in the U.S. Appendices I and II of the accompanying 
FRIA present results separately for each manufacturer's passenger car 
and light truck fleets in each model year under each regulatory 
alternative, and the underlying CAFE Model output files also show 
results specific to manufacturers' domestic and imported car fleets. 
For the final rule analysis, in nearly all cases, the total costs are 
lower than those estimated in the NPRM.

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[[Page 25926]]


    As discussed in the TSD, these estimates reflect technology cost 
inputs that, in turn, reflect a ``markup'' factor that includes 
manufacturers' profits. In other words, if costs to manufacturers are 
reflected in vehicle price increases as in the past, NHTSA estimates 
that the average costs to new vehicle purchasers could increase through 
MY 2029 as summarized in Table V-39 through Table V-44.
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    Table V-45 shows how these costs could vary among manufacturers, 
suggesting that disparities could decrease as the stringency of 
standards increases.
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[[Page 25928]]


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    NHTSA estimates that although projected fuel savings under the more 
stringent regulatory alternatives could tend to increase new vehicle 
sales, this tendency could be outweighed by the opposing response to 
higher prices, such that new vehicle sales could decline slightly under 
the more stringent alternatives. The magnitude of these fuel savings 
and vehicle price increases depends on manufacturer compliance 
decisions, especially technology application. In the event that 
manufacturers select technologies with lower prices and/or higher fuel 
economy improvements, vehicle sales effects could differ. For example, 
in the case of the ``unconstrained'' Final SEIS results, manufacturer 
costs across alternatives are lower. As the graphs indicate, the 
difference between the regulatory alternatives in terms of sales 
effects decreased between the NPRM and final rule.

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[[Page 25930]]


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    The TSD discusses NHTSA's approach to estimating new vehicle sales, 
including NHTSA's estimate that new vehicle sales could recover from 
2020's aberrantly low levels.
    While these slight reductions in new vehicle sales tend to slightly 
reduce projected automobile industry labor, NHTSA estimates that the 
cost increases could reflect an underlying increase in employment to 
produce additional fuel-saving technology, such that automobile 
industry labor could about the same under each of the four regulatory 
alternatives. As the graphs indicate, the difference between the 
regulatory alternatives in terms of employment effects increased 
slightly between the NPRM and final rule.

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[[Page 25932]]


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    The accompanying TSD discusses NHTSA's approach to estimating 
automobile industry employment, and the accompanying FRIA (and its 
Appendices I and II) and CAFE Model output files provide more detailed 
results of NHTSA's analysis.

B. Effects on New Car and Truck Buyers

    As discussed above, NHTSA estimates that the average fuel economy 
and purchase cost of new vehicles could increase between MYs 2020 and 
2029 and increase more quickly under each of the action alternatives 
than under the No-Action Alternative. On one hand, buyers could realize 
the benefits of increased fuel economy: Spending less on fuel. On the 
other, buyers could pay more for new vehicles, and for some costs tied 
directly to vehicle value (e.g., sales taxes and collision insurance). 
The tables that follow present metrics for new car and truck buyers for 
both the proposed and final rule. Table V-47 and Table V-48 report 
sales-weighted MSRP values for the No-Action Alternative and relative 
increases in MSRP for the three regulatory alternatives. The estimates 
for the final action suggest slightly larger MSRP increases for light 
trucks and smaller increases for passenger cars in the final rule 
compared to the proposal (comparing Alt. 2 in MY 2029). Alternative 2.5 
raises MSRP increases to just over $1,000 by MY 2029.

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    Table V-49 through Table V-54 present projected consumer costs and 
benefits along with net benefits for MYs 2029 and 2039 \781\ vehicles 
for each alternative in both the proposal and final rule. Results are 
shown in 2018 dollars, without discounting and with benefits and costs 
discounted at annual rates of 3 and 7 percent. The TSD and FRIA 
accompanying this rule discuss underlying methods, inputs, and results 
in greater detail, and more detailed tables and underlying results are 
contained in Appendix I and the CAFE Model output files. Comparisons of 
per-vehicle consumer effects between proposal and final rule are best 
done at the row level, as the final rule includes an additional 
category accounting for reallocated vehicle miles and excludes 
financing costs.\782\ For all of the action alternatives, avoided 
outlays for fuel purchases \783\ account for most of the projected 
incremental benefits to consumers, and increases in the cost to 
purchase new vehicles account for most of the projected incremental 
costs. For MY 2029, consumer costs increase slightly between the 
proposal's Alternative 2 and final rule's Alternative 2.5. Consumer 
benefits, especially the estimates of retail fuel outlay, also 
increase.
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    \781\ By 2039, technology costs have been learned down, and fuel 
prices better reflect longer-term levels.
    \782\ The rationale for adjusting this calculation is discussed 
in TSD Chapter 6.1.5, Benefits of Additional Mobility.
    \783\ Negative ``retail fuel outlay'' values in the table denote 
decreases in consumer fuel expenditure relative to the No-Action 
Alternative. These decreases in expenditure are considered a benefit 
and are hence included as a positive value in the calculation of 
total consumer benefits.

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C. Effects on Society

    Table V-55 describes the costs and benefits of increasing CAFE 
standards in each alternative, as well as the party to which they 
accrue. Manufacturers are directly regulated under the program and 
incur additional production costs when they apply technology to their 
vehicle offerings in order to improve their fuel economy. In this 
analysis, we assume that those costs are fully passed through to new 
car and truck buyers, in the form of higher prices. Other assumptions 
are possible, but we do not currently have data to support attempting 
to model cross-subsidization. We also assume that any civil penalties--
paid by manufacturers for failing to comply with their CAFE standards--
are passed through to new car and truck buyers and are included in the 
sales price. However, those civil penalties are paid to the U.S. 
Treasury, where they currently fund the general business of government. 
As such, they are a transfer from new vehicle buyers to all U.S. 
citizens, who then benefit from the additional Federal revenue. While 
they are calculated in the analysis, and do influence consumer 
decisions in the marketplace, they do not contribute to the calculation 
of net benefits (and are omitted from the tables below).
    While incremental maintenance and repair costs would accrue to 
buyers of new cars and trucks affected by more stringent CAFE 
standards, we do not carry these costs in the analysis. They are 
difficult to estimate for emerging technologies but represent real 
costs (and benefits in the case of alternative fuel vehicles that may 
require less frequent maintenance events). They may be included in 
future analyses as data become available to evaluate lifetime 
maintenance costs. This analysis assumes that drivers of new vehicles 
internalize 90 percent of the risk associated with increased exposure 
to crashes when they engage in additional travel (as a consequence of 
the rebound effect).
    Private benefits are dominated by the value of fuel savings, which 
accrue to new car and truck buyers at retail fuel prices (inclusive of 
Federal and state taxes). In addition to saving money on fuel 
purchases, new vehicle buyers also benefit from the increased mobility 
that results from the lower cost of driving their vehicle (higher fuel 
economy reduces the per-mile cost of travel) and fewer refueling 
events. The additional travel occurs as drivers take advantage of lower 
operating costs to increase mobility, and this generates benefits to 
those drivers--equivalent to the cost of operating their vehicles to 
travel those miles, the consumer surplus, and the offsetting benefit 
that represents 90 percent of the additional safety risk from travel.
    In addition to private benefits and costs, there are purely 
external benefits and costs that can be attributed to increases in CAFE 
standards. These are benefits and costs that accrue to society more 
generally, rather than to the specific individuals who purchase a new 
vehicle that was produced under more stringent CAFE standards. Of the 
external costs, the largest is the loss in fuel tax revenue that occurs 
as a result of falling fuel consumption. While drivers of new vehicles 
(purchased in years where CAFE stringency is increasing) save fuel 
costs at retail prices, the rest of U.S. road users experience a 
welfare loss, in two ways. First, the revenue generated by fuel

[[Page 25939]]

taxes helps to maintain roads and bridges, and improve infrastructure 
more generally, and that loss in fuel tax revenue is a social cost. And 
second, the additional driving that occurs as new vehicle buyers take 
advantage of lower per-mile fuel costs is a benefit to those drivers, 
but the congestion (and road noise) created by the additional travel 
impose a social cost to all road users.
    Among the purely external benefits created when CAFE standards are 
increased, the largest is the reduction in damages resulting from 
greenhouse gas emissions. Table V-55 shows these reduced climate 
damages, assuming different SC-GHG discount rates. The associated 
benefits related to reduced health damages from conventional pollutants 
and the benefit of improved energy security are both significantly 
smaller than the associated change in GHG damages across alternatives. 
Benefits from improved energy security are, however, very difficult to 
quantify and are likely understated. As the table also illustrates, the 
overwhelming majority of both costs and benefits are private costs and 
benefits that accrue to buyers of new cars and trucks, rather than 
external welfare changes that affect society more generally. This has 
been consistently true in CAFE rulemakings.
    The choice of discount rate affects the magnitude of the resulting 
benefits and costs, as shown in Table V-55. Many benefits of the 
regulatory alternatives, but especially Alternative 3, are concentrated 
in later years where a higher discount rate has a greater contracting 
effect.

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[[Page 25941]]

    The following tables show the costs and benefits associated with 
external effects to society. As seen in Table V-55, the external 
benefits are composed of reduced climate damages (Table V-56 through 
Table V-59), reduced health damages (Table V-60 and Table V-61), and 
reduced petroleum market externalities (Table V-64). The external costs 
to society include congestion and noise costs (Table V-62 and Table V-
63) and safety costs (Table V-65). We show the costs and benefits by 
model year (1981-2029), in contrast to the tables above, which present 
incremental and net costs and benefits over the lifetimes of the entire 
fleet produced through 2029, beginning with MY 1981.
[GRAPHIC] [TIFF OMITTED] TR02MY22.198

    Table V-56 through Table V-59 present the total costs of GHGs in 
Alternative 0 and the incremental costs relative to Alternative 0 in 
the other three alternatives. Each table presents GHG costs using 
different SC-GHG values (discounted at 2.5 percent, 3 percent, 5 
percent, and the 95th percentile values at 3 percent). See Chapter 
6.2.1 of the TSD accompanying this notice for discussion of the SC-GHG 
discount rates. Negative incremental values indicate a decrease in 
social costs of GHGs, while positive incremental values indicate an 
increase in costs relative to the baseline for the given model year. 
The GHG costs follow a similar pattern in all three alternatives, 
decreasing across all model years, with the largest reductions 
associated with 2026-2029 model years. The magnitude of CO2 
emissions is much higher than the magnitudes of CH4 and 
N2O emissions, which is why the total costs are so much 
larger for CO2.

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    The CAFE Model calculates health costs attributed to criteria 
pollutant emissions of NOX, SOX, and 
PM2.5, shown in Table V-60 and Table V-61. These costs are 
directly related to the tons of each pollutant emitted from various 
upstream and downstream sources, including on-road vehicles, 
electricity generation, fuel refining, and fuel transportation and 
distribution. See Chapter 4 of the Final SEIS and Chapter 5.4 of the 
TSD for further information regarding the calculations used to estimate 
health impacts, and more details about the types of health effects. The 
following section of the preamble, Section V.D, discusses the changes 
in tons of emissions themselves across rulemaking alternatives, while 
the current section focuses on the changes in social costs associated 
with those emissions.
    Criteria pollutant health costs (presented in Table V-60 and Table 
V-61) increase slightly in earlier model years (1981-2023), but those 
cost increases are offset by the decrease in health costs in later 
model years. In Table V-60 and Table V-61, the costs in Alternatives 1 
through 3 are shown in incremental terms relative to Alternative 0. The 
changes across alternatives relative to the baseline are relatively 
minor, although some impacts in later model years are more significant 
(e.g., the decreases in PM2.5 in 2028 under Alternative 3). 
Since the health cost value per ton of emissions differs by pollutant, 
the pollutants that incur the highest costs are not necessarily those 
with the largest amount of emissions (see Section V.D for discussion of 
physical effects).

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[[Page 25945]]


    NHTSA estimates social costs of congestion and noise across 
regulatory alternatives, throughout the lifetimes of MYs 1981-2029. 
Congestion and noise are functions of VMT and fleet mix, and the 
differences between alternatives are due mainly to differences in VMT 
(see Section V.D). Overall, congestion and noise costs increase 
relative to the baseline across all alternatives, but viewed from a 
model year perspective, the congestion and noise costs in some model 
years, particularly in Alternatives 2.5 and 3, are negative relative to 
Alternative 0. It is important to note that the overall increases in 
congestion and noise costs are relatively small when compared to the 
total congestion and noise costs in Alternative 0. For further details 
regarding congestion and noise costs, see Chapter 6.2.3 of the TSD and 
Chapter 6.5 of the FRIA.
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    \784\ The values in the following tables have been rounded to 
two significant figures.
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[[Page 25946]]


    The CAFE Model accounts for benefits of increased energy security 
by computing changes in social costs of petroleum market externalities. 
These social costs represent the risk to the U.S. economy incurred by 
exposure to price shocks in the global petroleum market that are not 
accounted for by oil prices and are a direct function of gallons of 
fuel consumed. The computation does not include other potential 
benefits, including the reduction in impact to consumers of large 
swings in gasoline prices that can occur as a result of global unrest 
and other shocks to the petroleum market. These swings can be very 
difficult for consumers, especially low-income consumers, to bear. 
Reducing reliance on energy through more stringent fuel economy 
standards provides a direct benefit to consumers. Chapter 6.2.4 of the 
accompanying TSD describes the inputs involved in calculating these 
petroleum market externality costs. Petroleum market externality costs 
decrease relative to the baseline under all alternatives, regardless of 
the discount rate used. This pattern occurs due to the decrease in 
gallons of fuel consumed (see Section V.D) as the stringency of 
alternatives increases. Only the earlier model year cohorts (1981-2023) 
contribute to slight increases in petroleum market externality costs, 
but these are offset by the decreases from later model years.
[GRAPHIC] [TIFF OMITTED] TR02MY22.206

    NHTSA estimates various monetized safety impacts across regulatory 
alternatives, including costs of fatalities, non-fatal crash costs, and 
property damage costs. Table V-65 presents the changes in these social 
costs across alternatives and discount rates. Safety effects are 
discussed at length in the FRIA accompanying this notice (see Chapter 5 
of the FRIA).
[GRAPHIC] [TIFF OMITTED] TR02MY22.207

D. Physical and Environmental Effects

    NHTSA calculates estimates for the various physical and 
environmental effects associated with the new standards. These include 
quantities of fuel and electricity consumption, tons of greenhouse gas 
(GHG) emissions and criteria pollutants reduced, and health and safety 
impacts.
    In terms of fuel and electricity usage, NHTSA estimates that the 
new standards could save about 60 billion gallons of gasoline and 
increase electricity consumption by about 180

[[Page 25947]]

TWh over the lives of vehicles produced prior to MY 2030, relative to 
the baseline standards (i.e., the No-Action Alternative). From a 
calendar year perspective, NHTSA's analysis also estimates total annual 
consumption of fuel by the entire on-road fleet from calendar year 2020 
through calendar year 2050. On this basis, gasoline and electricity 
consumption by the U.S. light-duty vehicle fleet evolves as shown in 
the following two graphs, each of which shows projections for the No-
Action Alternative (Alternative 0, i.e., the baseline), Alternative 1, 
Alternative 2, Alternative 2.5 (the final standards), and Alternative 
3.
[GRAPHIC] [TIFF OMITTED] TR02MY22.208


[[Page 25948]]


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    NHTSA estimates the greenhouse gas emissions (GHGs) attributable to 
the light-duty on-road fleet, from both vehicles and upstream energy 
sector processes (e.g., petroleum refining, fuel transportation and 
distribution, electricity generation). Overall, NHTSA estimates that 
the revised standards could reduce greenhouse gases by about 605 
million metric tons of carbon dioxide (CO2), about 730 
thousand metric tons of methane (CH4), and about 17 thousand 
metric tons of N2O. The following three graphs (Figure V-7, 
Figure V-8, and Figure V-9) present NHTSA's estimate of how emissions 
from these three GHGs could evolve over the years. Note that these 
graphs include emissions from both vehicle and upstream processes. All 
three GHG emissions follow similar trends in the years between 2020-
2050.

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    The figures presented here are not the only estimates NHTSA has 
calculated regarding projected GHG emissions in future years. As 
discussed in Section II, the accompanying Final SEIS uses an 
``unconstrained'' analysis as opposed to the ``standard setting'' 
analysis presented in this final rule and FRIA. For more information 
regarding projected GHG emissions, as well as model-based estimates of 
corresponding impacts on several measures of global climate change, see 
the Final SEIS.
    NHTSA also estimates criteria pollutant emissions resulting from 
vehicle and upstream processes attributable to the light-duty on-road 
fleet. NHTSA includes estimates for all of the criteria pollutants for 
which EPA has issued National Ambient Air Quality Standards. Under each 
regulatory alternative, NHTSA projects a dramatic decline in annual 
emissions of carbon monoxide (CO), volatile organic compounds (VOC), 
nitrogen oxide (NOX), and fine particulate matter 
(PM2.5) attributable to the light-duty on-road fleet between 
2020 and 2050. As exemplified in Figure V-10, emissions in any given 
year could be very nearly the same under each regulatory alternative.
    On the other hand, as discussed in the FRIA and Final SEIS 
accompanying this notice, NHTSA projects that annual SO2 
emissions attributable to the light-duty on-road fleet could increase 
modestly under the action alternatives, because, as discussed above, 
NHTSA projects that each of the action alternatives could lead to 
greater use of electricity (for PHEVs and BEVs). The adoption of 
actions--such as actions prompted by President Biden's Executive orders 
regarding Federal clean electricity, vehicle procurement, and 
sustainability--to reduce electricity generation emission rates beyond 
projections underlying NHTSA's analysis (discussed in the TSD) could 
dramatically reduce SO2 emissions under all regulatory 
alternatives considered here.\785\
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    \785\ See https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/, accessed June 17, 2021. See also https://www.whitehouse.gov/briefing-room/presidential-actions/2021/12/08/executive-order-on-catalyzing-clean-energy-industries-and-jobs-through-federal-sustainability/, accessed January 18, 2022.

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[[Page 25952]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.213

    The following two figures show NHTSA's estimates of the projected 
decreases in PM2.5 emissions and slight increases in 
SO2 emissions, for all alternatives and between years 2020-
2050. The differences in SO2 emissions across alternatives 
are due mainly to the various projections of electricity usage shown in 
Figure V-6. See Chapter 6.6 of the FRIA for a detailed discussion of 
changes in criteria pollutant emissions in the different alternatives.

[[Page 25953]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.214


[[Page 25954]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.215

    Health impacts quantified by the CAFE Model include various 
instances of hospital visits due to respiratory problems, minor 
restricted activity days, non-fatal heart attacks, acute bronchitis, 
premature mortality, and other effects of criteria pollutant emissions 
on health. Figure V-13 shows the differences in select health impacts 
relative to the baseline, across Alternatives 1 through 3. These 
changes are split between calendar year decades, with the largest 
differences between the baseline and alternatives occurring between 
2041-2050. The magnitude of the differences relates directly to the 
changes in tons of criteria pollutants emitted. See Chapter 5.4 of the 
TSD for information regarding how the CAFE Model calculates these 
health impacts.

[[Page 25955]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.216

    Lastly, NHTSA also quantifies safety impacts in its analysis. These 
include estimated counts of fatalities, non-fatal injuries, and 
property damage crashes occurring over the lifetimes of the light-duty 
on-road vehicles considered in the analysis. Chapter 5 of the FRIA 
accompanying this notice contains an in-depth discussion on the effects 
of the various alternatives on these safety measures, and TSD Chapter 7 
contains information regarding the construction of the safety 
estimates.

E. Sensitivity Analysis

    The analysis conducted to support this rule consists of data, 
estimates, and assumptions, all applied within an analytical framework, 
the CAFE Model. Just like in all past CAFE rulemakings, NHTSA 
recognizes that many analytical inputs are uncertain, and some inputs 
are very uncertain. Of those uncertain inputs, some are likely to exert 
considerable influence over specific types of estimated impacts, and 
some are likely to do so for the bulk of the analysis. Yet making 
assumptions in the face of that uncertainty is necessary when analyzing 
possible future events (e.g., consumer and industry responses to fuel 
efficiency regulation). To better understand the effect that these 
assumptions have on the analytical findings, we conducted additional 
model runs with alternative assumptions. These additional runs were 
specified in an effort to explore a range of potential inputs and the 
sensitivity of estimated impacts to changes in model inputs. 
Sensitivity cases in this analysis span assumptions related to 
technology applicability and cost, economic conditions, consumer 
preferences, externality values, and safety assumptions, among 
others.\786\ A sensitivity analysis can identify two critical pieces of 
information: How big an influence does each parameter exert on the 
analysis, and how sensitive are the model results to that assumption?
---------------------------------------------------------------------------

    \786\ In contrast to an uncertainty analysis, where many 
assumptions are varied simultaneously, the sensitivity analyses 
included here vary a single assumption and provide information about 
the influence of each individual factor, rather than suggesting that 
an alternative assumption would have justified a different Preferred 
Alternative.
---------------------------------------------------------------------------

    That said, influence is different from likelihood. NHTSA does not 
mean to suggest that any one of the sensitivity cases presented here is 
inherently more likely than the collection of

[[Page 25956]]

assumptions that represent the reference case in the figures and tables 
that follow. Nor is this sensitivity analysis intended to suggest that 
only one of the many assumptions made is likely to prove off-base with 
the passage of time or new observations. It is more likely that, when 
assumptions are eventually contradicted by future observation (e.g., 
deviations in observed and predicted fuel prices are nearly a given), 
there will be collections of assumptions, rather than individual 
parameters, that simultaneously require updating. For this reason, we 
do not interpret the sensitivity analysis as necessarily providing 
justification for alternative regulatory scenarios to be preferred. 
Rather, the analysis simply provides an indication of which assumptions 
are most critical, and the extent to which future deviations from 
central analysis assumptions could affect costs and benefits of the 
rule.
    Table V-66 lists and briefly describes the cases that we examined 
in the sensitivity analysis.
[GRAPHIC] [TIFF OMITTED] TR02MY22.217


[[Page 25957]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.218


[[Page 25958]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.219

    Complete results for the sensitivity cases are summarized in 
Chapter 7 of the accompanying FRIA, and detailed model inputs and 
outputs for curious readers are available on NHTSA's website.\787\ For 
purposes of this preamble, Figure V-14 below illustrates the relative 
change of the sensitivity effect of selected inputs on the costs and 
benefits estimated for this final rule.
---------------------------------------------------------------------------

    \787\ https://www.nhtsa.gov/laws-regulations/corporate-average-fuel-economy.

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

[[Page 25959]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.220

    While Figure V-14 does not show precise values, it gives us a sense 
of which inputs are ones for which a different assumption would have a 
much different effect on analytical findings, and which ones would not 
have much effect. Assuming a different oil price trajectory would have 
a relatively large effect, as would doubling the assumed ``payback 
period.'' Making very high levels of mass reduction available to all 
vehicles in the modeling appears to have a (relatively) very large 
effect on costs, but this is to some extent an artifact of the 
``standard setting'' runs used for the preamble and FRIA analysis, 
where electrification is limited due to statutory restrictions (i.e., 
high levels of mass reduction are being applied more widely in 
instances when electrification limits are reached). On the other hand, 
assumptions about which there has been significant disagreement in the 
past, like the rebound effect or the sales-scrappage response, appear 
to cause only relatively small changes in net benefits across the range 
of analyzed input values. Chapter 7 of the FRIA provides a much fuller 
discussion of these findings, and presents net benefits estimated under 
each of the cases included in the sensitivity analysis, including the 
subset for which impacts are summarized in Figure V-15.

[[Page 25960]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.221

    The results presented in the earlier subsections of Section V and 
discussed in Section VI reflect the agency's best judgments regarding 
many different factors, and the sensitivity analysis discussed here is 
simply to illustrate the obvious, that differences in assumptions can 
lead to differences in analytical outcomes, some of which can be large 
and some of which may be smaller than expected. Policymaking in the 
face of future uncertainty is inherently complex. Section VI explains 
how NHTSA balances the statutory factors in light of the analytical 
findings, the uncertainty that we know exists, and our Nation's policy 
goals, to determine the CAFE standards that NHTSA concludes are maximum 
feasible for MYs 2024-2026.

VI. Basis for NHTSA's Conclusion That the Final Standards are Maximum 
Feasible

    In this section, NHTSA discusses the factors, data, and analysis 
that the agency has considered in the selection of the final CAFE 
standards for MYs 2024-2026. The primary purpose of EPCA, as amended by 
EISA, and codified at 49 U.S.C. chapter 329, is energy conservation, 
and fuel economy standards help to conserve energy by requiring 
automakers to make new vehicles travel a certain distance on a gallon 
of fuel.\788\ The goal of the CAFE standards is to conserve energy, 
while taking into account the statutory factors set forth at 49 U.S.C. 
32902(f), as discussed below.
---------------------------------------------------------------------------

    \788\ While individual vehicles need not meet any particular mpg 
level, as discussed elsewhere in this preamble, fuel economy 
standards do require vehicle manufacturers' fleets to meet certain 
compliance obligations based on fuel economy levels target curves 
set forth by NHTSA in regulation.
---------------------------------------------------------------------------

    Section 32902(f) of 49 U.S.C. states that when setting maximum 
feasible CAFE standards for new passenger cars and light trucks, the 
Secretary of Transportation \789\ ``shall consider technological 
feasibility, economic practicability, the effect of other motor vehicle 
standards of the Government on fuel economy, and the need of the United 
States to conserve energy.'' In previous rulemakings, including both 
the 2012 final rule and the recent 2020 final rule, NHTSA considered 
technological feasibility, including the availability of various fuel-
economy-improving technologies to be applied to new vehicles in the 
timeframe of the standards depending on the ultimate stringency levels, 
and also considered economic practicability, including the differences 
between a range of regulatory alternatives in terms of effects on per-
vehicle costs, the ability of both the industry and individual 
manufacturers to comply with standards at various levels, as well as 
effects on vehicle sales, industry employment, and consumer demand. 
NHTSA also considered how compliance with other motor vehicle standards 
of the Government might affect manufacturers' ability to meet CAFE 
standards represented by a range of regulatory alternatives, and how 
the need of the U.S. to conserve energy could be more or less addressed 
under a range of regulatory alternatives, in terms of considerations 
like costs to consumers, the national balance of payments, 
environmental implications like climate and smog effects, and foreign 
policy effects such as the likelihood that U.S. military and other 
expenditures could change as a result of more or less oil consumed by 
the U.S. vehicle fleet. Besides the factors specified in 32902(f), 
NHTSA has also historically considered the safety effects of potential 
CAFE standards, and additionally considers relevant case law. These 
elements are discussed in detail throughout this analysis.
---------------------------------------------------------------------------

    \789\ By delegation, the NHTSA Administrator.
---------------------------------------------------------------------------

    As will be explained in greater detail below, NHTSA continues to 
consider all of the same factors in establishing revised CAFE standards 
for MYs 2024-2026 that it considered in previous rulemakings. 
Importantly, however, the agency's balancing of those factors has 
shifted, and NHTSA is therefore choosing to set CAFE standards at a 
different level from what both the 2012 final rule and the 2020 final 
rule set forth. Consideration of public comments and further analysis 
by the agency has also indicated that the proposed standards were not 
maximum feasible, and that the selected (more stringent) standards are, 
in fact, maximum feasible for MYs 2024-2026, as discussed further 
below.
    NHTSA and EPA have coordinated in setting our respective final 
standards, and many of the factors that NHTSA considers to set maximum 
feasible standards complement factors that EPA considers under the 
Clean Air Act. The balancing of different factors by both EPA and NHTSA 
are consistent with each agency's statutory authority and

[[Page 25961]]

recognize the statutory obligations the Supreme Court pointed to in 
Massachusetts v. EPA. NHTSA also considers the Ninth Circuit's decision 
in Center for Biological Diversity v. NHTSA, which remanded NHTSA's 
2006 final rule (71 FR 17566, April 6, 2006) establishing standards for 
MY 2008-2011 light trucks and underscored that ``the overarching 
purpose of EPCA is energy conservation.'' \790\
---------------------------------------------------------------------------

    \790\ 538 F.3d 1172 (9th Cir. 2008).
---------------------------------------------------------------------------

    This final rule contains a range of regulatory alternatives for MYs 
2024-2026, from retaining the 1.5 percent annual increases set in 2020, 
up to a stringency increase of 10 percent annually. The agency 
evaluated this range of alternatives based on factors relevant to 
NHTSA's exercise of its 32902(f) authority, such as fuel saved and 
emissions reduced, the technologies available to meet the standards, 
the costs of compliance for automakers and their abilities to comply by 
applying technologies, the impact on consumers with respect to cost, 
fuel savings, and vehicle choice, and effects on safety, among other 
things. Several commenters suggested that the agency consider analyzing 
either more stringent or less stringent alternatives as part of this 
final rule; those comments are addressed in Section IV.
    After consideration of the factors described below and information 
in the administrative record for this action, including public 
comments, NHTSA has concluded that standards that increase at a rate of 
8 percent, 8 percent, and 10 percent in stringency for MYs 2024, 2025, 
and 2026, respectively (Alternative 2.5 of this analysis) are maximum 
feasible. NHTSA has determined that the need of the United States to 
conserve energy compels more stringent standards if they appear 
consistent with the other factors that NHTSA must consider, 
particularly in light of introduction by industry of many new vehicles 
with significant fuel economy improvements independent of this or any 
other agency action. NHTSA has determined that Alternative 2.5 is 
technologically feasible, economically practicable (based on manageable 
average per-vehicle cost increases, significant consumer benefits, 
minimal effects on sales, and estimated increases in employment, among 
other things), and complementary to other motor vehicle standards of 
the Government that are simultaneously applicable, as described below. 
Despite only two years having passed since the 2020 final rule, enough 
has changed in the U.S. and the world that revisiting the CAFE 
standards for MYs 2024-2026, and raising their stringency considerably, 
is both appropriate and reasonable.
    The following sections discuss in more detail the statutory 
requirements and considerations involved in NHTSA's determination of 
maximum feasible CAFE standards, and NHTSA's explanation of its 
balancing of factors for this determination.

A. EPCA, as Amended by EISA

    EPCA, as amended by EISA, contains a number of provisions regarding 
how NHTSA must set CAFE standards. DOT (by delegation, NHTSA) \791\ 
must establish separate CAFE standards for passenger cars and light 
trucks \792\ for each model year,\793\ and each standard must be the 
maximum feasible that the Secretary (again, by delegation, NHTSA) 
believes the manufacturers can achieve in that model year.\794\ In 
determining the maximum feasible levels of CAFE standards, EPCA 
requires that NHTSA consider four statutory factors: Technological 
feasibility, economic practicability, the effect of other motor vehicle 
standards of the Government on fuel economy, and the need of the United 
States to conserve energy.\795\ In addition, NHTSA has the authority to 
consider (and typically does consider) other relevant factors, such as 
the effect of CAFE standards on motor vehicle safety and consumer 
preferences. The ultimate determination of what standards can be 
considered maximum feasible involves a weighing and balancing of 
factors, and the balance may shift depending on the information before 
NHTSA about the expected circumstances in the model years covered by 
the rulemaking. The agency's decision must also be guided by the 
overarching purpose of EPCA, energy conservation, while balancing these 
factors.\796\
---------------------------------------------------------------------------

    \791\ EPCA and EISA direct the Secretary of Transportation to 
develop, implement, and enforce fuel economy standards (see 49 
U.S.C. 32901 et seq.), which authority the Secretary has delegated 
to NHTSA at 49 CFR 1.95(a).
    \792\ 49 U.S.C. 32902(b)(1) (2007).
    \793\ 49 U.S.C. 32902(a) (2007).
    \794\ Id.
    \795\ 49 U.S.C. 32902(f) (2007).
    \796\ Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 
1197 (9th Cir. 2008) (``Whatever method it uses, NHTSA cannot set 
fuel economy standards that are contrary to Congress's purpose in 
enacting the EPCA--energy conservation.'').
---------------------------------------------------------------------------

    Besides the requirement that the standards be maximum feasible for 
the fleet in question and the model year in question, EPCA/EISA also 
contain several other requirements, as follow.
1. Lead Time
    EPCA requires that NHTSA prescribe new CAFE standards at least 18 
months before the beginning of each model year.\797\ For amendments to 
existing standards (as this rule establishes), EPCA requires that if 
the amendments make an average fuel economy standard more stringent, at 
least 18 months of lead time must be provided.\798\ Thus, if the first 
year for which NHTSA is amending standards in this rule is MY 2024, 
NHTSA interprets this provision as requiring the agency to issue a 
final rule covering MY 2024 standards no later than April 2022. 
Commenters who raised the issue of lead time nearly universally did so 
in the context of economic practicability; those comments have been 
summarized and addressed in that section below.
---------------------------------------------------------------------------

    \797\ 49 U.S.C. 32902(a) (2007).
    \798\ 49 U.S.C. 32902(g)(2) (2007).
---------------------------------------------------------------------------

2. Separate Standards for Cars and Trucks, and Minimum Standards for 
Domestic Passenger Cars
    As mentioned above, EPCA requires NHTSA to set separate standards 
for passenger cars and light trucks for each model year.\799\ Based on 
the plain language of the statute, NHTSA has long interpreted this 
requirement as preventing the agency from setting a single combined 
CAFE standard for cars and trucks together. Congress originally 
required separate CAFE standards for cars and trucks to reflect the 
different fuel economy capabilities of those different types of 
vehicles, and over the history of the CAFE program, has never revised 
this requirement. Even as many cars and trucks have come to resemble 
each other more closely over time--many crossover and sport-utility 
models, for example, come in versions today that may be subject to 
either the car standards or the truck standards depending on their 
characteristics--it is still accurate to say that vehicles with truck-
like characteristics such as 4-wheel drive, cargo-carrying capability, 
etc., currently consume more fuel per mile than vehicles without these 
characteristics.
---------------------------------------------------------------------------

    \799\ 49 U.S.C. 32902(b)(1) (2007).
    \800\ In the CAFE program, ``domestically manufactured'' is 
defined by Congress in 49 U.S.C. 32904(b). The definition roughly 
provides that a passenger car is ``domestically manufactured'' as 
long as at least 75 percent of the cost to the manufacturer is 
attributable to value added in the United States, Canada, or Mexico, 
unless the assembly of the vehicle is completed in Canada or Mexico 
and the vehicle is imported into the United States more than 30 days 
after the end of the model year.
---------------------------------------------------------------------------

    EPCA, as amended by EISA, also requires another separate standard 
to be set for domestically manufactured \800\ passenger cars. Unlike 
the generally applicable standards for passenger cars and light trucks 
described above, the

[[Page 25962]]

compliance obligation of the minimum domestic passenger car standard 
(MDPCS for brevity) is identical for all manufacturers. The statute 
clearly states that any manufacturer's domestically manufactured 
passenger car fleet must meet the greater of either 27.5 mpg on 
average, or ``92 percent of the average fuel economy projected by the 
Secretary for the combined domestic and non-domestic passenger 
automobile fleets manufactured for sale in the United States by all 
manufacturers in the model year, which projection shall be published in 
the Federal Register when the standard for that model year is 
promulgated in accordance with [49 U.S.C. 32902(b)].'' \801\
---------------------------------------------------------------------------

    \801\ 49 U.S.C. 32902(b)(4) (2007).
---------------------------------------------------------------------------

    The organization Securing America's Future Energy commented that 
the structure of the CAFE program is overly complex, with separate 
standards for passenger cars and light trucks, and the MDPCS. Securing 
America's Future Energy stated that while credit mechanisms implemented 
with the passage of EISA ``allow automakers to achieve the same level 
of fuel consumption at a lower cost,'' the ``mechanisms . . . remain 
cumbersome.'' \802\ NHTSA agrees that the CAFE program has these 
attributes, but notes that the aspects of the program identified by the 
commenter are statutory, and thus beyond the agency's power to address.
---------------------------------------------------------------------------

    \802\ Securing America's Future Energy, Docket No. NHTSA-2021-
0053-1513, at 18.
---------------------------------------------------------------------------

    With regard to the MDPCS in particular, since that requirement was 
promulgated, the ``92 percent'' has always been greater than 27.5 mpg, 
and foreseeably will continue to be so in the future. While NHTSA 
published MDPCSs for MYs 2024-2026 at 49 CFR 531.5(d) as part of the 
2020 final rule, the statutory language is clear that the MDPCS must be 
determined at the time that an overall passenger car standard is 
promulgated and published in the Federal Register. Thus, any time NHTSA 
establishes or changes a passenger car standard for a model year, the 
MDPCS must also be evaluated or re-evaluated and established 
accordingly.
    As in the 2020 final rule, NHTSA recognizes industry concerns that 
actual total passenger car fleet standards have differed significantly 
from past projections, perhaps more so when the agency has projected 
significantly into the future. In that final rule, because the 
compliance data showed that the standards projected in 2012 were 
consistently more stringent than the actual standards, by an average of 
1.9 percent. NHTSA stated that this difference indicated that in 
rulemakings conducted in 2009 through 2012, NHTSA's and EPA's 
projections of passenger car vehicle footprints and production volumes, 
in retrospect, underestimated the production of larger passenger cars 
over the MYs 2011 to 2018 period.\803\
---------------------------------------------------------------------------

    \803\ See 85 FR 25127 (Apr. 30, 2020).
---------------------------------------------------------------------------

    Unlike the passenger car standards and light truck standards which 
are vehicle-attribute-based and automatically adjust with changes in 
consumer demand, the MDPCS are not attribute-based, and therefore do 
not adjust with changes in consumer demand and production. They are 
instead fixed standards that are established at the time of the 
rulemaking. As a result, by assuming a smaller-footprint fleet, on 
average, than what ended up being produced, the MY 2011-2018 MDPCS 
ended up being more stringent and placing a greater burden on 
manufacturers of domestic passenger cars than was projected and 
expected at the time of the rulemakings that established those 
standards. In the 2020 final rule, therefore, NHTSA agreed with 
industry concerns over the impact of changes in consumer demand (as 
compared to what was assumed in 2012 about future consumer demand for 
greater fuel economy) on manufacturers' ability to comply with the 
MDPCS and in particular, manufacturers that produce larger passenger 
cars domestically. Some of the largest civil penalties for 
noncompliance in the history of the CAFE program have been paid for 
noncompliance with the MDPCS. NHTSA also expressed concern at that time 
that consumer demand may shift even more in the direction of larger 
passenger cars if fuel prices continue to remain low. Sustained low oil 
prices can be expected to have real effects on consumer demand for 
additional fuel economy, and if that occurs, consumers may foreseeably 
be even more interested in 2WD crossovers and passenger-car-fleet SUVs 
(and less interested in smaller passenger cars) than they are at 
present.
    Therefore, in the 2020 final rule, to help avoid similar outcomes 
in the 2021-2026 timeframe to what had happened with the MDPCS over the 
preceding model years, NHTSA determined that it was reasonable and 
appropriate to consider the recent projection errors as part of 
estimating the total passenger car fleet fuel economy for MYs 2021-
2026. NHTSA therefore projected the total passenger car fleet fuel 
economy using the central analysis value in each model year, and 
applied an offset based on the historical 1.9 percent difference 
identified for MYs 2011-2018.
    In the proposal, NHTSA proposed to retain the 1.9 percent offset 
for the MDPCS for MYs 2024-2026, on the basis that the proposal would 
increase stringency considerably over the baseline standards and that 
civil penalties have also recently increased, so that the MDPCS may 
continue to pose a significant challenge to certain manufacturers. 
Table VI-1 shows the calculation values used to determine the total 
passenger car fleet fuel economy value for each model year for the 
proposal.

[[Page 25963]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.222

    Using this approach, the MDPCS under each regulatory alternative 
considered in the proposal was thus as shown in Table VI-2.
[GRAPHIC] [TIFF OMITTED] TR02MY22.223

    NHTSA sought comment on another approach to offsetting the MDPCS, 
which attempted to project explicitly how passenger car footprints 
might change in the future. NHTSA stated that examination of the 
average footprints of passenger cars sold in the U.S. from 2008, when 
EPA began reporting footprint data, to 2020 indicated a clear and 
statistically significant trend of gradually increasing average 
footprint (Figure VI-1). The average annual increase in passenger car 
footprint, estimated by ordinary least squares, indicated that the 
passenger car footprints increased by an average of 0.1206 square feet 
annually over the 2008-2020 period. The estimated average increase was 
statistically significant at the 0.000001 level, with a 95 percent 
confidence interval of (0.0929, 0.1483).

[[Page 25964]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.224

    The alternate method for calculating an offset to the MDPCS was 
described as consisting of three steps, as follows:
     Starting from the average footprint of passenger cars in 
2020 as reported by EPA, add 0.1206 square feet per year through 2026.
     Calculate the estimated fuel economy of passenger cars 
using the average projected footprint numbers calculated in step 1 and 
the footprint functions that are the passenger car standards for the 
corresponding model year, which then become ``the Secretary's projected 
passenger car fuel economy numbers.''
     Apply the 92 percent factor to calculate the MDPCS for 
2024, 2025, and 2026.
    The results of this approach are shown in Table VI-3.
    [GRAPHIC] [TIFF OMITTED] TR02MY22.225
    
    Comparing all of these, Table VI-4 shows (1) the unadjusted 92 
percent MDPCS for MYs 2024-2026, (2) the proposed 1.9 percent-offset 
MDPCS for MYs 2024-2026, and (3) the alternate approach offset MDPCS 
for MYs 2024-2026.

[[Page 25965]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.226

BILLING CODE 4910-59-C
    While the CAFE Model analysis underlying the proposal, the PRIA, 
and the Draft SEIS did not reflect an offset to the unadjusted 92 
percent MDPCS, separate analysis that did reflect the change 
demonstrated that doing so did not change estimated impacts of any of 
the regulatory alternatives under consideration, despite the mpg values 
being slightly different as shown in Table VI-4.
    NHTSA sought comment on the discussion above, and also on whether 
to apply the MDPCS without any modifier.
    Comments on the MDPCS were mixed. Industry commenters generally 
supported the proposal to continue to adjust the MDPCS downward.\804\ 
Other commenters disagreed with the proposal to continue to adjust the 
MDPCS. The UAW expressed concern that automakers' strategies for 
complying with the MDPCS might involve ``gaming the system,'' and 
stated that ``. . . regulations and laws should be structured to 
incentivize the production of a diverse domestic fleet and not weaken 
the intended purpose of the [MDPCS].'' \805\ A coalition of 
environmental group commenters stated that the adjustment was 
unlawful,\806\ and UCS provided additional separate comments arguing 
that ``NHTSA must base the MDPCS on NHTSA's passenger car footprint 
projections in the central analysis of the rule, as is legally 
required.'' \807\ UCS commented that ``[i]t is patently arbitrary to 
conduct the analysis for CAFE standards using a certain set of 
projections, and then, when setting other standards in the same 
rulemaking, state that the projections in the main analysis are wrong. 
The agency either has confidence in the projections in the central 
analysis or they do not; and if they do not, they should change them.'' 
\808\ Regarding the alternative approach to offsetting the MDPCS on 
which NHTSA sought comment, UCS stated that it was fundamentally 
similar to the proposed approach to offsetting, and ``[t]he agency 
shows no substantial benefit to this alternative approach, and instead 
finds quite clearly just how drastically either offset differs from the 
values found in its central analysis underpinning the rule.'' \809\ UCS 
further argued that it was unreasonable to assume that the adjustment 
could only go in one direction, because it was entirely possible that 
passenger car footprints could shift smaller depending on future fuel 
prices.\810\
---------------------------------------------------------------------------

    \804\ See, e.g., Auto Innovators, Docket No. NHTSA-2021-0053-
1492, at 15, 55-56; Ford, Docket No. NHTSA-2021-0053-1545, at 2.
    \805\ UAW, Docket No. NHTSA-2021-0053-0931, at 4.
    \806\ CBD et al., Docket No. NHTSA-2021-0053-1572, at 9.
    \807\ UCS, Docket No. NHTSA-2021-0053-1567, at 23-24.
    \808\ Id. at 21.
    \809\ Id.
    \810\ Id. at 24.
---------------------------------------------------------------------------

    For the final rule, NHTSA is continuing to employ the 1.9 percent 
offset for the MDPCS. NHTSA disagrees that EISA requires the agency to 
base the MDPCS specifically on the passenger car footprint projections 
for the central analysis, because 49 U.S.C. 32902 simply states ``92 
percent of the average fuel economy projected by the Secretary'' 
(emphasis added) for the combined passenger car fleet for the model 
year(s) in question. NHTSA agrees with both industry commenters and UCS 
that it is difficult to predict passenger car footprint trends in 
advance, which means that, as various commenters have consistently 
noted, the MDPCS may turn out quite different from 92 percent of the 
ultimate average passenger car standard once a model year is complete. 
Nevertheless, NHTSA is setting the MDPCS as part of this rulemaking, 
consistent with the statute,

[[Page 25966]]

recognizing that it will not adjust in response to those footprint 
trends unless and until NHTSA conducts a new rulemaking. NHTSA is also 
concerned, as the UAW commenters suggested, that automakers struggling 
to meet the unadjusted MDPCS may choose to import their passenger cars 
rather than producing them domestically. Given the stringency of the 
overall standards and the increase in the civil penalty rate, NHTSA 
continues to believe that this adjustment is appropriate, reasonable, 
and consistent with Congress' intent.
3. Attribute-Based and Defined by a Mathematical Function
    EISA requires NHTSA to set CAFE standards that are ``based on 1 or 
more attributes related to fuel economy and express[ed] . . . in the 
form of a mathematical function.'' \811\ Historically, NHTSA has based 
standards on vehicle footprint, and proposed to continue to do so for 
MYs 2024-2026. As in previous rulemakings, NHTSA proposed to define the 
standards in the form of a constrained linear function that generally 
sets higher (more stringent) targets for smaller-footprint vehicles and 
lower (less stringent) targets for larger-footprint vehicles. NHTSA 
sought comment both on the continued use of footprint as the relevant 
attribute and on the continued use of the constrained linear curve 
shapes. Comments received on those topics are addressed and responded 
to in Section III.B of the preamble.
---------------------------------------------------------------------------

    \811\ 49 U.S.C. 32902(b)(3)(A) (2007).
---------------------------------------------------------------------------

    A coalition of environmental group commenters urged NHTSA to set a 
``backstop,'' or ``minimum standard below which the actual performance 
of the fleet may not fall.'' \812\ The commenters stated that, ``[f]or 
example, in MY 2019, the most recent year for which information is 
available, the fleet mix of sedans and station wagons had shifted to 
only 33 percent of the fleet, compared to 80 percent in MY 1975. As a 
result of mix shift changes like this, real-world fuel economy has been 
lower than NHTSA has previously projected.'' \813\ The commenters 
argued that ``NHTSA should explain why it failed to propose a backstop 
in this rulemaking and should commit to doing so in its next 
rulemaking.'' \814\
---------------------------------------------------------------------------

    \812\ CBD, et al., at 9-10.
    \813\ Id.
    \814\ Id.
---------------------------------------------------------------------------

    In response, finalizing a backstop as part of this rulemaking is 
not within scope, because (as commenters note) NHTSA did not propose a 
backstop nor discuss one in the NPRM. However, as NHTSA explained in 
the 2012 final rule in response to similar comments, the MDPCS ``was 
intended to act as a `backstop,' ensuring that domestically-
manufactured passenger cars reached a given mpg level even if the 
market shifted in ways likely to reduce overall fleet mpg. Congress was 
silent as to whether the agency could or should develop similar 
backstop standards for imported passenger cars and light trucks. NHTSA 
has struggled with this question since EISA was enacted.'' \815\ Even 
in the 2010 final rule (75 FR 25324, May 7, 2010), NHTSA considered 
this question and declined to enact additional minimum standards for 
imported passenger cars and light trucks, out of concern about the 
possibility of such standards imposing inequitable regulatory burdens 
of the kind that attribute-based standards sought to avoid. NHTSA 
stated that:
---------------------------------------------------------------------------

    \815\ 77 FR 63020 (Oct. 15, 2012).

Unless the backstop was at a very weak level, above the high end of 
this range, then some percentage of manufacturers would be above the 
backstop even if the performance of the entire industry remains 
fully consistent with the emissions and fuel economy levels 
projected for the final standards. For these manufacturers and any 
other manufacturers who were above the backstop, the objectives of 
an attribute-based standard would be compromised and unnecessary 
costs would be imposed. This could directionally impose increased 
costs for some manufacturers. It would be difficult if not 
impossible to establish the level of a backstop standard such that 
costs are likely to be imposed on manufacturers only when there is a 
failure to achieve the projected reductions across the industry as a 
whole. An example of this kind of industry-wide situation could be 
when there is a significant shift to larger vehicles across the 
industry as a whole, or if there is a general market shift from cars 
to trucks. The problem the agenc[y is] concerned about in those 
circumstances is not with respect to any single manufacturer, but 
rather is based on concerns over shifts across the fleet as a whole, 
as compared to shifts in one manufacturer's fleet that may be more 
than offset by shifts the other way in another manufacturer's fleet. 
However, in this respect, a traditional backstop acts as a 
manufacturer-specific standard.\816\
---------------------------------------------------------------------------

    \816\ 75 FR 25324, 25369 (May 7, 2010).

---------------------------------------------------------------------------
    In the 2012 final rule, NHTSA stated that:

We continue to agree with the environmental and consumer group 
commenters that we have authority to adopt additional backstop 
standards if we deem it appropriate to do so. However, we also 
continue to conclude that insufficient time has passed in which 
manufacturers have been subject to the attribute-based standards to 
assess whether or not backstops would in fact help ensure that fuel 
savings anticipated by the agency at the time of the final rule are 
met, and even if they did, whether the benefits of that insurance 
outweigh potential impacts [on] consumer choice that could occur by 
heading down the road that Congress rejected when it required CAFE 
standards to be attribute-based. If we determined that backstops for 
imported passenger cars and light trucks were necessary, it would be 
because consumers are choosing different (likely larger) vehicles in 
the future than the agencies assumed in this rulemaking analysis. 
Imposing additional backstop standards for those fleets would 
require manufacturers to build vehicles which the majority of 
consumers (under this scenario) would presumably not want. Vehicles 
that cannot be sold are the essence of economic impracticability, 
and vehicles that do not sell cannot save fuel or reduce emissions, 
because they are not on the roads, and thus do not meet the need of 
the nation to conserve fuel.

On the other hand, based on the assumptions underlying the analysis 
for this rulemaking, consumers will experience significant benefits 
as a result of buying the vehicles manufactured to meet these 
standards. We have no reason to expect that consumers will turn a 
blind eye to these benefits, and recent trends indicate that fuel 
economy is rising in importance as a factor in vehicle purchasing 
decisions. We thus conclude, for purposes of this final rule, that 
imposing additional backstop standards for imported passenger cars 
and light trucks would be premature. As stated in the NPRM, NHTSA 
will continue to monitor vehicle sales trends and manufacturers' 
response to the standards, and we will revisit this issue as part of 
the future rulemaking to develop final standards for MYs 2022-
2025.\817\
---------------------------------------------------------------------------

    \817\ 77 FR 63022 (Oct. 15, 2012).

    It appears that this question has ripened. Looking at the EPA 
Automotive Trends Report for 2021, there has been growth in vehicle 
---------------------------------------------------------------------------
size and mix shifts from cars to trucks and SUVs over time:

Between MY 2008 and 2020, fuel economy and footprint increased 
within each of the five vehicle types, and horsepower increased in 
four. Weight decreased within each of the vehicle types. These 
trends within vehicle types are largely attributable to design and 
technology changes over that time span. In addition to technology 
changes, the market shifted towards car and truck SUVs, which are 
often larger, heavier, more powerful, and less fuel efficient than 
sedan/wagons they replaced. These market changes increased the 
overall horsepower and footprint of the average new vehicle, 
compared to technology-driven changes alone. The trend towards 
larger, heavier, and more powerful vehicles has also offset some of 
the fleetwide fuel economy and CO2 emission benefits that 
otherwise would have been achieved through improving technology. 
Market trends led to an increase in the weight of a new average 
vehicle, even as weight fell within each vehicle type.\818\
---------------------------------------------------------------------------

    \818\ EPA Automotive Trends Report, 2021, Highlights. Available 
at https://www.epa.gov/automotive-trends/highlights-automotive-trends-report. (Accessed: March 15, 2022)


[[Page 25967]]


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

    EPA goes on to note, however, that most manufacturers have improved 
fuel economy and reduced CO2 emissions over the MY 2015-2020 
time frame, explaining that most increases in emissions/reductions in 
fuel economy at a manufacturer level occur because (as commenters 
suggested) the manufacturers are producing more SUV/trucks and fewer 
sedan/wagons.\819\ Fleetwide, emissions and fuel economy are still the 
best they have ever been, and continue to improve.
---------------------------------------------------------------------------

    \819\ Id.
---------------------------------------------------------------------------

    At the industry-wide and individual-manufacturer level, then, to 
the extent that ``backsliding'' is occurring, it appears to be the 
result of trucks and SUVs increasing their share of the market, and 
sedans and station wagons decreasing theirs. It is not clear to NHTSA 
at this time that setting minimum standards for imported passenger cars 
and light trucks comparable to the MDPCS would meaningfully change this 
market trend. Looking forward, as discussed further below, 
manufacturers themselves may be improving this situation by offering 
more and more higher-fuel-economy vehicles in a variety of segments. If 
American consumers continue to seek out pickups, automakers are 
increasingly responding with advanced technology, higher-fuel-economy 
offerings, even in that segment. Moreover, recognizing that not all 
consumers will want these specific technology vehicles, NHTSA still 
believes that setting stringent attribute-based standards, as NHTSA is 
doing in this rulemaking, will require manufacturers to keep improving 
all their vehicles. NHTSA thus concludes that additional minimum 
standards for imported passenger cars and light trucks, besides being 
out of scope for this final rule, are not warranted at this time. If 
evidence surfaces that manufacturers are, in fact, letting ICE vehicle 
fuel economy languish while complying solely (or heavily) with BEV 
technology, NHTSA would consider this an equity issue and would 
reevaluate our position on additional minimum standards.
4. Number of Model Years for Which Standards May Be Set at a Time
    EISA also states that NHTSA shall ``issue regulations under this 
title prescribing average fuel economy standards for at least 1, but 
not more than 5, model years.'' \820\ In this rule, NHTSA is setting 
CAFE standards for three model years, MYs 2024-2026. This action fits 
squarely within the plain language of the statute. No comments were 
received on this statutory requirement.
---------------------------------------------------------------------------

    \820\ 49 U.S.C. 32902(b)(3)(B) (2007).
---------------------------------------------------------------------------

5. Maximum Feasible Standards
    As discussed above, EPCA requires NHTSA to consider four factors in 
determining what levels of CAFE standards would be maximum feasible. 
NHTSA presents in the sections below its understanding of the meanings 
of those four factors.
(a) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular method 
of improving fuel economy is available for deployment in commercial 
application in the model year for which a standard is being 
established. Thus, NHTSA is not limited in determining the level of new 
standards to technology that is already being applied commercially at 
the time of the rulemaking. For both the proposal and for this final 
rule, NHTSA has considered a wide range of technologies that improve 
fuel economy, while considering the need to account for which 
technologies have already been applied to which vehicle model/
configuration, as well as the need to estimate realistically the cost 
and fuel economy impacts of each technology as applied to different 
vehicle models/configurations. NHTSA has not, however, attempted to 
account for every technology that might conceivably be applied to 
improve fuel economy, nor does NHTSA believe it is necessary to do so 
given that many technologies address fuel economy in similar ways.\821\
---------------------------------------------------------------------------

    \821\ For example, NHTSA has not considered high-speed flywheels 
as potential energy storage devices for hybrid vehicles; while such 
flywheels have been demonstrated in the laboratory and even tested 
in concept vehicles, commercially available hybrid vehicles 
currently known to NHTSA use chemical batteries as energy storage 
devices, and the agency has considered a range of hybrid vehicle 
technologies that do so.
---------------------------------------------------------------------------

    NHTSA notes that the technological feasibility factor allows NHTSA 
to set standards that force the development and application of new 
fuel-efficient technologies, but this factor does not require NHTSA to 
do so.\822\ In the 2012 final rule, NHTSA stated that ``[i]t is 
important to remember that technological feasibility must also be 
balanced with the other of the four statutory factors. Thus, while 
`technological feasibility' can drive standards higher by assuming the 
use of technologies that are not yet commercial, `maximum feasible' is 
also defined in terms of economic practicability, for example, which 
might caution the agency against basing standards (even fairly distant 
standards) entirely on such technologies.'' \823\
---------------------------------------------------------------------------

    \822\ See 77 FR 63015 (Oct. 12, 2012).
    \823\ Id.
---------------------------------------------------------------------------

    NHTSA further stated that ``as the `maximum feasible' balancing may 
vary depending on the circumstances at hand for the model year in which 
the standards are set, the extent to which technological feasibility is 
simply met or plays a more dynamic role may also shift.'' \824\ In the 
proposal, NHTSA stated that for purposes of MYs 2024-2026, NHTSA was 
certain that sufficient technology exists to meet the standards--even 
for the most stringent regulatory alternative. NHTSA further explained 
that for the proposal, the question was more likely rather, given that 
the technology exists, how much of it should be required to be added to 
new cars and trucks in order to conserve more energy, and how to 
balance that objective against the additional cost of adding that 
technology.
---------------------------------------------------------------------------

    \824\ Id.
---------------------------------------------------------------------------

    Most commenters addressing the question of technological 
feasibility supported the agency's interpretation of the factor and 
agreed that all of the regulatory alternatives considered in the 
proposal were likely technologically feasible. Supplier organizations 
such as Manufacturers of Emission Controls Association (MECA) and Motor 
& Equipment Manufacturers Association (MEMA) agreed that the proposal 
would encourage broad deployment of a variety of available technologies 
for compliance, while encouraging innovation, with MEMA stating that 
the proposed targets were achievable with currently available 
technology resulting from long-term supplier commitments and 
investments.\825\ CARB stated that Alternative 3 was technologically 
feasible.\826\ EDF stated that ``more protective standards'' (i.e., 
than those set in the 2020 final rule) were technologically feasible 
because NHTSA had previously found that more stringent alternatives 
were technologically feasible, both in the 2012 final rule and in the 
2016 Draft TAR, because the California Framework Agreements had 
occurred, and ``[t]he technological feasibility of stronger standards 
is also supported by the fact that many manufacturers, after the SAFE2 
rule, did not change `significantly' from product plans

[[Page 25968]]

established in response to the 2012 standards.'' \827\
---------------------------------------------------------------------------

    \825\ MECA, Docket No. NHTSA-2021-0053-1113, at 2; MEMA, Docket 
No. NHTSA-2021-0053-1528, at 3, 5.
    \826\ CARB, Docket No. NHTSA-2021-0053-1521, at 2.
    \827\ EDF, Docket No. NHTSA-2021-0053-1617, at 3-4.
---------------------------------------------------------------------------

    AFPM, in contrast, argued that the proposed standards were beyond 
technologically feasible because OEMs are currently relying on credits 
to meet the existing standards. AFPM argued that ``[r]ather than 
presenting existing data in its Proposal, NHTSA apparently relies on 
aspirational press releases from automakers . . . . Aspiration does not 
equate to technological feasibility, not have previous aspirational 
statements proved accurate. . . . NHTSA is relying on a major increase 
in EVs in order for OEMs to comply, when it should be setting standards 
that can feasibly be met with gasoline and diesel vehicles only.'' 
\828\ AFPM argued that because the proposed standards were beyond 
technologically feasible, they were therefore contrary to law.\829\
---------------------------------------------------------------------------

    \828\ AFPM, Docket No. NHTSA-2021-0053-1530, at 4-5.
    \829\ Id., at 5.
---------------------------------------------------------------------------

    With regard to NHTSA's interpretation of the technological 
feasibility factor, California Attorney General et al. agreed with 
NHTSA's definition and analysis, stating that ``[t]he technology needed 
to meet the Proposed Standards already exists, and those standards are 
therefore achievable.'' South Coast AQMD commented that every 
regulatory alternative was technologically feasible, and argued that by 
reframing the technological feasibility factor in the context of the 
other factors, NHTSA sought to ``double count'' ``the constraints 
imposed by the economic practicability factor and ignore the 
implications of how technology today supports even the most stringent 
alternative standard in the most distant year.'' \830\ South Coast AQMD 
concluded that ``[t]his factor should thus weigh in favor of more 
stringent standards, given the Congressional purpose to conserve energy 
even through forcing technology beyond what the market would derive 
independently.'' \831\ EDF cited Center for Auto Safety in its comments 
and stated that Congress intended for the technological feasibility 
factor to be technology forcing when NHTSA was determining maximum 
feasible standards, and that NHTSA was not limited by the technology 
available at the time of the rulemaking.\832\ Tesla similarly commented 
that because courts have described EPCA as technology forcing, 
``[t]hus, NHTSA's evaluation of technological feasibility should 
naturally include an evaluation of technology beyond those currently in 
commercial use, including advanced or cutting-edge vehicle 
technologies.'' \833\
---------------------------------------------------------------------------

    \830\ South Coast AQMD, Docket No. NHTSA-2021-0053-1477, at 4.
    \831\ Id., at 3-4.
    \832\ EDF, at 3.
    \833\ Tesla, Docket No. NHTSA-2021-0053-1480-A1, at 4.
---------------------------------------------------------------------------

    In response, NHTSA continues to believe, consistent with most 
comments, that all of the regulatory alternatives considered in the 
proposal and in this final rule are technologically feasible, because 
the technology to meet them exists already. NHTSA agrees that the 
technological feasibility factor can be technology-forcing, as NHTSA 
has been saying since the 2012 final rule. To the extent that one 
interprets ``technology-forcing'' as ``requiring the introduction of 
more existing technology than consumers might otherwise request in the 
absence of new standards,'' then NHTSA agrees that the final standards 
are technology-forcing in that respect, but they do not compel the 
introduction of yet-unproven technologies.
    Thus, technological feasibility is one factor considered in the 
context of the others--as such, NHTSA does not agree with South Coast 
AQMD that NHTSA is ``double-counting'' economic practicability. NHTSA 
is simply balancing the factors together by concluding that ``if enough 
technology exists to meet standards represented by each regulatory 
alternative, then technological feasibility is not at issue; the next 
question is one of economic practicability, and how much technology can 
be applied before costs become too high for the market to bear?''
    With regard to the comments from AFPM, NHTSA first wishes to 
clarify that the agency's decision of maximum feasible standards does 
not rely on future manufacturer electrification, as the analysis 
supporting this rule shows a path toward achieving compliance with the 
final standards without increasing reliance on electrification. The 
agency is simply noting that if companies want to choose a different 
technology path from the one we present in our modeling, which they 
seem to be indicating they are likely to do, then compliance with the 
final standards may be even more cost-effective.
    The agency also disagrees that product announcements are poor 
evidence of future manufacturer intent, particularly from established 
manufacturers, and particularly given evidence that in addition to the 
announcements, manufacturers have already introduced a number of new 
highly fuel efficient models in addition to planned and announced 
rollouts. And consumers are responding with increasing purchases of 
these vehicles. If the announcements could not be trusted, then the 
vehicles would not be appearing for reservation and sale--and yet the 
vehicles are beginning to appear for reservation and sale. 
Additionally, these vehicles are, for the most part, based on existing 
fuel-economy-improving technologies, even if they represent 
improvements on those technologies. Moreover, the stock market would 
stop rewarding OEMs who backtrack repeatedly on announcements, which 
would foreseeably discourage such backtracking. In short, 
announcements, combined with emerging evidence from consumers and the 
stock market confirming that most announcements, particularly from 
major automakers, reflect reality, makes NHTSA comfortable that 
reliance--in part--on the announcements is justified.
(b) Economic Practicability
    ``Economic practicability'' has consistently referred to whether a 
standard is one ``within the financial capability of the industry, but 
not so stringent as to'' lead to ``adverse economic consequences, such 
as a significant loss of jobs or unreasonable elimination of consumer 
choice.'' \834\ In evaluating economic practicability, NHTSA considers 
the uncertainty surrounding future market conditions and consumer 
demand for fuel economy alongside consumer demand for other vehicle 
attributes. There is not necessarily a bright-line test for whether a 
regulatory alternative is economically practicable, but there are 
several metrics that we discuss below that we find can be useful for 
making this assessment. In determining whether standards may or may not 
be economically practicable, NHTSA considers:
---------------------------------------------------------------------------

    \834\ 67 FR 77015, 77021 (Dec. 16, 2002).
---------------------------------------------------------------------------

    Application rate of technologies--whether it appears that a 
regulatory alternative would impose undue burden on manufacturers in 
either or both the near and long term in terms of how much and which 
technologies might be required. This metric connects to the next two 
metrics, as well.
    Other technology-related considerations--related to the application 
rate of technologies, whether it appears that the burden on several or 
more manufacturers might cause them to respond to the standards in ways 
that compromise, for example, vehicle safety, or other aspects of 
performance that may be important to consumer acceptance of new 
products.

[[Page 25969]]

    Cost of meeting the standards--even if the technology exists and it 
appears that manufacturers can apply it consistent with their product 
cadence, if meeting the standards will raise per-vehicle cost more than 
we believe consumers are likely to accept, which could negatively 
impact sales and employment in this sector, the standards may not be 
economically practicable. While consumer acceptance of additional new 
vehicle cost associated with more stringent CAFE standards is 
uncertain, NHTSA still finds this metric useful for evaluating economic 
practicability.
    Sales and employment responses--as discussed above, sales and 
employment responses have historically been key to NHTSA's 
understanding of economic practicability.
    Uncertainty and consumer acceptance \835\ of technologies--
considerations not accounted for expressly in our modeling analysis, 
but important to an assessment of economic practicability given the 
timeframe of this rulemaking. Consumer acceptance can involve 
consideration of anticipated consumer responses not just to increased 
vehicle cost and consumer valuation of fuel economy, but also the way 
manufacturers may change vehicle models and vehicle sales mix in 
response to CAFE standards.
---------------------------------------------------------------------------

    \835\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d 
1322 (D.C. Cir. 1986) (Administrator's consideration of market 
demand as component of economic practicability found to be 
reasonable).
---------------------------------------------------------------------------

    Over time, NHTSA has tried different methods to account for 
economic practicability. Many years ago, prior to the MY 2005-2007 
rulemaking (68 FR 16868, April 7, 2003) under the non-attribute-based 
(fixed value) CAFE standards, NHTSA sought to ensure the economic 
practicability of standards in part by setting them at or near the 
capability of the ``least capable manufacturer'' with a significant 
share of the market, i.e., typically the manufacturer whose fleet mix 
was, on average, the largest and heaviest, generally having the highest 
capacity and capability so as not to limit the availability of those 
types of vehicles to consumers. NHTSA rejected the ``least capable 
manufacturer'' approach several rulemakings ago and no longer believes 
that it is consistent with our root interpretation of economic 
practicability. Economic practicability focuses on the capability of 
the industry and seeks to avoid adverse consequences such as (inter 
alia) a significant loss of jobs or unreasonable elimination of 
consumer choice. If the overarching purpose of EPCA is energy 
conservation, NHTSA believes that it is reasonable to expect that 
maximum feasible standards may be harder for some automakers than for 
others, and that they need not be keyed to the capabilities of the 
least capable manufacturer. Indeed, keying standards to the least 
capable manufacturer may disincentivize innovation by rewarding laggard 
performance.
    NHTSA has also sought to account for economic practicability by 
applying marginal cost-benefit analysis since the first rulemakings 
establishing attribute-based standards, considering both overall 
societal impacts and overall consumer impacts. Whether the standards 
maximize net benefits has thus been a significant, but not dispositive, 
factor in the past for NHTSA's consideration of economic 
practicability. Executive Order 12866, as amended by Executive Order 
13563, states that agencies should ``select, in choosing among 
alternative regulatory approaches, those approaches that maximize net 
benefits . . .'' In practice, however, agencies, including NHTSA, must 
acknowledge that the modeling of net benefits does not capture all 
considerations relevant to economic practicability. Therefore, as in 
past rulemakings, NHTSA is considering net societal impacts, net 
consumer impacts, and other related elements in the consideration of 
economic practicability. That said, it is well within the agency's 
discretion to deviate from the level at which modeled net benefits are 
maximized if the agency concludes that the level would not represent 
the maximum feasible level for future CAFE standards. Economic 
practicability is complex, and like the other factors must be 
considered in the context of the overall balancing and EPCA's 
overarching purpose of energy conservation.
    For purposes of this final rule, a way to organize the different 
economic practicability considerations is as follows: CAFE standards 
(represented by the different regulatory alternatives) require 
automakers to add technology to their new vehicles:
     adding technology can potentially make those new vehicles 
more expensive (and if that technology has to be added faster than or 
outside of normal product cycles (i.e., the lead time consideration), 
it can be even more expensive);
     U.S. consumers may potentially object to either higher 
per-vehicle costs or to technology with which they are less familiar, 
possibly affecting sales, but consumer benefits from fuel savings high 
enough to offset these costs and even provide net savings may suggest 
that per-vehicle costs, at least, are manageable for consumers and 
automakers;
     changes in sales may affect employment in the auto sector, 
but auto sector employment may also be affected by increasing 
technology application on new vehicles.
    This causal chain is simpler than what occurs in real life, and as 
we discuss the different considerations below, we highlight where we 
believe it is reasonable to expect that real life may diverge from what 
our analysis shows, although we will retain the limitations on the 
agency's decision-making required by EPCA/EISA.
Application Rate of Technologies, Per-Vehicle Costs, and Lead Time
    On the topic of application rate of technologies, comments to the 
proposal were, in many cases, different from comments received on 
earlier rulemakings. Some commenters still focused on specific 
application rates of specific technologies shown in the analysis for 
the proposal, often suggesting that greater application of those 
technologies was possible in the rulemaking time frame.\836\ Industry 
commenters tended to comment about their extensive electrification 
plans for the future, and then to argue that NHTSA cannot consider 
electrification in setting maximum feasible CAFE standards (as will be 
discussed further in Section VI.A.5.e)), and then to suggest that they 
would prefer not to continue improving the fuel economy of their ICE 
vehicles because they intend to focus instead on electrifying certain 
vehicles in their fleets, and that effort will consume their available 
capital resources.\837\
---------------------------------------------------------------------------

    \836\ Section III.D.1 contains examples of such comments and 
NHTSA's responses.
    \837\ For example, Auto Innovators commented that NHTSA's 
proposed standards would require more technology, which ``would 
effectively negate EPA's proposed policy actions to incentivize 
greater production of electric vehicles,'' and therefore NHTSA 
should ``. . . adopt [less stringent] final standards that do not 
require additional technology adoption beyond the pending GHG 
standards and that preserve incentives intended to encourage the 
production of EVs'' (emphasis added), Auto Innovators, Docket No. 
NHTSA-2021-0053-1492, at 32; Stellantis commented that ``Stellantis 
believes NHTSA has overestimated the potential for ICE improvements 
on a [manufacturer] pathway that is focused on significant EV 
growth. . . . So, even if manufacturers could achieve these proposed 
MY 2024-2026 CAFE standards with conventional ICE technology, it 
would make little economic sense to pursue a duplicate ICE 
investment path only to abandon it a few short years later to meet 
2030 electrification goals.'' Stellantis, Document No. NHTSA-2021-
0053-1527, at 12; Kia commented that ``[w]hile it is beneficial to 
drive further improvements to ICEs to meet higher CAFE targets, 
capital diversion away from electrification will delay cost parity 
objectives that are critical'' to meeting future electrification 
targets. Kia, Docket No. NHTSA-2021-0053-1525, at 10.

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

[[Page 25970]]

    In response, NHTSA again finds itself in a place of some cognitive 
dissonance: Automakers are saying that NHTSA cannot consider the 
technology on which they intend to focus their efforts in the coming 
years, but that NHTSA must consider that they plan to focus all their 
efforts on that technology and therefore intend to make no further 
progress on the rest of their fleets. All available capital, according 
to these commenters, is tied up by a technology that NHTSA cannot 
consider--in which case, perhaps NHTSA cannot consider that that 
technology is tying up that capital. These outcomes do not seem 
reasonable. A different legal interpretation must be found, one that 
allows us to continue to meet our statutory purpose while respecting 
the restrictions Congress placed on us, in the most reasonable way 
possible.
    Section VI.A.5.e) will discuss this in more detail below, but NHTSA 
continues to believe that 49 U.S.C. 32902(h) can be reasonably read to 
require NHTSA to exclude dedicated alternative fuel vehicles like BEVs 
from application in the analysis during the rulemaking time frame, but 
while still being aware of their existence in the world as a compliance 
option. Moreover, while NHTSA absolutely agrees that capital 
constraints are a relevant consideration in determining economic 
practicability, NHTSA does not agree that CAFE standards for MYs 2024-
2026 could be maximum feasible if they required no investments to 
improve the fuel economy of ICE vehicles. It does not require 
``consider [ation of] the fuel economy of dedicated automobiles'' to 
acknowledge that, even if automakers did make 50 percent of their 
light-duty fleets BEV in a given model year, technologies would still 
exist that could increase the fuel economy of the remaining ICE 
vehicles. These vehicles will remain on the road for many years after 
their purchase. If the overarching purpose of EPCA is energy 
conservation, then it is neither a reasonable nor appropriate 
interpretation of our statutory obligations to set standards for this 
timeframe that require no further technology application on half or 
more of the new vehicle fleet. Electrification is certainly a way to 
reduce fuel use, but not at the expense of additional, feasible overall 
energy conservation, and NHTSA's analysis for the final rule 
demonstrates that compliance is achievable.
    That said, NHTSA recognizes that in the 2012 final rule, NHTSA 
determined that enough technology application had been required for 
compliance with the MY 2012-2016 standards, that a slightly slower rate 
of increase in standard stringency was appropriate for MYs 2017-2021--
in effect, that available technology had been depleted somewhat, and 
industry needed time to catch up.\838\ We know now that MYs 2017-2020 
did turn out to be challenging for industry compliance, but NHTSA does 
not believe that this was due to unavailability of technology, so much 
as consumer demand over those model years for vehicles with lower fuel 
economy than anticipated in the 2012 final rule. The technology remains 
available, even if the vehicles sold during those model years had less 
of it.
---------------------------------------------------------------------------

    \838\ 77 FR 63043 (Oct 15, 2012).
---------------------------------------------------------------------------

    NHTSA also continues to believe that the less-stringent-than-
originally-anticipated standards for MYs 2021-2023 will provide 
automakers with at least a short grace period during which they have 
the opportunity to shift their focus back to more rapidly increasing 
stringency. Indeed, we are seeing that shift in focus in the frequent 
announcements and rollouts of new high-fuel-economy models, as 
discussed further in the NPRM and below.
    However, as NHTSA also said in the 2012 final rule, we realize that 
automakers will likely be putting quite a lot of technology into 
meeting the baseline during MYs 2024-2025 (and, implicitly, 2026), and 
this understanding makes us cautious about choosing the most stringent 
alternative.\839\ But at the same time, fuel economy-improving 
technology was less developed in 2012, and NHTSA suggested in that rule 
that there was a difference in terms of capital between adding 
technology to a few vehicles and spreading it throughout a fleet.\840\ 
NHTSA continues to believe that that difference is important. The auto 
industry has submitted comments expressing their preference to 
concentrate their investments solely on electrification (which they say 
NHTSA cannot consider), but our analysis does not suggest that the 
additional investment that could be required by the final CAFE 
standards would be, on average, economically impracticable. NHTSA 
believes that improving the fuel efficiency of ICE vehicles will not 
only result in additional energy conservation while automakers work 
toward a fully electric future (as many have committed to doing), but 
also is compelled by our statutory mandate. And if manufacturers 
determine that electric vehicles are the most cost-effective path 
toward achieving compliance, the CAFE program also accommodates that 
approach, as the statute and regulations provide clear rules on how 
electric and other alternative fuel vehicles are accounted for in 
determining compliance even while we don't consider them in 
establishing the standards.
---------------------------------------------------------------------------

    \839\ Id. at 63046.
    \840\ Id.
---------------------------------------------------------------------------

    On the topic of per-vehicle costs, Consumer Reports commented that 
based on their regular purchases of new vehicles for testing, Consumer 
Reports estimated that vehicle prices adjusted for inflation have not 
increased significantly over the last decade.\841\ Consumer Reports 
stated that given that CAFE standards have been increasing 
concurrently, CAFE standards must not be adding significant cost to new 
vehicles.\842\ MECA commented that ``the costs of the technologies 
needed to comply with the proposed standards have remained 
approximately consistent or have declined since . . . 2012.'' \843\ 
Ceres stated that strong standards would spur cost learning and 
decrease manufacturer costs over time.\844\
---------------------------------------------------------------------------

    \841\ Consumer Reports, Docket No. NHTSA-2021-0053-1576-A9, at 
10-15.
    \842\ Id.
    \843\ MECA, at 2.
    \844\ Ceres, Docket No. NHTSA-2021-0053-0076, at 2.
---------------------------------------------------------------------------

    AFPM argued that the proposal relied on electric vehicles, which 
cost more than comparable ICE vehicles, and which could become even 
more expensive if mineral supply chain issues are exacerbated.\845\ 
AFPM stated that NHTSA had not accounted for the extent to which 
manufacturers cross-subsidize EVs by increasing the prices of ICE 
vehicles.\846\ AFPM also stated that many sources show that lifetime 
ownership costs for EVs are higher than for ICE vehicles.\847\
---------------------------------------------------------------------------

    \845\ AFPM, at 6-8.
    \846\ Id.
    \847\ Id., at 9.
---------------------------------------------------------------------------

    Auto Innovators commented that the differences between the EPA and 
NHTSA programs ``. . . make[ ] compliance with the NHTSA CAFE program 
more difficult and, at minimum, add complexity to product plans. These 
differences add costs, and . . . [w]e recommend that NHTSA consider 
these differences to the EPA program and their impacts on regulatory 
costs as part of its evaluation of the economic practicability of CAFE 
standards.'' \848\
---------------------------------------------------------------------------

    \848\ Auto Innovators, at 32.

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

[[Page 25971]]

    In response, NHTSA does not believe that per-vehicle costs 
associated with any of the regulatory alternatives are significantly 
greater than per-vehicle costs considered economically practicable over 
the last several rulemakings. As compared to the baseline (i.e., 
retention of the SAFE rule and an indefinite extension of that rule's 
MY 2026 standards), Alternative 1 would require, on average, an 
additional $432 for MY 2029; Alternative 2, an additional $938 for MY 
2029; Alternative 2.5, an additional $1,087 for MY 2029; and 
Alternative 3, an additional $1,407 for MY 2029. Costs differ by 
manufacturer and by fleet (all in 2018 dollars), but these averages are 
illuminating.
    NHTSA is aware that cross-subsidization happens across models and 
vehicle types, as AFPM noted, but assumes in this analysis (and all 
those preceding it) that costs for all technology are passed directly 
through to consumers. NHTSA lacks reliable information about cross-
subsidization to estimate those effects more precisely; but 
nevertheless believes that the current approach is reasonable and 
provides useful information about average effects to decision-makers. 
Additional levels of detail would likely be necessary if NHTSA were 
attempting to develop and run a consumer choice model, but by itself, 
such a model would only address the potential demand-side response to 
any cross-subsidization. Estimating cross-subsidization would likely 
involve estimating manufacturers' respective approaches to vehicle 
prices and incentives, and possibly even manufacturers' respective 
approaches to distributing costs and earnings across global regions and 
business units, and among customers, employees, and investors. NHTSA 
currently lacks appropriate information that would be needed to account 
for all of these degrees of freedom and corresponding highly 
proprietary (and doubtlessly fluid) corporate strategies. Analogous to 
considering the potential for manufacturers to apply technology in a 
manner that holds vehicle performance and utility approximately 
constant, the agency considers it reasonable and appropriate to 
consider the potential that the industry could continue to follow long-
standing average practices in passing along additional costs.
    Some commenters have argued that the per-vehicle costs for all 
alternatives are understated, because the analytical baseline for this 
rulemaking includes more technology application, and thus cost accrues 
in the baseline that NHTSA is effectively saying does not ``count'' for 
purposes of the CAFE standards. NHTSA discusses in Sections IV.B and 
VI.A.5.e) why NHTSA believes that it is reasonable and appropriate for 
the analytical baseline to reflect several manufacturers' voluntary 
commitment to higher (than finalized in 2020) GHG emissions reductions 
during the rulemaking time frame, and all manufacturers' anticipated 
compliance with ZEV mandates in California and the Section 177 states. 
The inclusion of these measures in the baseline reflects the reality of 
the market, a reality NHTSA is required to reflect in order to assess 
the effects of its standards. NHTSA agrees that automakers will apply 
technology in response to both of those, and that doing so will add 
cost to new vehicles, and that some of that technology will ultimately 
make CAFE compliance easier. However, the CAFE program is not the but-
for cause of that technology application and those costs. NHTSA 
therefore disagrees that NHTSA must ``own'' those costs when 
determining what CAFE standards would be economically practicable or 
technologically feasible. NHTSA, like the automakers, is aware that the 
automakers are making technology application decisions with reference 
to many different things, including multiple regulatory regimes and 
non-regulatory commitments. The additional costs that CAFE compliance 
would require is the question that belongs to NHTSA.
    With that in mind, NHTSA acknowledges the comment from Auto 
Innovators that compliance flexibility and other programmatic 
differences between NHTSA and EPA can make compliance with NHTSA's 
standards more binding (and thus, more costly) for some manufacturers 
in some model years. We understand that manufacturers would rather 
spend less money than more in complying with their various regulatory 
obligations, but manufacturers who plan to meet the most binding 
standards, whichever ones they are, will foreseeably be in a good 
compliance position with all other application standards. Moreover, we 
continue to believe that an additional average $1,087 per vehicle as 
compared to the No-Action Alternative standards is economically 
practicable, and we note that it is considerably less than the 
additional $1,407 per vehicle estimated to be required under 
Alternative 3. It is also considerably less than the additional per-
vehicle costs the agency considered to be economically practicable in 
2012, when the industry was still recovering from the Great Recession. 
Although today's supply chain issues pose a new challenge to the 
industry, NHTSA considers it uncertain whether these will necessarily 
persist through the rulemaking time frame, and believes that they are 
uncertain enough that they should not be presumed. NHTSA also notes 
that the industry is far healthier today financially than it was a 
decade ago.
    Related to per-vehicle costs (and arguably to sales), Auto 
Innovators commented that the payback period associated with many 
technologies modeled for compliance with Alternatives 2 and 3 was 
longer than NHTSA seemed to believe consumers would accept.\849\ Noting 
that NHTSA uses a 30-month payback for manufacturers' voluntary 
application of fuel-economy-improving technologies, Auto Innovators 
stated that:
---------------------------------------------------------------------------

    \849\ Auto Innovators, at 15.


The Central Case NHTSA analysis forecasts that, for Alternative 2, 
27.4 [percent] of MY 2026 vehicles adopt fuel-saving technologies 
that take 8 or more years to pay back, and nearly 1 in 8 vehicles 
adopts technology that will not pay back in 16 or more years (if at 
all). For Alternative 3, with the Global Insight fuel price 
projections, 1 in 4 vehicles will take at least 12 years to pay back 
the cost of fuel-saving technologies, and over 40 [percent] of the 
fleet will include fuel-saving technologies that do not return 
investment until at least the 8th year of ownership and use. For 
Alternative 3, with the Global Insight fuel price forecast, 1 in 5 
vehicles built in MY 2026 includes technology that will not pay back 
in the first 15 years of ownership and operation. If consumers are 
reluctant to adopt these technologies, the policy objectives of the 
higher stringency alternatives may not be fully realized.\850\
---------------------------------------------------------------------------

    \850\ Id., at 52.

    NHTSA fully agrees that if consumers are reluctant to adopt these 
technologies, the policy objectives of the standards may not be fully 
realized. Having updated some aspects of its analysis, NHTSA currently 
estimates that fuel-saving technology added in response to the new CAFE 
standards in MY 2026 could take 5.5-7.5 years to pay off (depending on 
whether taxes, fees, financing, and insurance are accounted for), but 
that by MY 2029, this technology could pay off in 4.5-5.5 years:

[[Page 25972]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.227

    Setting aside taxes, fees, financing, and insurance, NHTSA finds 
that under alternative 2.5, payback periods are all within the 
estimated vehicle age (6 years) at which vehicles are first sold to 
used vehicle buyers, and even within the estimated average new vehicle 
loan term (5.75 years).
    That said, NHTSA disagrees that there is an inherent conflict 
between NHTSA's analytical assumption for purposes of the baseline that 
manufacturers can reasonably be expected to improve fuel economy 
voluntarily if the technology pays for itself in 30 months, and the 
possibility in the real world that consumers will still buy vehicles 
with improved fuel economy that take considerably longer to pay back in 
fuel savings. As we explained above, the assumption about voluntary 
payback may be less valid when all vehicles are subject to fuel economy 
regulations. Moreover, for decades, manufacturers have included 
catalytic converters that offer owners no direct financial benefit at 
all (and that, conversely, can be expensive to replace), and consumers 
have continued to buy new vehicles. Manufacturers have made significant 
quality improvements in new vehicles over the past decades, and 
consumers are retaining vehicles longer than ever before, meaning that 
many consumers will experience more of the lifetime fuel savings from 
their new vehicles than they may have experienced previously, and be 
more willing to shoulder additional up-front costs in order to obtain 
those fuel savings over time. Although the payback periods shown above 
are nearing (or somewhat exceeding, if taxes, fees, financing, and 
insurance are considered) the term of the average new vehicle loan, the 
current economic forecast informing NHTSA's analysis indicates buyers' 
wealth will likely continue to increase over time, with per-capita real 
disposable income increasing by 20 percent between 2022 and 2030. In 
that case, buyers will be better able to afford the additional up-front 
costs resulting from this rule, and drivers (if not necessarily initial 
buyers) will continue to realize significant fuel savings long after 
recouping those up-front costs. Finally, when new car buyers do get 
ready to sell their cars into the used car market, they should be able 
to recoup some of the cost of the fuel economy technologies.
    A number of commenters addressed lead time--the extent to which 
standards may or may not be economically practicable based on how long 
they give manufacturers to make necessary changes to their vehicles. 
Tesla commented that lead time is not a problem for several reasons: 
First, because credit trading and banking builds in flexibility; 
second, because the majority of the industry signed on to the 2012 
standards with commitment letters, so the industry has been on notice 
of the possibility of more stringent standards; third, that because 
manufacturers are following the California and Section 177 states' GHG 
standards, they have had plenty of lead time to meet stricter CAFE 
standards; and fourth, because Tesla has been selling EVs consistently 
over the past several model years.\851\
---------------------------------------------------------------------------

    \851\ Tesla, A1, at 7-8.
---------------------------------------------------------------------------

    Securing America's Future Energy stated that their analysis showed 
that ``each of the top 15 vehicle programs produced in the United 
States are expected to transition to a new program before 2030. In 
fact, . . . most of the conventional vehicles that will be produced in 
the United States in 2030 are part of programs that are early enough in 
their production cycles that the automakers can transition the program 
to electric platforms without stranding investment.'' \852\
---------------------------------------------------------------------------

    \852\ Securing America's Future Energy, at 7-8.
    \853\ Our Children's Trust, Docket No. NHTSA-2021-0053-1587, at 
1-2.
    \854\ South Coast AQMD, at 4.
---------------------------------------------------------------------------

    Our Children's Trust commented that 18 months (as required by 
statute for new standards) was plenty of lead time, and NHTSA should 
``[p]ut the industry on notice today that it needs to move to a 100 
[percent] electric or clean fleet by 2030.'' \853\ South Coast AQMD 
similarly cited EPCA's 18 month lead time requirement as adequate even 
for Alternative 3, and like Tesla argued essentially that industry had 
been on notice since the 2012 final rule that standards as stringent as 
Alternative 3 were possible.\854\ South Coast AQMD further commented 
that ``the technology to meet [Alternative 3] exists today, and the 
current trend of manufacturers daily adding to the announcements of 
increasing investment all allow NHTSA confidence that there is not a 
lead time

[[Page 25973]]

concern with the ability to meet Alternative 3 standards.'' \855\
---------------------------------------------------------------------------

    \855\ Id.
---------------------------------------------------------------------------

    In contrast, Kia stated that ``[f]our years is a short time for 
vehicle redesigns and extremely short for full engine and powertrain 
redesigns. . . . it is unlikely that [more fuel-efficient engine/
powertrain architectures] would permeate our entire fleet at the levels 
NHTSA suggests. Thus, the engineering burden would fall on a 
combination of changes to the smaller set of vehicles that could be 
redesigned in time, and potential fleet mix changes where those other 
actions fall short.'' \856\ Stellantis similarly commented that ``[i]t 
takes the automotive industry (and Stellantis) 2 to 4 years to 
introduce a new product. . . . OEMs have historically justified 
powertrain business cases over at least a ten-year time horizon. . . . 
To achieve [zero emissions], focus must remain on transformational 
electrification investments, starting now in order to minimize the time 
and maximize the success of this transition.'' \857\ Stellantis noted 
that the 2020 EPA Automotive Trends Report showed that ``11 of 14 major 
manufacturers underperformed their MY2019 standard and relied on the 
use of banked or purchased credits,'' stating that ``[t]his is a clear 
indication that the additional time afforded in the proposed rule is 
needed to grow the market demand for more efficient electric vehicles, 
before even more stringent standards, requiring higher rates of 
electrification, can be implemented.'' \858\
---------------------------------------------------------------------------

    \856\ Kia, at 3.
    \857\ Stellantis, at 15.
    \858\ Id., at 14.
---------------------------------------------------------------------------

    Auto Innovators disagreed with NHTSA's suggestion in the proposal 
that the 1.5 percent increases in CAFE stringency over MYs 2021-2023 
represented any kind of ``break,'' and commented that the proposal 
showed Alternative 2 requiring ``significant technology additions as 
soon as MY 2023 (including large numbers of EVs) to support compliance 
in MYs 2024-2026, despite MY 2023 potentially beginning as soon as two 
months from now for some vehicle models, and more generally about nine 
months from now for most.'' \859\ Auto Innovators continued that 
``While NHTSA may technically be providing the statutorily required 18-
month lead time for increasing standards, the actual lead time to 
achieve the improvements modeled by NHTSA is much less.'' \860\
---------------------------------------------------------------------------

    \859\ Auto Innovators, at 15.
    \860\ Id., at 53-54.
---------------------------------------------------------------------------

    In response, while lead time is not an express factor for NHTSA 
under EPCA as it is for EPA under the CAA, NHTSA still believes lead 
time is appropriately considered as part of economic practicability. 
NHTSA has long recognized that the statutory 18-month lead time is 
shorter than manufacturer product cycles, while also recognizing that 
it is the minimum amount of lead time that Congress required for new or 
amended (more stringent) standards. NHTSA understands that more lead 
time is always preferable from an industry perspective. Lead time has 
factored into our maximum feasible analysis by increasing the 
stringency of the standards in the last MY of our rule so that 
manufacturers will have close to four years to achieve the highest 
stringency.
    That said, NHTSA continues to believe that the lead time for the 
final standards is adequate. NHTSA agrees with some commenters' 
suggestions that the U.S. auto industry has been generally aware since 
2012 of potential stringency levels in the rulemaking time frame that 
would have been even higher than those that NHTSA is now finalizing. 
Automakers in 2012 were planning to achieve these levels; what happened 
in the interim was lower gasoline prices than anticipated and the 
continuing trend of U.S. consumers generally choosing new vehicles with 
lower fuel economy rather than higher fuel economy (perhaps encouraged 
by advertising campaigns touting larger vehicles, which generally 
produce larger profit margins for manufacturers). Manufacturers who 
petitioned the Federal Government to reconsider the EPA 2018 Final 
Determination may have been hoping for less stringent standards that 
reflected the vehicles they were actually selling in high volumes, 
rather than the vehicles they were developing with an eye toward future 
CAFE/GHG/ZEV stringency increases, and NHTSA set lower standards in 
2020 for MYs 2021-2026 in response to that petition. Technologically, 
NHTSA does not believe that automakers ever really got that far ``off 
track'' from the original intent of the 2012 standards, or they would 
not be in a position today to be constantly announcing and rolling out 
new higher-fuel-economy vehicle models. Shifting back to the 
perspective of lead time, the question may be less about whether 
automakers have enough time to make technological changes in their 
fleets, and more, as Kia suggested, whether automakers have enough time 
to spread technology they already have throughout enough of their 
fleets so that their average fuel economy tracks their anticipated 
compliance obligations.

[[Page 25974]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.228

    Table VI-5 summarizes the fleetwide penetration rates for certain 
technologies from MYs 2020 through 2026. While the regulatory 
alternatives considered in this final rule require not-insignificant 
application of additional technology, particularly the more stringent 
alternatives, all of these technologies exist in the fleet today. The 
first two rows--turbocharging with cylinder deactivation and ten-speed 
transmissions (the highest number of speeds modeled)--are ICE-
improvement technologies already available on vehicles today. The model 
estimates that the average rate of application for turbocharging with 
cylinder deactivation could increase from roughly 2 percent in MY 2020 
to over 20 percent on average across the industry in MY 2026 in 
response to Alternatives 2.5 and 3, but this is still adding an 
existing ICE technology to just over 20 percent of vehicles. The model 
estimates that the average rate of application for ten-speed 
transmissions could increase from roughly 10 percent in MY 2020 to 
nearly 40 percent on average across the industry in MY 2026 in response 
to Alternatives 2.5 and 3. While this penetration rate may seem high, 
it is much lower than previous expectations about advanced transmission 
penetration rates in prior rulemakings, and again, is the projected 
rate increase applies across the entire industry, during a time frame 
in which plenty of vehicles will be redesigned and a new transmission 
or powertrain could reasonably be incorporated. Mild hybrids are 
estimated to increase from barely 2 percent to roughly 4 percent. 
Strong hybrids and high levels of aerodynamic improvements require more 
extensive architectural changes to vehicles, and may be more 
challenging than the other listed technologies to apply more widely 
during the rulemaking time frame, but again, this is industry-wide; 
many redesigns will occur during these model years; and manufacturers 
are always free to chart their own technology paths to compliance. 
Standards may be challenging without being economically impracticable, 
and NHTSA believes that that is the case here.
Consumer Demand, Electrification, Net Benefits
    With regard to uncertainty regarding consumer acceptance 
(considered through the lens of economic practicability, which is 
concerned in part with automakers' ability to sell the vehicles called 
for by the standards), some commenters expressed optimism that 
consumers will respond favorably. Consumer Reports stated that their 
research suggests that consumers would prefer higher fuel economy in 
their next vehicles, and stated that ``[a] 2020 nationally 
representative survey . . . found that 73 [percent] of respondents said 
the federal government should continue to increase fuel economy 
standards.'' \861\ EDF echoed these points, stating that ``64 [percent] 
of consumers rank fuel economy as extremely important or very important 
in considering what car to purchase,'' and that ``research has shown 
that consumers are willing to pay more for improvements to fuel economy 
than for improvements to acceleration or premium trim.'' \862\ Consumer 
Reports argued further that ``[t]here is inherent inequity in the car 
marketplace as Consumer Reports' research has found that new car buyers 
are predominantly wealthier, whiter, and older, and they determine what 
vehicles end up on the used car market. Expanding consumers' choices of 
fuel-efficient vehicles will also benefit those that cannot afford to 
enter the new car market.'' \863\
---------------------------------------------------------------------------

    \861\ Consumer Reports, Public Hearing Comments, at 1.
    \862\ EDF, at 5.
    \863\ Consumer Reports: Public Hearing Comments, at 1.
---------------------------------------------------------------------------

    Some commenters stated that strong standards would themselves 
create demand: Securing America's Future Energy commented that 
automakers ``cannot [be expected] to make cars for

[[Page 25975]]

which there is not a promising market,'' but that ``the power of the 
government's regulatory authority . . . can be used to shape the 
market. This rulemaking offers the federal government a valuable 
opportunity to exercise its regulatory authority to accelerate the 
growth of that market.'' \864\ South Coast AQMD commented that DOE's 
``technology targets for battery costs and electric drive 
technologies,'' ``the commitment of the federal government to purchase 
ZEVs for government fleets,'' and ``President Biden's target of 50 
[percent] of new vehicles being ZEVs by 2030'' will all drive demand, 
in addition to California's announcement of the 100 percent ZEV target 
for 2035.\865\
---------------------------------------------------------------------------

    \864\ Securing America's Future Energy, at 2-3.
    \865\ South Coast AQMD, at 5.
---------------------------------------------------------------------------

    Some commenters argued that strong standards would enhance U.S. 
automakers' global competitiveness: ACEEE commented that strong 
standards ``provid[e] consumers a wider array of vehicle choices,'' and 
improve U.S. automakers' global competitiveness.\866\ Ceres also 
supported the idea that Alternative 3 would improve U.S. global 
competitiveness.\867\
---------------------------------------------------------------------------

    \866\ ACEEE, Docket No. NHTSA-2021-0053-0074, at 1-2.
    \867\ Ceres, at 1.
---------------------------------------------------------------------------

    Other commenters expressed concern about consumer demand for fuel 
economy. NADA, for example, commented that consumers are ``far from 
being myopic or inconsistent,'' and will continue to purchase CUVs, 
SUVs, and trucks rather than passenger cars as long as fuel prices 
remain low, which AEO continues to forecast.\868\ NADA argued that 
``NHTSA's current proposal is flawed in that, as with the 2012 joint 
rule, the agency has not adequately considered critical demand-side 
marketplace factors, including whether OEMs will be able to make and 
deliver compliant vehicles that are both marketable and affordable.'' 
\869\ NADA also commented that ``. . .given that many OEMs were unable 
to comply with pre-SAFE Rule CAFE standards since at least MY 2016 (but 
for the application of credits), serious questions exist regarding 
their ability to meet the standards NHTSA has proposed in a cost 
effective, economically practicable manner sufficient to bring to 
market light duty vehicles that preserve consumer choice and feature 
preferences.'' \870\
---------------------------------------------------------------------------

    \868\ NADA, Docket No. NHTSA-2021-0053-1471, at 8-9.
    \869\ Id., at 5-6.
    \870\ Id.
---------------------------------------------------------------------------

    Mr. Kreucher similarly commented that ``[b]ased on [his] 
professional experience, CAFE standards have a major impact on the 
automotive choices available to consumers and on the purchase prices of 
various models. . . . especially . . . when fuel prices are relatively 
low, because low-priced gasoline forces many carmakers to adjust prices 
and model availability so that new car purchases produce a sales mix 
that complies with CAFE.'' \871\ Mr. Kreucher pointed to recent cuts in 
Ford's passenger car lineup as evidence that CAFE standards reduce 
consumer choice and argued that ``it is likely that our car-buying 
choices would be even broader, and car prices would be even lower, if 
the agencies adopted standards that were even more lenient than what 
they chose in the proposed rule.'' \872\
---------------------------------------------------------------------------

    \871\ Walter Kreucher, Docket No. NHTSA 2021-0053-0013, at 13.
    \872\ Id., at 12.
---------------------------------------------------------------------------

    Mr. Douglas disagreed that consumer acceptance should even be a 
consideration, stating that ``[e]conomic practicability and economic 
desirability are two different things, and there is nothing in the 
relevant governing statutes directing [NHTSA] to full satisfy auto 
consumers at all cost.'' \873\ Mr. Douglas went on to argue that ``[i]t 
is unreasonable to set stringency so low that the regulatory framework 
produces slow fuel economy improvements that fail to reduce overall 
gasoline consumption at an adequate pace, knowing that we could do much 
better by forcing consumers to moderate their desires and choose from 
greener options.'' \874\ Mr. Douglas commented that it is evident in 
EPCA that Congress intended some consideration of consumer choice, as 
through the setting of separate standards for cars and trucks, the use 
of attribute-based standards defined by a mathematical formula, and the 
low-volume exemption.\875\ However, he concluded that the statutory 
evidence did not suggest that Congress meant for consumer demand to be 
a brake on stringency,\876\ stating that ``[i]t is economically 
practicable to disappoint consumers somewhat, and there are less 
desirable vehicle options that would significantly reduce the 
technological barriers that are preventing meaningful fuel economy 
improvements. These feasibility barriers are not written in stone.'' 
\877\ Mr. Douglas suggested that automakers could easily shift their 
fleet mixes or reduce vehicle weight or horsepower to increase fuel 
economy levels quickly, and that this would not be economically 
impracticable.\878\
---------------------------------------------------------------------------

    \873\ Peter Douglas, Docket No. NHTSA-2021-0053-0085, at 4.
    \874\ Id., at 5.
    \875\ Id., at 21.
    \876\ Id.
    \877\ Id., at 4.
    \878\ Id.
---------------------------------------------------------------------------

    In response, NHTSA points again to case law finding it reasonable 
to consider consumer demand as a component of economic 
practicability.\879\ Uncertainty about consumer demand is still a 
reasonable consideration within economic practicability, albeit one 
that is getting somewhat more complicated to parse as industry and 
government head toward higher and higher levels of fleet fuel economy 
requirements.
---------------------------------------------------------------------------

    \879\ CAS, 793 F.2d 1322 (D.C. Cir. 1986) (Administrator's 
consideration of market demand as component of economic 
practicability found to be reasonable).
---------------------------------------------------------------------------

    NHTSA agrees that automakers have been relying more heavily on 
banked credits for compliance over the last few model years. NHTSA also 
agrees with the observation that American consumers purchased larger 
and heavier vehicles, on average, than previously expected. This is 
evident in the compliance data for both the CAFE and CO2 programs. 
NHTSA does not agree that automakers reducing passenger car offerings 
is necessarily due to CAFE stringency, however. The standards were 
designed to enable automakers to bank compliance credits as a 
compliance flexibility, and reliance on those banks means automakers 
are using program flexibilities in order to optimize their compliance 
strategies and reduce costs. It does not indicate that the standards 
are infeasible. There is a chicken and egg question here, in which 
consumers seek out larger and heavier vehicles when gas prices are 
relatively low; automakers continue to offer those vehicles--and 
indeed, market them heavily--and (in some cases) discontinue smaller 
and more fuel-efficient models going forward; this marketing strategy 
can and should adjust to facilitate compliance with CAFE standards that 
were predicated on (among other things) the potential to offer smaller 
and more fuel-efficient models, even when controlling for the effects 
of the footprint-based standards and separate standards for passenger 
cars and light trucks. Meanwhile, automakers also continue to roll out 
very high-fuel-efficiency models, some of which are very popular with 
consumers, even while other groups of consumers continue to buy the 
large, heavy, more traditional ICE models. American consumers today do 
have quite a wide array of light-duty vehicle options, many of them 
with higher fuel economy than ever before, along with other attributes 
that they value. This is

[[Page 25976]]

confirmed by recent data from Wards Intelligence, as summarized by the 
Energy Information Administration. EIA states that ``[s]ales of several 
existing hybrid, plug-in hybrid, and electric models increased in 2021, 
but a large portion of the sales increase came from new manufacturer 
offerings across different market segments. Manufacturers increased the 
number of non-hybrid ICE vehicle models by 49 in 2021, versus an 
increase of 126 for hybrid and electric vehicle models.'' \880\ EIA 
also notes that ``Manufacturers of hybrid vehicles and plug-in vehicles 
have expanded into market segments such as crossovers, vans, and 
pickups following consumer preference for larger vehicle. Within each 
electric or hybrid powertrain type, crossover vehicles now account for 
most sales.'' \881\ While, again, NHTSA does not and is not considering 
electrification in deciding on the maximum feasible fuel economy 
standards, consistent with 49 U.S.C. 32902(h), it is crystal clear that 
these trends are occurring even in the absence of further NHTSA action.
---------------------------------------------------------------------------

    \880\ EIA, ``Today in Energy: Electric vehicles and hybrids 
surpass 10% of U.S. light-duty vehicle sales,'' Feb. 9, 2022. 
Available at https://www.eia.gov/todayinenergy/detail.php?id=51218 
(accessed: March 15, 2022).
    \881\ Id.
---------------------------------------------------------------------------

    The question at the root of uncertainty about consumer demand is 
whether the standards will require automakers to change their vehicles 
or lineups in ways that affect sales and employment to such an extent 
that it makes the standards economically impracticable. As Mr. Douglas 
suggested in his comments, some change is not economically 
impracticable, because (other than during the pandemic) vehicle sales 
have been climbing steadily since the recession in 2008,\882\ a period 
during which CAFE standards generally have also been rising. Consumers 
have not yet stopped buying new vehicles because CAFE standards have 
become more stringent, and they still have many different vehicle 
options from which to choose, and many of those different vehicle 
options include improved fuel economy levels--but not all.
---------------------------------------------------------------------------

    \882\ ``Light vehicle retail sales in the United States from 
1976 to 2021,'' https://www.statista.com/statistics/199983/us-vehicle-sales-since-1951/ (accessed March 15, 2022).
---------------------------------------------------------------------------

    NADA's comments suggest that as standard stringency continues to 
increase, automakers will have a choice between making compliant 
vehicles, and vehicles that are marketable and affordable--in effect, 
that compliant vehicles will not be marketable and affordable. NHTSA 
agrees that affordability is a major concern generally, but does not 
find it to be a concern for this rulemaking, as evidenced by the per-
vehicle cost discussion above. Moreover, auto dealers have managed to 
keep sales levels increasing in recent years (again, excluding the 
years affected by the pandemic) even while the average per-vehicle 
price has increased.\883\ The 2020 final rule discussed the phenomenon 
of lengthening loan terms for new vehicles and expressed concern about 
a possible bubble, but even with average prices at their highest 
recorded levels, demand is currently still outstripping supply and, as 
mentioned above, current economic forecasts show real disposable income 
continuing to increase between now and 2030.
---------------------------------------------------------------------------

    \883\ https://www.kbb.com/car-news/average-new-car-price-tops-47000/, (accessed: March 15, 2022).
---------------------------------------------------------------------------

    Thus, given that per-vehicle cost increases attributable to CAFE 
standards do not seem insurmountable during the rulemaking time frame, 
the next question is whether the technology itself seems likely to 
reduce consumer demand for new vehicles such that auto industry sales 
and employment fall to economically impracticable levels. Again, NHTSA 
does not believe that this is likely during the rulemaking time frame. 
The agency estimates that, compared to the No-Action Alternative, this 
rule could involve the increased application of a range of 
technologies, such as improvements to engine friction, vehicle mass 
efficiency, aerodynamics, and automatic transmissions; turbocharged or 
high compression ratio engines; as well as some additional deployment 
of hybrid-electric vehicles. Although dual-clutch transmissions clearly 
did not succeed as anticipated in past NHTSA rulemakings, most of these 
other technologies have already enjoyed some level of success in the 
marketplace, and the agency is aware of no indications that the future 
market will not accept such technologies in due course. Moreover, 
automakers themselves are steadily announcing higher fuel economy 
models, and NHTSA continues to believe that sophisticated, for-profit 
companies would not offer, much less tout, vehicles that they do not 
believe are marketable.
    A number of commenters directly addressed NHTSA's suggestions in 
the proposal that the proposed standards could be economically 
practicable based on automaker announcements and commitments regarding 
forthcoming higher-fuel-economy vehicle models. Among commenters 
agreeing with NHTSA, Lucid stated that ``the rapidly decreasing costs 
of battery production, the commitments already made by many automakers 
to increase electrification and technology in their vehicles, and the 
incentives for EV purchases in place in several states suggest that 
Alternative 3 is economically practicable.'' \884\ Tesla also agreed 
with NHTSA that industry announcements ``are indicative of broader 
interest and capabilities in achieving greater fuel economy and that 
more stringent standards are economically practica[ble].'' \885\ Tesla 
further commented that the proposed standards are ``being eclipsed by . 
. . real world [manufacturer] plans, capabilities, and consumer-driven 
investments.'' \886\
---------------------------------------------------------------------------

    \884\ Lucid, Docket No. NHTSA-2021-0053-1584, at 4.
    \885\ Tesla, at 5.
    \886\ Id.
---------------------------------------------------------------------------

    NCAT noted extensive investment by its members in electrification 
technologies and stated that ``[t]he regulations [that have helped spur 
those investments] and resulting investments will stimulate technology 
innovation and market competition, enable consumer choice, attract 
private capital investments, and create high quality jobs.'' \887\ 
General Motors Company (GM) touted its announcements about and 
investments in ZEVs, stating that ``[e]ven as we manage short-term 
challenges like COVID-19 and the semiconductor shortage, we continue to 
accelerate our investment in EVs.'' \888\
---------------------------------------------------------------------------

    \887\ NCAT, Docket No. NHTSA-2021-0053-1508, at 5.
    \888\ GM, Docket No. NHTSA-2021-0053-1523, at 2-3.
---------------------------------------------------------------------------

    In contrast, Honda stated that ``while commitments are serious, 
sincere, and very much underway, it is important that the agencies not 
approach such announcements as foregone conclusions. Limited market 
adoption of technology necessary for reaching our future climate goals 
presents a profoundly challenging and still uncertain industry 
transition for the automotive industry in the years ahead.'' \889\ 
Honda further commented that ``[t]hese challenges are only amplified by 
present headwinds; as widely reported in the media over the past 18 
months, the automobile industry is facing severe global supply chain 
issues that continue to disrupt vehicle production volumes, launch 
dates and compliance strategies. Should ongoing supply chain issues 
persist well into the next year, development schedules and profits 
could be impacted.'' \890\ Kia also noted supply chain issues, and 
argued

[[Page 25977]]

that accounting for manufacturer announcements ``without a full-scale 
cost-benefit analysis may pose gaps that have longer-term 
consequences,'' stating that ``[i]t is of critical importance that 
NHTSA assures that a full impact of the COVID-19 pandemic has been 
incorporated into its model . . . [and] NHTSA . . . continue[s] to add 
refinements to this aspect of the model, as the far-reaching supply-
chain implications continue to reveal themselves.'' \891\
---------------------------------------------------------------------------

    \889\ Honda, Docket No. NHTSA-2021-0053-1501, at 8-9.
    \890\ Id., at 9.
    \891\ Kia, at 4-5, 9-10.
---------------------------------------------------------------------------

    Somewhat distinct but also related, several commenters also 
discussed NHTSA's statements in the proposal that the California 
Framework Agreements represented evidence of economic practicability. 
Southern Environmental Law Center (SELC) and South Coast AQMD both 
agreed with this assessment. SELC stated that Alternative 3 could be 
economically practicable because ``vehicle manufacturers have taken 
numerous steps that indicate increased fuel economy is both possible 
and profitable,'' and cited the Framework Agreements and new high-fuel-
economy product launches as evidence of market interest in fuel economy 
and changing consumer preferences.\892\ South Coast AQMD agreed that 
``no for-profit auto manufacturer would voluntarily agree to results 
which were either technologically infeasible or economically 
impracticable. Thus, NHTSA can be confident that the fuel economy 
consequences of these emission Agreements would be feasible and 
practicable. But that establishes a floor, not a `maximum feasible' 
ceiling.'' \893\
---------------------------------------------------------------------------

    \892\ SELC, Docket No. NHTSA-2021-0053-1495, at 5.
    \893\ South Coast AQMD, at 3.
---------------------------------------------------------------------------

    Conversely, NADA argued that ``. . . the fact that a select few 
OEMs entered into voluntary agreements with the State of California 
regarding GHG emissions mandates moving forward and/or have announced 
aspirational targets to become carbon neutral or to aggressively market 
ZEVs should have no bearing on whether the revised CAFE mandates NHTSA 
has proposed will be technologically feasible or economically 
practicable.'' \894\ While Honda agreed with NHTSA that the Framework 
Agreements made ``good business sense,'' Honda argued that ``important 
flexibilities [are] needed to reach those targets.'' \895\ Honda 
continued that ``Given the significant structural differences between 
the California Framework Agreement[s] and the CAFE program, it would be 
inappropriate for NHTSA to assume that a commitment to one program 
suggests a level of contentment with the other.'' \896\ Tesla argued 
that it was incomplete for NHTSA to say that the Framework Agreements 
demonstrate manufacturer capability of meeting the standards, because 
``[t]he agency fails to acknowledge that some manufacturers may have 
entered into the Framework Agreements not because of technology 
capabilities, but as an opportunistic hedge and safe harbor from the 
more rigorous California GHG standards should the SAFE rule's 
rescinding of California's Advanced Clean Cars waiver been found to be 
illegal.'' \897\ Honda also disagreed that the Framework Agreements 
were necessarily evidence of consumer demand for fuel economy. Honda 
stated that ``[w]hile market interest is an important driver, the role 
of regulatory requirements cannot be ignored. . . . for many years, 
Honda and other automakers have been communicating their views to 
regulatory agencies about the disconnect between rapidly escalating 
[ZEV] sales mandates and the limited consumer uptake of electric 
vehicles, which currently average about 2 percent in the United 
States.'' \898\
---------------------------------------------------------------------------

    \894\ NADA, at 5.
    \895\ Honda, at 7-8.
    \896\ Id., at 8.
    \897\ Tesla, A1, at 8.
    \898\ Honda, at 8.
---------------------------------------------------------------------------

    In response, regardless of what is driving manufacturer 
announcements and voluntary commitments to raising their fleet fuel 
economy levels and reducing fleet emissions in the coming years, the 
turning of the tide among automakers is still plainly obvious. Nearly 
every manufacturer has made repeated public statements and commitments 
to continue improving fuel economy in the coming years, and have also 
committed to electrification. These statements have been made despite 
uncertainty about Government commitments like subsidies and tax credits 
to facilitate demand for higher-fuel-economy vehicles, and in the 
absence of forecasted increases in fuel prices that would also improve 
such demand.
    NHTSA recognizes that the California Framework Agreements may not 
represent the economic practicability of achieving those emissions 
levels for the industry as a whole, even if they may represent a level 
of economic practicability for the signatory companies. NHTSA also 
recognizes that the Framework Agreements are emission reduction 
commitments, not fuel economy standards, and that the Agreements will 
likely be met with some technologies that also improve fuel economy, as 
well as some technologies that are irrelevant to fuel economy but 
reduce emissions, and some technologies--such as ZEV--that NHTSA cannot 
consider the fuel economy of in assessing what is maximum feasible. 
Nonetheless, the Framework Agreements do provide information about the 
economic practicability of technologies that both improve fuel economy 
and reduce emissions. Further, the automakers who did not sign on to 
the Framework Agreements, have made repeated public statements and 
commitments about enhancing fuel economy. South Coast AQMD commented 
that while in the proposal, NHTSA expressed concern that Alternative 3 
may not have been economically practicable due to cost, manufacturers 
have ``repeatedly and voluntarily doubled-down on investing in the very 
technology that makes these standards achievable.'' \899\ South Coast 
AQMD continued:
---------------------------------------------------------------------------

    \899\ South Coast AQMD, at 4.

    That manufacturers are already committing to the necessary 
investments is . . . overwhelming evidence that this investment is 
not only well within any reasonable definition of practicable, but 
is preferable to maximize profits. Even where Alternative 3 may 
require certain manufacturers to accelerate the rate of deploying 
technological advancements, this would not make Alternative 3 
economically impracticable. In fact, that would serve the very 
purpose of the CAFE standards--to push forward the goal of fuel 
conservation, even faster than the market would arrive at 
otherwise.\900\
---------------------------------------------------------------------------

    \900\ Id., at 4-5.

    NHTSA agrees. For-profit companies cannot make decisions contrary 
to profit and survive indefinitely in the marketplace. The logical 
conclusion must be that the companies believe that one way or another, 
they will benefit financially from investing in technologies that 
improve fuel economy. But NHTSA continues to believe that these 
commitments are not idle, and that they are evidence of manufacturers' 
belief that higher-fuel-economy vehicles are saleable.
    Nevertheless, in the interest of not adding undue burden to 
manufacturers seeking to make this transition, and recognizing the 
ongoing and very real supply chain issues that are still evolving, 
NHTSA continues to believe that the most stringent Alternative, 
Alternative 3, is likely to be beyond economically practicable for the 
rulemaking time frame. While this will be discussed in more detail in 
Section VI.D below, Alternative 2.5 provides

[[Page 25978]]

more lead time and more breathing room in response to the uncertainty 
concerns raised by manufacturer commenters. NHTSA seeks in setting 
these CAFE standards to take advantage of the clear momentum of 
industry's transition to higher levels of fuel economy while respecting 
different challenges among different automakers.
    With regard to net benefits, South Coast AQMD commented that NHTSA 
had not explained in the NPRM how negative net benefits for Alternative 
3 ``would unreasonably limit consumer choice or lead to a significant 
loss of jobs.'' \901\ SELC argued that if NHTSA would switch its cost-
benefit analysis approach entirely to CY instead of MY, it would be 
very clear that Alternative 3 has higher societal benefits and would be 
economically practicable.\902\ Ceres commented that their analysis 
indicated that higher standards led to higher automaker profits, 
``assuming high fuel prices during the regulatory period.'' \903\ Our 
Children's Trust commented that NHTSA should not use cost-benefit 
analysis in its decision-making at all, as ``it favors adults and 
industry today over the lives of children and whether they have a 
livable planet as they become adults and live out their lives.'' \904\
---------------------------------------------------------------------------

    \901\ South Coast AQMD, at 5-6.
    \902\ SELC, at 6.
    \903\ Ceres, at 2.
    \904\ Our Children's Trust, at 2.
---------------------------------------------------------------------------

    In response, NHTSA uses cost-benefit analysis as one consideration 
among many in determining maximum feasible CAFE standards. Regulatory 
analysis is a tool used to anticipate and evaluate likely consequences 
of rules. It provides a formal way of organizing the evidence on the 
key effects that can be monetized, positive and negative, of the 
various regulatory alternatives, and helps to inform decision-makers 
some of the potential consequences of choosing among the considered 
regulatory paths. NHTSA's use of cost-benefit analysis as a tool in 
CAFE rulemaking has been upheld in case law.\905\
---------------------------------------------------------------------------

    \905\ Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 
1188 (9th Cir. 2008).
---------------------------------------------------------------------------

    As discussed elsewhere in this preamble, NHTSA updated its analysis 
for this final rule. After NHTSA completed these updates, a Federal 
judge in the Western District of Louisiana enjoined Federal defendants 
from using the global social cost of carbon value developed by the 
IWG.\906\ NHTSA revised its analysis to follow the court order, using 
the values for the SC-GHG as used in the 2020 final rule, and 
discounting the 2020 value at both 3 percent and 7 percent. The 2020 
value is a severe underestimate of actual climate damages, both because 
it does not reflect global damages and because it is not a robust 
assessment of damage to the United States. As such, the estimate is 
inappropriately low for use in the current analysis. However, using 
that severe underestimate of the SC-GHG, NHTSA found that, under a 
``model year'' accounting approach, resulted in all regulatory 
alternatives indicating net costs in MY 2029, except for Alternative 1 
at a 3 percent discount rate with the SC-GHG also discounted at 3 
percent, for which NHTSA estimated net benefits of $8.1 billion.
---------------------------------------------------------------------------

    \906\ Louisiana v. Biden, Order, No. 2:21-CV-01074, ECF No. 99 
(W.D. La. Feb. 11, 2022).
---------------------------------------------------------------------------

BILLING CODE 4910-59-P

[[Page 25979]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.229

    Under a ``calendar year'' accounting approach, net benefits were 
estimated to be positive for Alternative 1, and for Alternatives 2, 
2.5, and 3, appear generally to straddle zero, with net benefits at a 3 
percent discount rate and the 2020 value discounted at 3 percent, and 
net costs at a 3 or 7 percent discount rate and the 2020 value 
discounted at 7 percent.
---------------------------------------------------------------------------

    \907\ This table uses SC-GHG values from the 2020 final rule. 
This value does not fully reflect global climate damages and is not 
a robust assessment of damage to the United States. Additionally, 
monetized values do not include other important unquantified 
effects, such as certain climate benefits, certain energy security 
benefits, distributional effects, and certain air quality benefits 
from the reduction of toxic air pollutants and other emissions, 
among other things.

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

[[Page 25980]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.230

BILLING CODE 4910-59-C
    Subsequently, the court of appeals stayed the lower court's order, 
allowing NHTSA to return to using Interim Estimates for the SCC (and 
other SC-GHGs), and discounting them at 3 percent. Using these values 
(which NHTSA believes are more accurate and appropriate) for all 
regulatory alternatives appear to be cost-beneficial at both 3 percent 
and 7 percent discount rates, both under a ``model year'' accounting 
approach and more so under a ``calendar year'' approach. Regardless of 
the values used, while some regulatory alternatives have higher net 
benefits than others, NHTSA does not consider this dispositive for 
determining maximum feasible fuel economy, especially, as here, where 
the net benefits of the different alternatives do not vary greatly, 
particularly when compared to the overall benefits associated with all 
of the regulatory alternatives. Net benefits are exactly that: Net of 
costs. Some of the benefits accrue to the public generally while some 
costs are borne directly by private actors. NHTSA's analysis, and the 
balancing of the factors, considers costs and benefits from both 
perspectives. While it is true that cost-benefit analysis, and the 
point at which net benefits are maximized, is informative regarding the 
economic practicability of different regulatory alternatives, it is one 
among many considerations, and an alternative having net costs is not 
inherently economically impracticable. Further, again, a quantitative 
cost-benefit analysis can only reflect those costs and benefits that 
can be monetized or quantified, and therefore generally does not fully 
capture the statutorily relevant considerations. Moreover, for purposes 
of this final rule, if all alternatives are roughly the same in terms 
of net benefits, it is more likely that no alternative is economically 
impracticable on that basis alone. The 2020 final rule also had net 
benefits that straddled zero, and the agency made a similar conclusion 
that when net benefits do not vary greatly among alternatives, they are 
likely not dispositive for NHTSA's decision-making.\909\
---------------------------------------------------------------------------

    \908\ This table uses SC-GHG values from the 2020 final rule. 
This value does not reflect global climate damages and is not a 
robust assessment of damage to the United States. Additionally, 
monetized values do not include other important unquantified 
effects, such as certain climate benefits, certain energy security 
benefits, distributional effects, and certain air quality benefits 
from the reduction of toxic air pollutants and other emissions, 
among other things.
    \909\ See, e.g., 85 FR 24176 (Apr. 30, 2020).

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

[[Page 25981]]

    Additionally, consumer costs and benefits may be even more relevant 
to economic practicability, given the assumption that regulatory costs 
are passed on to consumers in the form of higher prices for new 
vehicles. Even using a MY accounting approach, consumers will still 
experience net benefits for all regulatory alternatives when 
considering a 3 percent discount rate, and relatively small net costs 
when considering a 7 percent discount rate in MY 2029, which resolve to 
net benefits by MY 2039 (again, for all regulatory alternatives).\910\
---------------------------------------------------------------------------

    \910\ See Table VI-6 and Table VI-7 above.
---------------------------------------------------------------------------

    Sales and employment: On the topic of sales, NADA commented that 
``. . . just under 41 [percent] of U.S. households can afford to buy a 
new vehicle in today's market,'' \911\ and that ``more than 90 
[percent] of household new light duty vehicle acquisitions involve a 
credit sale or lease. . . .'' \912\ NADA stated that lenders for new 
vehicle purchases do not consider the vehicle's fuel economy in 
determining whether to make the loan to a prospective vehicle 
purchaser, and consider only ``the total amount financed,'' not the 
``potential reductions in vehicle operating costs, such as those that 
may result from lower fuel costs, because they cannot predict 
actuarially whether such cost reductions will be saved, let alone 
applied, to a loan or lease.'' \913\ Consequently, NADA argued that ``. 
. . NHTSA's assertion that fuel economy performance improvements will 
result in operating cost reductions that mitigate or offset, at least 
partially, the higher up-front costs necessary to buy such performance 
improvements is unsound.'' \914\ NADA stated that ``It is imperative 
that NHTSA calculate [price and sales] impacts properly and fully 
account for how consumers are likely to behave during the MY 2024-2026 
timeframe.'' \915\ NADA and Auto Innovators both argued that NHTSA's 
sales impact estimates were insufficiently negative, and that real-life 
sales impacts would be worse.\916\
---------------------------------------------------------------------------

    \911\ NADA, at 6.
    \912\ Id., at 7.
    \913\ Id., at 7-8.
    \914\ Id., at 9.
    \915\ Id., at 3.
    \916\ Id., at 12; Auto Innovators, at 130.
---------------------------------------------------------------------------

    Related to employment, UAW stated that ``[b]alanced efficiency 
regulations, when combined with policies that support domestic auto 
production and quality jobs, must be part of a policy approach that 
ensures the advanced technology vehicles result in family and community 
sustaining jobs for American workers.'' \917\ Several commenters 
supported more stringent CAFE standards in order to boost employment 
associated with application of more/higher-level technology. Ceres, for 
example, stated that ``[s]tronger standards would particularly benefit 
suppliers, who collectively employ 3.5 times more Americans than 
automakers do,'' and that ``[g]reater EV production would create strong 
incentives to build a domestic EV supply chain that can operate at 
higher volumes, helping to keep jobs in the U.S. as the global industry 
transitions to cleaner technologies.'' \918\ MEMA stated that 
``continu[ing] to emphasize and support multiple technological pathways 
to meet the targets'' will ``sustain long-term supplier technological 
investments,'' and thus employment.\919\ Environmental Law & Policy 
Center (ELPC) stated as part of its comments offered at the public 
hearing that strong fuel economy standards spur adoption of fuel-saving 
technologies, which involve employment.\920\
---------------------------------------------------------------------------

    \917\ UAW, at 4.
    \918\ Ceres, at 1-2.
    \919\ MEMA, at 5.
    \920\ ELPC, Public Hearing Comments, at 1.
---------------------------------------------------------------------------

    UCS noted potential job increases associated both with additional 
technology application in response to more stringent standards, and 
``greater job growth overall'' due to ``the economywide impact of those 
fuel savings,'' which UCS roughly estimated at ``up to 67,100 jobs 
annually over the 2021-2029 period.'' \921\ EDF cited a study by 
Synapse Energy Economics that projected that ``the augural standards 
would add over 100,000 jobs by 2025 and more than 250,000 jobs by 
2035,'' stating that `Synapse's study confirms that saving consumers 
money at the pump, and allowing them to spend those dollars elsewhere, 
will lead to net job creation.''
---------------------------------------------------------------------------

    \921\ UCS, at 10.
---------------------------------------------------------------------------

    In response, NHTSA's analysis for this final rule projects that new 
vehicle sales would decrease very slightly--by 70-163 thousand units 
annually during 2024-2029--due to our assumption that costs associated 
with meeting more stringent CAFE standards are passed through to 
consumers. Because the costs associated with meeting more stringent 
regulatory alternatives are higher, sales effects are greater for more 
stringent alternatives, but NHTSA does not believe that they are in any 
way significant enough to signal economic impracticability. By 
comparison, year-over-year changes in new light vehicle sales have 
historically averaged about 1 million units, with Federal standards 
playing a role that cannot be discerned against the backdrop of much 
larger forces. For example, the market lost more than four million 
units between 2007 and 2008 (due to the Great Recession), but 
subsequently showed gains of more than a million units in 2010, 2012, 
2013, and 2015. More recently, although final CAFE compliance data for 
the 2020 model year is not yet available, the COVID-19 pandemic appears 
to have caused a year-over-year contraction that would be the second 
largest ever recorded, and shortages of parts such as computer chips 
are currently limiting the market's ability to increase rapidly, 
despite demand for new vehicles.
    With regard to NADA comments about most new vehicle sales being 
financed, and financing officers not considering fuel savings as 
relevant to loan repayment capabilities, as we discuss in TSD Chapter 
6.1.1.2, NHTSA expects that financing new vehicle purchases reduces the 
cost of fuel economy standards to consumers by allowing them to spread 
them out over time. We thus calculate financing costs, but exclude 
these from cost and benefit accounting. Moreover, NHTSA returns again 
to the relatively low average per-vehicle cost increases associated 
with the regulatory alternatives under consideration. The sales effects 
we estimate, even with the most stringent regulatory alternatives, are 
modest. Even with the pandemic and supply chain issues, vehicle sales 
are still somehow increasing year over year, even according to NADA's 
own analysis.\922\ As mentioned above, NHTSA projects that its new 
standards will impact sales by only about 0.8 percent during MYs 2024-
2029. Thus, again, NHTSA does not believe that sales effects suggest 
the economic impracticability of any of the regulatory alternatives 
considered in this final rule. NADA exhorts the agency to ``calculate 
these [price and sales] impacts properly and fully account for how 
consumers are likely to behave during the MY 2024-2026 timeframe.'' 
\923\ NHTSA's analysis carefully estimates impacts on new vehicle 
costs, accounting for direct costs, cost learning effects, and the

[[Page 25982]]

historically observed relationship between increased costs and 
increased prices. NHTSA's analysis also estimates impacts on the new 
vehicle market using a sales model that is amply supported by the 
historical record. Because some key market factors (such as 
manufacturers' pricing strategies) are proprietary and likely 
impossible for the agency to predict with confidence, irrefutably 
``correct'' methods to estimate impacts on prices and sales are not 
available, and will likely never be available.
---------------------------------------------------------------------------

    \922\ Patrick Manzi, NADA Chief Economist, ``NADA Issues 
Analysis of 2021 Auto Sales, 2022 Sales Forecast,'' Jan. 11, 2022, 
available at https://blog.nada.org/2022/01/11/nada-issues-analysis-of-2021-auto-sales-2022-sales-forecast/. (Accessed: March 15, 2022) 
Specifically, NADA states that ``2021 came to a close with new-light 
vehicle sales of 14.93 million units, an increase of 3.1 [percent] 
compared to 2020's sales volume of 14.47 million units,'' and, 
``Moving into 2022, NADA anticipates new-vehicle sales of 15.4 
million units--an increase of 3.4 [percent] from 2021.''
    \923\ NADA, at 3.
---------------------------------------------------------------------------

    For employment, while NHTSA estimates some loss in employment 
associated with the slight sales reductions described above, we 
estimate gains in employment associated with the new technology that 
would be required in response to more stringent CAFE standards. On 
balance, we estimate that the technology effects outweigh the sales 
effects and lead to employment gains relative to the baseline. Thus, 
one could argue that more stringent alternatives could be more 
economically practicable from an employment perspective, although the 
effects are relatively small.
(c) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy'' involves analysis of the effects of compliance with 
emission, safety, noise, or damageability standards on fuel economy 
capability and thus on average fuel economy. In many past CAFE 
rulemakings, NHTSA has said that it considers the adverse effects of 
other motor vehicle standards on fuel economy. It said so because, from 
the CAFE program's earliest years \924\ until recently, compliance with 
these other types of standards has had a negative effect on fuel 
economy. For example, safety standards that have the effect of 
increasing vehicle weight thereby lower fuel economy capability, thus 
decreasing the level of average fuel economy that NHTSA can determine 
to be feasible. NHTSA has also accounted for Federal Tier 3 and 
California LEV III criteria pollutant standards within its estimates of 
technology effectiveness in this rule.\925\
---------------------------------------------------------------------------

    \924\ 43 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
    \925\ For most ICE vehicles on the road today, the majority of 
tailpipe NOX, NMOG, and CO emissions occur during ``cold 
start,'' before the three-way catalyst has reached higher exhaust 
temperatures (e.g., approximately 300[deg]C) at which point it is 
able to convert (through oxidation and reduction reactions) those 
emissions into less harmful derivatives. By limiting the amount of 
those emissions, tailpipe smog standards require the catalyst to be 
brought to temperature rapidly, so modern vehicles employ cold start 
strategies that intentionally release fuel energy into the engine 
exhaust to heat the catalyst to the right temperature as quickly as 
possible. The additional fuel that must be used to heat the catalyst 
is typically referred to as a ``cold-start penalty,'' meaning that 
the vehicle's fuel economy (over a test cycle) is reduced because 
the fuel consumed to heat the catalyst did not go toward the goal of 
moving the vehicle forward. The Autonomie work employed to develop 
technology effectiveness estimates for this final rule accounts for 
cold-start penalties, as discussed in the Autonomie model 
documentation.
---------------------------------------------------------------------------

    In other cases, the effect of other motor vehicle standards of the 
Government on fuel economy may be neutral, or positive. Since the Obama 
administration, NHTSA has considered the GHG standards set by EPA as 
``other motor vehicle standards of the Government.'' In the 2012 final 
rule, NHTSA stated that ``[t]o the extent the GHG standards result in 
increases in fuel economy, they would do so almost exclusively as a 
result of inducing manufacturers to install the same types of 
technologies used by manufacturers in complying with the CAFE 
standards.'' \926\ NHTSA concluded in 2012 that ``no further action was 
needed'' because ``the agency had already considered EPA's [action] and 
the harmonization benefits of the National Program in developing its 
own [action].'' \927\ In the 2020 final rule, NHTSA reinforced that 
conclusion by explaining that a textual analysis of the statutory 
language made it clear that EPA's CO2 standards applicable 
to light-duty vehicles are literally ``other motor vehicle standards of 
the Government,'' because they are standards set by a Federal agency 
that apply to motor vehicles. NHTSA and EPA are obligated by Congress 
to exercise their own independent judgment in fulfilling their 
statutory missions, even though both agencies' regulations affect both 
fuel economy and CO2 emissions. There are differences 
between the two agencies' programs that make NHTSA's CAFE standards and 
EPA's GHG standards not perfectly one-to-one (even besides the fact 
that EPA regulates other GHGs besides CO2, EPA's 
CO2 standards also differ from NHTSA's in a variety of ways, 
often because NHTSA is bound by statute to a certain aspect of CAFE 
regulation). NHTSA endeavors to create standards that meet our 
statutory obligations, including through considering EPA's standards as 
other motor vehicle standards of the Government.\928\ As in 2020, NHTSA 
has continued to do all of these things with this final rule.
---------------------------------------------------------------------------

    \926\ 77 FR 62624, 62669 (Oct. 15, 2012).
    \927\ Id.
    \928\ Massachusetts v. EPA, 549 U.S. 497, 532 (2007) (``[T]here 
is no reason to think that the two agencies cannot both administer 
their obligations and yet avoid inconsistency.'').
---------------------------------------------------------------------------

    NHTSA has also considered and accounted for the impacts of 
California's ZEV mandate (and its adoption by the Section 177 states), 
incorporating them into the baseline as other regulatory requirements 
applicable to automakers during the rulemaking time frame. Based on our 
analysis, NHTSA does not anticipate that the ZEV mandate will in any 
way constrain or otherwise alter NHTSA's determination of what levels 
of CAFE standards are maximum feasible. Section IV.B of this preamble 
discusses NHTSA's consideration of the state ZEV programs and continued 
technical difficulties with precisely modeling state GHG standards for 
the model years subject to this rulemaking, and NHTSA refers readers to 
that section for more information on the topic. Comments regarding the 
effect of other motor vehicle standards of the Government mostly 
addressed harmonization of the CAFE and EPA GHG standards, although 
some commenters addressed State standards. California Attorney General 
et al. discussed the statutory and legislative history of the ``other 
motor vehicle standards of the Government'' provision at some length. 
Notably, California Attorney General et al. stated that because the 
current language of the provision was added in 1994 during a 
recodification and because Congress expressly stated in so doing that 
it did not intend that the recodification would substantively change 
the existing law, therefore ``other motor vehicle standards of the 
Government'' meant the same as ``other Federal motor vehicle 
standards'' in the original statute.\929\ The commenters continued that 
``. . . in the original statute, Congress explicitly defined `Federal 
standards' to include California emissions standards that had received 
an EPA waiver,'' and concluded that ``[b]ecause EPCA specifically 
included California 209(b) standards as `Federal standards,' California 
209(b) standards are included in `other Federal motor vehicle 
standards' in the original section 2002(e) and thus `other motor 
vehicle standards of the Government' in the present-day section 
32902(f).'' \930\ California Attorney General et al. further commented 
that ``[t]his language directs NHTSA to ask whether manufacturers can 
comply with other motor vehicle standards and the new CAFE standard

[[Page 25983]]

at the same time; essentially, a fuel economy level is not the `maximum 
feasible' if it is achievable only through noncompliance with `other 
motor vehicle standards of the Government.' '' \931\ The commenters 
thus agreed with including state ZEV standards in the CAFE baseline, 
because doing so is ``consistent with Congress' direction that any 
compliance pathway modeled for proposed fuel economy standards 
continues to comply with California 209(b) standards as well.'' \932\ 
NCAT agreed that EPA's GHG emissions standards for light-duty vehicles, 
along with ZEV mandates for which a waiver has been granted under CAA 
209(b), are clearly `` `other motor vehicle standards of the 
Government' that NHTSA properly considers . . ., including by modifying 
NHTSA's CAFE Model to account for them.'' \933\ NCAT argued further 
that ``[t]here is no statutory conflict between the statutory 
requirement not to consider the `fuel economy' of alternative fuel 
vehicles and the statutory requirement to consider `other motor vehicle 
standards of the Government' such as ZEV mandates,'' because ``ZEV 
(zero emission vehicle) mandates are vehicle emissions standards not 
related to fuel economy because they do not regulate `fuel' or `fuel 
economy' as those terms are defined under EPCA, they cannot be met 
through more efficient use of `fuel,' and they are enacted for reasons 
unrelated to fuel economy.'' \934\
---------------------------------------------------------------------------

    \929\ California Attorney General et al., Docket No. NHTSA-2021-
0053-1499 App. A, at 37, citing Public Law 103-272, 108 Stat. at 
1060, 1378 (Jul. 5, 1994).
    \930\ Id., at 40.
    \931\ Id.
    \932\ Id.
    \933\ NCAT, at 6.
    \934\ Id.
---------------------------------------------------------------------------

    Lucid commented that NHTSA should ``further explain that 
California's ZEV mandate is crucial to achieving the stated goals of 
EPCA, EISA, and the CAFE regulations, and that the CAFE standards put 
in place by the rulemaking are designed to work cooperatively with 
these ZEV standards.'' \935\ AFPM, in contrast, commented that EPCA 
preempts ZEV and California's GHG standards, and that therefore those 
standards are invalid regardless of whether a waiver of CAA preemption 
is granted by EPA.\936\
---------------------------------------------------------------------------

    \935\ Lucid, at 5.
    \936\ AFPM, at 11-13.
---------------------------------------------------------------------------

    In response, with regard to Lucid's and AFPM's comment, NHTSA's 
substantive position on ZEV mandates has not changed since the CAFE 
Preemption final rule withdrawing the SAFE 1 rule that NHTSA published 
in the Federal Register on December 29, 2021,\937\ and NHTSA is not 
offering a new interpretation of the scope of EPCA preemption in this 
rule. As the CAFE Preemption final rule makes clear, NHTSA is not 
taking a position on whether or not those programs are preempted under 
EPCA, nor does NHTSA even have authority to make such determinations 
with the force of law. Further, NHTSA has not incorporated the 
California and 177 ZEV mandate in the baseline based on a determination 
that they are other motor vehicle standards of the Government. Rather, 
as explained above, NHTSA has incorporated those standards in the 
baseline because they are legal obligations applying to automakers 
during the rulemaking time frame, and are therefore relevant to 
understanding the state of the world absent any further regulatory 
action by NHTSA. With regard to the comment from California Attorney 
General et al., NHTSA appreciates the commenters' close reading of the 
statutory and legislative history. However, this is not a situation 
where consideration of the California ZEV standards and their adoption 
by 177 states would change NHTSA's analysis or determination of maximum 
feasible standards, as discussed above. It is therefore unnecessary for 
NHTSA to decide whether these standards are other motor vehicle 
standards of the Government, and as such, NHTSA is not making that 
determination.\938\
---------------------------------------------------------------------------

    \937\ 86 FR 74236 (Dec. 29, 2021).
    \938\ NHTSA notes that many commenters offered views as to the 
inclusion of California and 177 standards in the baseline and 
harmonization of CAFE and California and 177 standards in the 
context of discussing other motor vehicle standards of the 
Government. The fact that NHTSA is responding to these comments in 
the context in which they were raised does not alter the fact that 
NHTSA is not making a determination as to whether these standards 
are other motor vehicle standards of the Government.
---------------------------------------------------------------------------

    A number of commenters addressed the question of harmonization 
between the NHTSA CAFE standards and other standards, which NHTSA 
believes is relevant to consideration of ``other motor vehicle 
standards of the Government'' insofar as commenters generally asked 
NHTSA to set CAFE standards taking into consideration automakers' 
simultaneous compliance with those other motor vehicle standards. 
Nissan, MECA, Stellantis, GM, Peter Douglas, and BorgWarner all 
requested that NHTSA harmonize the CAFE standards with the EPA GHG 
standards and CARB's GHG and ZEV standards.\939\ Stellantis stated that 
a lack of harmonization between these programs adds ``significant 
complexity to compliance and adds unnecessary costs to a resource-
intensive transition to electric vehicles.'' \940\ Ingevity Corporation 
did not address CARB standards but requested harmonization between the 
EPA GHG standards, the NHTSA CAFE standards, and DOE research 
targets.\941\
---------------------------------------------------------------------------

    \939\ Nissan, Docket No. NHTSA-2021-0053-0022, at 2, 6; MECA, at 
1; Stellantis, at 2; GM, at 3; Peter Douglas, at 6, BorgWarner, 
Docket No. NHTSA-2021-0053-1473, at 2.
    \940\ Stellantis, at 2.
    \941\ Ingevity Corporation, Docket No. NHTSA-2021-0053-0092, at 
5.
---------------------------------------------------------------------------

    Commenters also addressed the specific question of harmonization 
between NHTSA CAFE and EPA GHG standards, mostly in the context of 
stringency. Ford, JLR, MEMA, and Arconic all commented that NHTSA's MY 
2026 CAFE standards should be aligned with EPA's MY 2026 GHG 
standards.\942\ Several commenters requested that NHTSA account more 
fully for EPA programmatic flexibilities when determining CAFE 
stringency, suggesting that CAFE and GHG standards are not harmonized 
unless CAFE stringency requires no additional effort by automakers 
beyond what GHG compliance, with its more extensive flexibilities, 
would require. For example, in their comments at the public hearing, 
Auto Innovators stated that ``[i]n harmonizing NHTSA actions with EPA 
actions, NHTSA should account for the differences in the treatment of 
electric vehicles under the EPA and NHTSA programs. Final NHTSA CAFE 
and EPA GHG standard should be aligned in stringency such that the CAFE 
program does not drive additional improvements beyond those required 
under the GHG program, nor make EPA incentives for higher EV production 
moot.'' \943\
---------------------------------------------------------------------------

    \942\ Ford, at 1; JLR, Docket No. NHTSA-2021-0053-1505, at 3; 
MEMA, at 3; Arconic, Docket No. NHTSA-2021-0053-1560, at 2.
    \943\ Auto Innovators Hearing Comments, at 3.
---------------------------------------------------------------------------

    In their written comments, Auto Innovators expanded on this 
request, ``. . . recommend[ing] that, at minimum, the differences 
caused by direct AC emissions credits, EV compliance calculation 
differences, and EV multipliers be accounted for when final CAFE and 
GHG standards are set for MYs 2025-2026.'' \944\ Other cited 
differences included ``statutory limitations for credit transfers, the 
split of the passenger car fleet into import and domestic fleets, and 
minimum domestic passenger car standards create additional unquantified 
stringency in the CAFE program relative to the GHG program,'' \945\ as 
well as the fact that CAFE regulations do not adjust credit value when 
credits are carried forward and back, and that NHTSA is bound by

[[Page 25984]]

statute on credit carry-forward duration while EPA is not.\946\ 
Stellantis and Toyota offered similar comments.\947\ Ford, Stellantis, 
and Auto Innovators also specifically requested an explicit offset 
between the CAFE standards and the GHG standards to account for direct 
AC credits that automakers expect to use toward compliance with the GHG 
standards.\948\ Auto Innovators further commented that NHTSA's estimate 
of the specific amount of direct AC leakage credit that industry would 
use in the EPA program might be too low, given passage of the American 
Innovation and Manufacturing (AIM) Act, EPA regulations implementing 
it, and CARB's stated intent to eliminate high-GWP refrigerants sooner 
rather than later \949\--effectively, that manufacturers will be 
leaning heavily on direct AC leakage credits as part of their GHG 
standards compliance.
---------------------------------------------------------------------------

    \944\ Id., at 37.
    \945\ Id., at 13.
    \946\ Id., at 33.
    \947\ Stellantis, at 9-10; Toyota, Docket No. NHTSA-2021-0053-
1568, at 2-3.
    \948\ Ford, at 1; Stellantis, at 8; Auto Innovators, at 32.
    \949\ Auto Innovators, at 37 n.60.
---------------------------------------------------------------------------

    Other commenters requesting that NHTSA harmonize CAFE stringency 
with EPA GHG effective stringency in light of EPA programmatic 
flexibilities included UAW, Nissan, AVE, Mercedes-Benz, Hyundai America 
Technical Center, Inc. (Hyundai), Volkswagen, and others.\950\ EDF 
commented that CAFE and GHG standard stringency and flexibilities 
should be harmonized, but by reducing available flexibilities rather 
than by dropping stringency to account for them.\951\
---------------------------------------------------------------------------

    \950\ UAW, at 2, 6; Nissan, at 2; AVE, Docket No. NHTSA-2021-
0053-1488-A1, at 3; Mercedes-Benz, Docket No. NHTSA-2021-0053-0952, 
at 3; Hyundai, Docket No. NHTSA-2021-0053-1512, at 5; Volkswagen, 
Docket No. NHTSA-2021-0053-1548, at 3.
    \951\ EDF, at 1.
---------------------------------------------------------------------------

    Some commenters noted that even if stringencies are aligned, one 
program may be more stringent in a given year for a specific 
manufacturer than the other. Honda stated that ``[e]ven if GHG and CAFE 
topline stringencies were fully aligned, it would not be uncommon for 
manufacturers to find themselves compliant in one agency program, while 
facing meaningful compliance challenges in another.'' \952\ Auto 
Innovators commented similarly.\953\ Toyota stated that ``. . . the 
CAFE program `appears' less stringent than the GHG program for 2024 MY, 
particularly for light trucks, but the stringency gap shrinks when 
credit transfer limitations and other harmonization factors not being 
analyzed here are considered.'' \954\
---------------------------------------------------------------------------

    \952\ Honda, Docket No. NHTSA-2021-0053-1501, at 5.
    \953\ Auto Innovators, at 31.
    \954\ Toyota, Docket No. NHTSA-2021-0053-1568, at 2.
---------------------------------------------------------------------------

    Some commenters argued that NHTSA must analyze both CAFE standards 
and GHG standards simultaneously to ensure that the CAFE standards are 
fully harmonized with the GHG standards. Auto Innovators stated that 
``[d]eveloping . . . harmonized regulations requires the Agencies to 
fully assess their policies in the context of the other's proposal 
(especially since there is not a unified rulemaking over the covered 
period due to lead-time constraints).'' \955\ Toyota commented 
similarly that NHTSA must analyze both programs simultaneously and then 
drop its stringency below the proposal, because ``[a]ttaining single 
fleet compliance with both programs by forcing manufacturers to design 
for the most stringent elements of both programs does not achieve [the 
`One National Program'] objective consistent with past practice.'' 
\956\ Rivian and Securing America's Future Energy agreed that NHTSA 
should analyze both programs simultaneously, but argued that NHTSA 
should do so because the CAFE proposal was less stringent than the GHG 
proposal, and that therefore NHTSA should raise CAFE stringency in the 
final rule.\957\
---------------------------------------------------------------------------

    \955\ Auto Innovators, at 30.
    \956\ Toyota, at 4.
    \957\ Rivian, Docket No. NHTSA-2021-0053-1562, at 4-5; Securing 
America's Future Energy, at 8.
---------------------------------------------------------------------------

    Some commenters also argued that NHTSA should adopt a ``deemed-to-
comply'' provision, such that manufacturers need only comply with EPA 
GHG standards and NHTSA would accept that compliance in lieu of actual 
compliance with CAFE standards.\958\ GM commented as follows:
---------------------------------------------------------------------------

    \958\ See, e.g., Auto Innovators, at 13, 30-31; Stellantis, at 
8.

    NHTSA has the statutory authority to adopt a deemed-to-comply 
provision as it considers ``the effect of other motor vehicle 
standards of the Government''--including EPA's GHG standards--in 
determining [maximum feasible CAFE standards]. NHTSA's consideration 
of ''economic practicability'' and ``technological feasibility'' 
should include the economic and technical challenges that EV-focused 
manufacturers will face from attempting to comply with separate but 
overlapping NHTSA, EPA, and California regulatory regimes. The 
statute thus permits--and arguably requires--that NHTSA consider how 
it can best coordinate its CAFE standards with EPA's GHG standards 
and the nation's Paris Agreement commitments, including (where 
appropriate) by deeming compliance with EPA's GHG standards to be 
sufficient to constitute compliance with NHTSA's CAFE standards. 
This approach is also consistent with the Supreme Court's assumption 
that `the two agencies can both administer their obligations and 
avoid inconsistency.' \959\
---------------------------------------------------------------------------

    \959\ GM, Docket No. NHTSA-2021-0053-1523, at 6-7. NHTSA 
disagrees that Paris Agreement commitments are properly considered 
as ``other motor vehicle standards of the Government,'' even if they 
are broadly relevant to energy conservation goals, including those 
of the CAFE program.

    Volvo Cars (Volvo) commented that NHTSA, EPA, and CARB should work 
together to ``reduce reporting requirements by allowing manufacturers 
to demonstrate compliance at the end of the year for all programs.'' 
\960\
---------------------------------------------------------------------------

    \960\ Volvo, Docket No. NHTSA-2021-0053-1565, at 3.
---------------------------------------------------------------------------

    Other commenters simply encouraged NHTSA and EPA to go back to 
working together to issue joint rules,\961\ while some commenters 
argued there was no need for unified proposals or final rules.\962\ The 
environmental group commenters ``. . . urge[d] NHTSA to finalize its 
rulemaking as soon as possible, and certainly before April 2022,'' 
stating that ``[c]ommenters recognize that given the agencies' current 
pace, EPA may finalize its revised LDV GHG emissions standards before 
NHTSA finalizes this rulemaking. This serial approach is acceptable as 
nothing compels the agencies to proceed in tandem.'' \963\ Consumer 
Federation of America, in contrast, commented that NHTSA should cede 
its decision-making authority to EPA entirely, stating that ``. . . 
NHTSA's approach is so favorable to a small number of automakers that 
we think Congress should . . . either remove the standard setting 
function from NHTSA altogether, or it should make NHTSA's analysis 
merely advisory to EPA, who would be charged with setting the 
standard.'' \964\
---------------------------------------------------------------------------

    \961\ WDNR, Docket No. NHTSA-2021-0053-0059, at 4; NADA, at 4.
    \962\ CBD et al., Docket No. NHTSA-2021-0053-1572, at 7; Great 
Lakes and Midwest Environmental Organizations, Docket No. NHTSA-
2021-0053-1520, at 2; NCAT, at 4.
    \963\ CBD et al., at 7.
    \964\ CFA, Docket No. NHTSA-2021-0053-1482, Appendix A1, at 3.
---------------------------------------------------------------------------

    In response, NHTSA has carefully considered EPA's standards, by 
including the baseline (i.e., 2020) CO2 standards in our 
analytical baseline for the main analysis. Because the EPA and NHTSA 
programs were developed in coordination jointly, and stringency 
decisions were made in coordination, NHTSA did not incorporate EPA's 
only-recently-finalized CO2 standards as part of the 
analytical baseline for the main analysis. The fact that EPA finalized 
its rule before NHTSA is an artifact of circumstance only. However, in 
response to comments, NHTSA has also

[[Page 25985]]

conducted a side analysis in which we analyzed simultaneous compliance 
with EPA's recently finalized CO2 standards and the 
regulatory alternatives considered here. This analysis confirms that 
complying with the EPA and NHTSA standards simultaneously is feasible.
    Unlike the reference case analysis and sensitivity analysis cases 
discussed elsewhere in this document and FRIA, this side analysis 
applies the modeling approach used for the Final SEIS; that is, without 
setting aside additional BEV models or the use of compliance credits 
during the model years for which the agency is issuing new CAFE 
standards. The agency conducted this side analysis in this way because 
NHTSA expects that the approach followed for the Final SEIS provides 
the most realistic and internally consistent basis to account for 
interactions between the CAFE and CO2 standards. Considering 
industry-wide MY 2029 results summarized in the following table, new 
CAFE standards clearly lead to a more pronounced shift away from 
conventional gasoline powertrains--and toward SHEVs, PHEVs, and BEVs--
when combined with new CO2 standards than when combined with 
baseline CO2 standards (i.e., those established in the 2020 
final rule), but not a shift that is faster than indicated by many 
manufacturers' announced electrification plans. Additional costs 
(beyond continued reliance on MY 2020 technology) in MY 2029 under new 
CAFE standards are also somewhat higher (by about $700) when new 
CO2 standards are also in effect, but only slightly higher 
(by about $125) than when baseline CAFE standards are continued 
alongside new CO2 standards.
[GRAPHIC] [TIFF OMITTED] TR02MY22.231

    These results do not, however, demonstrate that new CO2 
standards somehow hinder compliance with new CAFE standards. Rather, 
for some manufacturers, especially those that could be expected to 
continue to avail themselves of EPCA's civil penalty provisions, new 
CO2 standards are likely to be binding, because paying fines 
for a failure to comply with CO2 standards is not a viable 
option for a manufacturer wishing to sell vehicles in the U.S. This is 
why, in every case shown above, the presence of new CO2 
standards leads all manufacturers to achieve MY 2029 CAFE levels that 
no longer necessitate payment of civil penalties. On the other hand, 
even with new CO2 standards, new CAFE standards could be 
binding for some manufacturers in some model years, because in EPCA/
EISA, Congress expressly required, inter alia, that manufacturers meet 
minimum standards for domestic cars, that NHTSA limit transfers of CAFE 
compliance credits between regulated fleets, and that the fuel economy 
ratings of electric vehicles be determined using a petroleum 
equivalency factor established by DOE for EVs based on specified 
factors.\965\ Overall, these results suggest that new CO2 
standards will likely interact with new CAFE standards in a manner that 
leads to more widespread industry compliance with new CAFE standards, 
leading NHTSA to conclude that new CO2 standards do not 
constrain the maximum feasible levels of new CAFE standards.
---------------------------------------------------------------------------

    \965\ See 49 U.S.C. 32904(a)(2)(B).
---------------------------------------------------------------------------

    NHTSA is aware that when multiple agencies regulate concurrently in 
the same general space, different regulations may be binding for 
different regulated entities at different times. NHTSA agrees that in 
the 2012 rule, NHTSA and EPA included in our respective stringencies an 
express offset for an assumed amount of direct AC credit and reliance 
on EPA incentives for PHEVs EVs, and FCEVs that the agencies believed, 
at the time, manufacturers would employ in meeting the EPA standards, 
and for which NHTSA could not give credit toward CAFE compliance.\966\ 
At the time, the agencies stated that:
---------------------------------------------------------------------------

    \966\ See 77 FR 63054 (Oct. 15, 2012).

    We note, however, that the alignment is based on the assumption 
that manufacturers implement the same level of direct A/C system 
improvements as EPA currently forecasts for those model years, and 
on the assumption of PHEV, EV, and FC[E]V penetration at specific 
levels. If a manufacturer implements a higher level of direct A/C 
improvement technology (although EPA predicts 100 [percent] of 
manufacturers will use substitute refrigerants by MY 2021, and the 
GHG standards assume this rate of substitution) and/or a higher 
penetration of PHEVs, EVs, and FC[E]Vs, then NHTSA's standards would 
effectively be more stringent than EPA's. Conversely, if a 
manufacturer implements a lower level of direct A/C improvement 
technology and/or a lower penetration of PHEVs, EVs and FC[E]Vs, 
then EPA's proposed [sic] standards would effectively be more 
stringent than NHTSA's. Several manufacturers commented on this 
point and suggested that this meant that the standards were not 
aligned, because NHTSA's standards might be more stringent in some 
years than EPA's. This reflects a misunderstanding of the agencies' 
purpose. The agencies have sought to craft harmonized standards such 
that manufacturers may build a single fleet of vehicles to meet both 
agencies' requirements. That is the case for these final standards. 
Manufacturers will have to plan their compliance strategies 
considering both the NHTSA standards and the EPA standards and 
assure that they are in compliance with both, but they can still

[[Page 25986]]

build a single fleet of vehicles to accomplish that goal.\967\ 
(emphasis added)
---------------------------------------------------------------------------

    \967\ Id. at 63054-63055.

    Even in 2012, the agencies anticipated the possibility of this 
situation and explained that regardless of which agency's standards are 
binding given a manufacturer's chosen compliance path, manufacturers 
will still have to choose a path that complies with both standards, and 
in doing so, will still be able to build a single fleet of vehicles--
even if it is not exactly the fleet that the manufacturer might have 
preferred to build. This remains the case today.
    In requesting that NHTSA account precisely for each difference 
between the programs and calculate the CAFE standard accordingly, 
commenters appear to be asking NHTSA to define ``maximum feasible'' as 
``the fuel economy level at which no manufacturer need ever apply any 
additional technology or spend any additional dollar beyond what EPA's 
standards, with their greater flexibilities, would require.'' NHTSA 
believes that this takes ``consideration'' of ``the effect of other 
motor vehicle standards of the Government'' farther than Congress 
intended for it to go. NHTSA has considered EPA's standards in 
determining the maximum feasible CAFE standards for MYs 2024-2026, as 
demonstrated above and throughout the analysis that informs this 
decision. NHTSA has also harmonized its standards with EPA's where 
doing so was consistent with NHTSA's separate statutory direction. 
NHTSA disagrees that harmonization can only be achieved at the very 
cheapest level, or that this would be consistent with NHTSA's statutory 
mandate, even though NHTSA understands that for-profit companies would 
rather spend less money meeting regulations than more money, and that 
automakers have committed to major technological improvements to their 
fleets in the coming years. With regard to GM's comment about ``the 
economic and technical challenges that EV-focused manufacturers will 
face from attempting to comply with separate but overlapping NHTSA, 
EPA, and California regulatory regimes,'' NHTSA notes that GM, among 
others, has argued that NHTSA may not consider electrification in 
standard setting, but also notes that these challenges are likely to be 
transitory, albeit genuine during the time frame of this rulemaking, 
and NHTSA does provide compliance credits for electric vehicles. 
Automakers who build only electric vehicles clearly have no difficulty 
complying with NHTSA's CAFE standards or EPA's and CARB's GHG emissions 
(and ZEV) standards. Moreover, those technological improvements that 
companies like GM are making will, no doubt, facilitate their 
compliance with CAFE standards, even if they are not credited as 
heavily as in the GHG program.
    NHTSA believes that automaker comments about ``building a single 
fleet of vehicles'' and Toyota's comment about ``forcing manufacturers 
to design for the most stringent elements of both programs'' have 
ignored the agencies' discussion from 2012 excerpted above, but also 
miss the broader point that NHTSA must set maximum feasible CAFE 
standards. Manufacturers can absolutely continue to build a single 
fleet of vehicles to meet all applicable standards, even if the CAFE 
standards may ultimately require some technology application on at 
least some vehicles that the GHG standards, with their flexibilities, 
may not require. This outcome is not inconsistent with NHTSA's 
statutory obligation to set maximum feasible standards that conserve 
energy.
    Additionally, harmonization can be considered and achieved 
regardless of whether NHTSA and EPA (or NHTSA and EPA and CARB) take 
perfectly joint, concurrent action. NHTSA agrees with the commenters 
who noted that there is no express legal requirement for CAFE 
rulemaking actions to be joint or concurrent with other agencies' 
actions.
    With regard to the comments encouraging NHTSA to accept compliance 
with EPA (or CARB) standards in lieu of compliance with CAFE standards, 
and the comment urging NHTSA to cede its decision-making authority to 
EPA, NHTSA does not believe that doing either would be consistent with 
the intent of ``the effect of other motor vehicle standards of the 
Government on fuel economy'' provision. Congress would not have set 
that provision as one factor among four for NHTSA to consider if it 
intended for it to control absolutely--instead, NHTSA and courts have 
long held that all factors must be considered together. Moreover, 
Congress delegated to DOT (and DOT delegated to NHTSA) decision-making 
authority for the CAFE standards program. The Supreme Court said in 
Massachusetts v. EPA that because ``DOT sets mileage standards in no 
way licenses EPA to shirk its environmental responsibilities. EPA has 
been charged with protecting the public's `health' and `welfare,' 42 
U.S.C. 7521(a)(1), a statutory obligation wholly independent of DOT's 
mandate to promote energy efficiency. See Energy Policy and 
Conservation Act, Sec.  2(5), 89 Stat. 874, 42 U.S.C. 6201(5). The two 
obligations may overlap, but there is no reason to think the two 
agencies cannot both administer their obligations and yet avoid 
inconsistency.'' The converse must necessarily be true--the fact that 
EPA sets GHG standards in no way licenses NHTSA to shirk its energy 
conservation responsibilities. Unless and until Congress changes EPCA/
EISA, NHTSA is bound to continue exercising its own independent 
judgment and setting CAFE standards and to do so consistent with 
statutory directives. Part of setting CAFE standards is considering 
EPA's GHG standards and other motor vehicle standards of the Government 
and how those affect manufacturers' ability to comply with potential 
future CAFE standards, but that is only one inquiry among several in 
determining what levels of CAFE standards would be maximum feasible.
    Additionally, nothing in EPCA or EISA suggests that compliance with 
GHG or State emissions standards would be an acceptable basis for CAFE 
compliance. The calculation provisions in 49 U.S.C. 32904 are explicit. 
The compliance provisions in 49 U.S.C. 32912 state that automakers must 
comply with applicable fuel economy standards, and failure to do so is 
a failure to comply. Federal emissions standards and State emissions 
standards are not fuel economy standards. NHTSA does not agree that a 
``deemed to comply'' option is consistent with the statute, nor that it 
is necessary for coordination with and consideration of those other 
standards.
(d) The Need of the U.S. to Conserve Energy
    NHTSA has consistently interpreted ``the need of the United States 
to conserve energy'' to mean ``the consumer cost, national balance of 
payments, environmental, and foreign policy implications of our need 
for large quantities of petroleum, especially imported petroleum.'' 
\968\ A number of commenters addressed different aspects of the need of 
the United States to conserve energy, as discussed below.
---------------------------------------------------------------------------

    \968\ 42 FR 63184, 63188 (Dec. 15, 1977).
---------------------------------------------------------------------------

(1) Consumer Costs and Fuel Prices
    Fuel for vehicles costs money for vehicle owners and operators, so 
all else equal, consumers benefit from vehicles that need less fuel to 
perform the same amount of work. Future fuel prices are a critical 
input into the economic analysis of potential CAFE standards because 
they determine the value of fuel savings both to new vehicle buyers and 
to society; the amount of fuel economy

[[Page 25987]]

that the new vehicle market is likely to demand in the absence of 
regulatory action; and they inform NHTSA about the ``consumer cost . . 
. of our need for large quantities of petroleum.'' For this final rule, 
NHTSA relied on fuel price projections from the U.S. Energy Information 
Administration's (EIA) Annual Energy Outlook (AEO) for 2021. Federal 
Government agencies generally use EIA's price projections in their 
assessment of future energy-related policies.
    In previous CAFE rulemakings, discussions of fuel prices have 
always been intended to reflect the price of motor gasoline. However, a 
growing set of vehicle offerings that rely in part, or entirely, on 
electricity suggests that gasoline prices are no longer the only fuel 
prices relevant to evaluations of the effects of different possible 
CAFE standards. In the analysis supporting this final rule, NHTSA 
considers the energy consumption and resulting emissions from the 
entire on-road fleet, which already contains a number of plug-in hybrid 
and fully electric vehicles. Higher CAFE standards encourage 
manufacturers to improve fuel economy; concurrently, manufacturers will 
foreseeably seek to continue to maximize profit (or minimize compliance 
cost), and some reliance on electrification is a viable strategy for 
some manufacturers, even though NHTSA does not consider it in 
determining maximum feasible CAFE stringency. Under the more stringent 
CAFE alternatives considered for this final rule, we see a greater 
reliance on electrification technologies in the analysis in the years 
following the explicitly regulated model years, even though internal 
combustion engines continue to be the most common powertrain across the 
industry in the action years of this rulemaking.
    While the current national average electricity price is 
significantly higher than that of gasoline, on an energy equivalent 
basis ($/MMBtu),\969\ electric motors convert energy into propulsion 
much more efficiently than internal combustion engines. This means 
that, even though the energy-equivalent prices of electricity are 
higher, electric vehicles still produce fuel savings for their owners. 
EIA's AEO 2021 also projects rising real gasoline prices over the next 
three decades, while projecting real electricity prices to remain 
relatively flat. As the reliance on electricity grows in the light-duty 
fleet, NHTSA will continue to monitor the trends in electricity prices 
and their implications for CAFE standards. Even if NHTSA is prohibited 
from considering electrification as a technology during the model years 
covered by the rulemaking, the consumer (and social) cost implications 
of manufacturers otherwise switching to electrification may remain 
relevant to the agency's considerations.
---------------------------------------------------------------------------

    \969\ Source: AEO 2021, Table 3.
---------------------------------------------------------------------------

    For now, gasoline is still the dominant fuel used in light-duty 
transportation. As such, consumers, and the economy more broadly, are 
subject to fluctuations in price that impact the cost of travel and, 
consequently, the demand for mobility. Over the last decade, the U.S. 
has become a stabilizing force in the global oil market and our 
reliance on imported petroleum has decreased steadily. AEO 2021 
projects the U.S. to be a net exporter of petroleum and other liquids 
through 2050 in the Reference Case. Over the last decade, EIA 
projections of real fuel prices have generally flattened in recognition 
of the changing dynamics of the oil market and slower demand growth, 
both in the U.S. and in developing markets. For example, the 
International Energy Agency has projected that global demand for 
gasoline is unlikely to ever return to its 2019 level (before the 
pandemic).\970\ However, vehicles are long-lived assets, and the long-
term price uncertainty of petroleum still represents a risk to 
consumers, albeit one that has decreased in the last decade. Continuing 
to reduce the amount of money consumers spend on vehicle fuel thus 
remains an important consideration for the need of the U.S. to conserve 
energy.
---------------------------------------------------------------------------

    \970\ International Energy Agency, Oil 2021, (p. 30), https://iea.blob.core.windows.net/assets/1fa45234-bac5-4d89-a532-768960f99d07/Oil_2021-PDF.pdf. (Accessed: March 15, 2022)
---------------------------------------------------------------------------

    Comments received on the consumer cost aspect of the need of the 
U.S. to conserve energy were divided between comments relating to 
future electrification, and comments about equity. For the former, Kia 
commented that ``fluctuations in the cost for fueling EVs should also 
play into the analysis of potential alternatives,'' given that NHTSA 
noted in the preamble that fluctuations in fuel prices affect the cost 
of travel and thus mobility demand.\971\ NHTSA does account for this by 
using electricity prices from AEO 2021 in our analysis, as described 
above.
---------------------------------------------------------------------------

    \971\ Kia, at 7.
---------------------------------------------------------------------------

    AFPM argued that because a recent NBER ``study finds that EVs are 
driven just 5,300 miles per year, less than half the average internal 
combustion engine vehicle,'' therefore ``[t]his single omission results 
in the [a]gency arbitrarily doubling any estimated avoided emissions 
and fuel savings.'' \972\ This suggests that consumer fuel savings 
associated with increased electrification may be overstated. In 
response, while NHTSA has examined the possibility of different VMT 
schedules for BEVs, we have not yet implemented them in our analysis. 
However, at this time and for this rulemaking, we do not believe that 
different VMT schedules would be significant. Electric miles represent 
2.5 percent of total miles (over the lifetimes of vehicles considered 
in this analysis) in the baseline, which rises to only 3.4 percent 
under the Preferred Alternative. Penetration rates of BEVs remain quite 
low through MY 2029. Thus, the additional benefits estimated as a 
result of electrification remain an extremely small portion of overall 
benefits, and are not dispositive for NHTSA's decision in this 
document.
---------------------------------------------------------------------------

    \972\ AFPM, at 18.
---------------------------------------------------------------------------

    On the topic of equity, California Attorney General et al. argued 
that ``. . . decreasing domestic demand for petroleum would decrease 
domestic income inequality by reducing oil prices,'' because ``[h]igher 
gasoline prices result in significant costs for families in the United 
States,'' and the ``transfer of revenue from U.S. oil producers to U.S. 
oil consumers could have substantial benefits for the most economically 
disadvantaged, reducing income inequality. . . .'' \973\ ELPC also 
commented at the public hearing that strong fuel economy standards will 
increase equity by saving American consumers money.\974\
---------------------------------------------------------------------------

    \973\ California Attorney General et al., Docket No. NHTSA-2021-
0053-1499, Appendix A, at 6.
    \974\ ELPC public hearing comments, at 2.
---------------------------------------------------------------------------

    Environmental Law & Policy Center with 15 Great Lakes and Midwest 
Partners (Great Lakes and Midwest Environmental Organizations) 
commented that ``[f]uel-efficient cars save vehicle owners money at the 
gas pump and are especially important for low-income Americans, who 
spend a greater proportion of their income on gasoline. Assuring that 
new cars sold today are as efficient as possible means that fuel-
efficient used cars will be available in a few years.'' \975\ EDF 
similarly commented that raising CAFE standards will ``give consumers 
more flexibility when oil prices increase. And it will increasingly 
benefit low-income families as many of the lowest-income U.S. 
households spend nearly one-fifth of their income on gasoline--three 
times more than the average U.S. household.'' \976\ ACEEE offered 
nearly

[[Page 25988]]

identical comments about the burden of gasoline purchases on low-income 
families, adding that ``[f]ueling costs can be a major household 
expense and can inhibit families from accessing jobs, educational 
opportunities, and essential services.'' \977\ Consumer Reports offered 
similar comments at the public hearing, stating that ``Lower income 
households spend a higher percentage of their income on energy. This 
energy burden could be alleviated by having more fuel-efficient 
vehicles available on the market.'' \978\
---------------------------------------------------------------------------

    \975\ Great Lakes and Midwest Environmental Organizations, at 3.
    \976\ EDF, at 7.
    \977\ ACEEE, at 1 (citation omitted).
    \978\ Consumer Reports public hearing comments, at 1.
---------------------------------------------------------------------------

    NHTSA agrees with commenters that raising fuel economy standards 
can reduce consumer costs on fuel--this has long been a major focus of 
the CAFE program, and was one of the driving considerations for 
Congress in establishing the CAFE program originally. Over time, as 
average VMT has increased and more and more Americans have come to live 
farther and farther from their workplaces and activities, fuel costs 
have become even more important. Even when gasoline prices, for 
example, are relatively low, they can still add up quickly for 
consumers whose daily commute measures in hours, like many Americans in 
economically disadvantaged and historically underserved communities. 
When vehicles can go farther on a gallon of gas, lower income consumers 
save money, and as commenters note, that money may represent a larger 
percentage of their income and overall expenditures than for more-
advantaged consumers. Of course, when fuel prices spike, low income 
consumers suffer disproportionately. Thus, clearly, the need of the 
United States to conserve energy is well-served by helping consumers 
save money at the gas pump.
    NHTSA and the Department of Transportation are committed to 
improving equity in transportation. Helping economically disadvantaged 
and historically underserved Americans save money on fuel and get where 
they need to go is an important piece of this puzzle, and it also 
improves energy conservation, thus implementing Congress' intent in 
EPCA. All of the action alternatives considered in this final rule 
improve fuel economy as compared to the baseline standards, with the 
most stringent alternatives saving consumers the most on fuel costs. As 
in the proposal, then, the most stringent alternatives likely best 
serve the need of the United States to conserve energy in this respect.
(2) National Balance of Payments
    NHTSA has consistently included consideration of the ``national 
balance of payments'' as part of the need of the U.S. to conserve 
energy because of concerns that importing large amounts of oil created 
a significant wealth transfer to oil-exporting countries and left the 
U.S. economically vulnerable.\979\ As recently as 2009, nearly half the 
U.S. trade deficit was driven by petroleum,\980\ yet this concern has 
been less critical in more recent CAFE actions, in part because other 
factors besides petroleum consumption have been playing a bigger role 
in the U.S. trade deficit.\981\ While transportation demand is expected 
to increase as the economy recovers from the pandemic, it is 
foreseeable that the trend of trade in consumer goods and services 
continuing to dominate the national balance of payments, as compared to 
petroleum, will continue during the rulemaking time frame.
---------------------------------------------------------------------------

    \979\ For the earliest discussion of this topic, see 42 FR 
63184, 63192 (Dec. 15, 1977) (``A major reason for this need [to 
reduce petroleum consumption] is that the importation of large 
quantities of petroleum creates serious balance of payments and 
foreign policy problems. The United States currently spends 
approximately $45 billion annually for imported petroleum. But for 
this large expenditure, the current large U.S. trade deficit would 
be a surplus.'').
    \980\ See, Today in Energy: Recent improvements in petroleum 
trade balance mitigate U.S. trade deficit, U.S. Energy Information 
Administration (July 21, 2014). Available at https://www.eia.gov/todayinenergy/detail.php?id=17191 (accessed: March 15, 2022) and in 
the docket for this rulemaking, NHTSA-2021-0053.
    \981\ Consumer products are the primary drivers of the trade 
deficit. In 2020, the U.S. imported $2.4 trillion in consumer goods, 
versus $116.4 billion of petroleum, which is the lowest amount since 
2002. The 2020 goods deficit of $904.9 billion was the highest on 
record, while the 2020 petroleum surplus of $18.1 billion was the 
first annual surplus on record. See U.S. Census Bureau, ``Annual 
2020 Press Highlights,'' at census.gov/foreign-trade/statistics/highlights/AnnualPressHighlights.pdf, (accessed: March 15, 2022) and 
available in the docket for this rulemaking. While 2020 was an 
unusual year for U.S. transportation demand, given the global 
pandemic, this is consistent with existing trends in which consumer 
products imports significantly outweigh oil imports.
---------------------------------------------------------------------------

    California Attorney General et al. agreed with NHTSA that the 
national balance of payments was still a relevant consideration for the 
need of the United States to conserve energy. They stated, however, 
that ``. . . NHTSA could improve its analysis by noting that even as a 
net exporter last year, the United States is still not self-sufficient 
in petroleum production. Rather, the United States' domestic gross 
crude oil imports are expected to remain between 6.9 and 7.8 million 
metric barrels per day through 2050 without the proposed CAFE standard 
revision. [citing AEO 2021, Table D.1] Incremental reduction in 
expenditures on foreign oil would thus serve to improve the national 
balance of payments and fulfill the statutory purpose.'' \982\
---------------------------------------------------------------------------

    \982\ California Attorney General et al., at 25.
---------------------------------------------------------------------------

    Whether or not overall reductions in oil consumption lead to 
reductions in oil imports specifically, NHTSA agrees that the U.S. does 
continue to rely on oil imports, and NHTSA continues to recognize that 
reducing the vulnerability of the U.S. to possible oil price shocks 
remains important. This final rule aims to improve fleet-wide fuel 
efficiency and to help reduce the amount of petroleum consumed in the 
U.S., and therefore aims to improve this part of the U.S. balance of 
payments.
(3) Environmental Implications
    Higher fleet fuel economy reduces U.S. emissions of CO2 
as well as various other pollutants by reducing the amount of oil that 
is produced and refined for the U.S. vehicle fleet, but can also 
potentially increase emissions by reducing the cost of driving, which 
can result in increased vehicle miles traveled (i.e., the rebound 
effect). Thus, the net effect of more stringent CAFE standards on 
emissions of each pollutant depends on the relative magnitudes of its 
reduced emissions in fuel refining and distribution and increases in 
its emissions from vehicle use. Fuel savings from CAFE standards also 
necessarily result in lower emissions of CO2, the main 
greenhouse gas emitted as a result of refining, distribution, and use 
of transportation fuels.
    NHTSA has considered environmental issues, both within the context 
of EPCA and the context of the National Environmental Policy Act 
(NEPA), in making decisions about the setting of standards since the 
earliest days of the CAFE program. As courts of appeal have noted in 
three decisions stretching over the last 20 years,\983\ NHTSA defined 
``the need of the United States to conserve energy'' in the late 1970s 
as including, among other things, environmental implications. In 1988, 
NHTSA included climate change concepts in its CAFE notices and prepared 
its first environmental assessment addressing that subject.\984\ It 
cited concerns about climate change as one of the reasons for limiting 
the extent

[[Page 25989]]

of its reduction of the CAFE standard for MY 1989 passenger cars.\985\
---------------------------------------------------------------------------

    \983\ CAS, 793 F.2d 1322, 1325 n. 12 (D.C. Cir. 1986); Public 
Citizen, 848 F.2d 256, 262-63 n. 27 (D.C. Cir. 1988) (noting that 
``NHTSA itself has interpreted the factors it must consider in 
setting CAFE standards as including environmental effects''); CBD, 
538 F.3d 1172 (9th Cir. 2007).
    \984\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \985\ 53 FR 39275, 39302 (Oct. 6, 1988).
---------------------------------------------------------------------------

    NHTSA also considers environmental justice issues as part of the 
environmental considerations under the need of the U.S. to conserve 
energy, per Executive Order 12898, ``Federal Actions to Address 
Environmental Justice in Minority Populations'' \986\ and DOT Order 
5610.2(c), ``U.S. Department of Transportation Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations.'' \987\ The affected environment for environmental justice 
is nationwide, with a focus on areas that could contain minority and 
low-income communities who would most likely be exposed to the 
environmental and health effects of oil production, distribution, and 
consumption, or the impacts of climate change. This includes areas 
where oil production and refining occur, areas near roadways, coastal 
flood-prone areas, and urban areas that are subject to the heat island 
effect.
---------------------------------------------------------------------------

    \986\ 59 FR 629 (Feb. 16, 1994).
    \987\ Department of Transportation Updated Environmental Justice 
Order 5610.2(c) (May 14, 2021).
---------------------------------------------------------------------------

    Numerous studies have found that some environmental hazards are 
more prevalent in areas where minority and low-income populations 
represent a higher proportion of the population compared with the 
general population. In terms of effects due to criteria pollutants and 
air toxics emissions, the body of scientific literature points to 
disproportionate representation of minority and low-income populations 
in proximity to a range of industrial, manufacturing, and hazardous 
waste facilities that are stationary sources of air pollution, although 
results of individual studies may vary. While the scientific literature 
specific to oil refineries is limited, disproportionate exposure of 
minority and low-income populations to air pollution from oil 
refineries is suggested by other broader studies of racial and 
socioeconomic disparities in proximity to industrial facilities 
generally. Studies have also consistently demonstrated a 
disproportionate prevalence of minority and low-income populations that 
are living near mobile sources of pollutants (such as roadways) and 
therefore are exposed to higher concentrations of criteria air 
pollutants in multiple locations across the United States. Lower-
positioned socioeconomic groups are also differentially exposed to air 
pollution and differentially vulnerable to effects of exposure.
    In terms of exposure to climate change risks, the literature 
suggests that across all climate risks, low-income communities, some 
communities of color, and those facing discrimination are 
disproportionately affected by climate events. Communities overburdened 
by poor environmental quality experience increased climate risk due to 
a combination of sensitivity and exposure. Urban populations 
experiencing inequities and health issues have greater susceptibility 
to climate change, including substantial temperature increases. Some 
communities of color facing cumulative exposure to multiple pollutants 
also live in areas prone to climate risk. Indigenous peoples in the 
United States face increased health disparities that cause increased 
sensitivity to extreme heat and air pollution. Together, this 
information indicates that climate impacts disproportionately affect 
minority and low-income populations because of socioeconomic 
circumstances, histories of discrimination, and inequity. Furthermore, 
high temperatures can exacerbate poor air quality, further compounding 
the risk to overburdened communities. Finally, health-related 
sensitivities in low-income and minority populations increase risk of 
damaging impacts from poor air quality under climate change, 
underscoring the potential benefits of improving air quality to 
communities overburdened by poor environmental quality.
    In the Final SEIS, Chapters 3, 4, 5, and 8 discuss the connections 
between oil production, distribution, and consumption, and their health 
and environmental impacts.
    All of the action alternatives considered in this final rule reduce 
carbon dioxide emissions and, thus, the effects of climate change, as 
compared to the baseline. Effects on criteria pollutants and air toxics 
emissions are slightly more complicated, for a variety of reasons, as 
discussed in Section VI.C and Chapter 6.6 of the FRIA, although over 
time and certainly over the lifetimes of the vehicles that would be 
subject to this rule, these emissions are currently forecast to fall 
significantly. For example, the final rule analysis shows that 
increases in CAFE standards generally lead to decreases in overall 
emissions of NOX and PM2.5 for all alternatives 
evaluated, in contrast to the NPRM analysis in which emissions of 
NOX and PM2.5 for the more stringent alternatives 
surpassed the baseline (No-Action Alternative) and Alternative 1 in 
most calendar years. The differences between the NPRM and final rule 
are largely due to changes in the upstream emission estimates of 
NOX and PM2.5 from the updated GREET model 
(roughly 5-10 percent decline), as well as the lower consumption of 
electricity estimated in the final rule analysis. For SOX, 
in contrast, the final rule analysis shows a similar trend to the NPRM, 
with overall emissions rising under the three most stringent 
alternatives, when compared to the baseline, while also marginally 
decreasing during a few of the middle years and then going up in the 
latter years for Alternative 1.
    For toxic air pollutant emissions, the EIS runs that are part of 
the final rule analysis show findings consistent with what was shown 
for the NPRM analysis. Toxic air pollutant emissions across the action 
alternatives increase in 2025 (except for DPM), and generally show 
decreases in 2045 and 2050 relative to the No-Action Alternative for 
the same reasons as for criteria pollutants. In 2025, emissions of 
acetaldehyde, acrolein, benzene, 1,3-butadiene, and formaldehyde would 
increase under the action alternatives (compared to the No-Action 
Alternative), with the smallest increases occurring under Alternative 
1, and the increases getting larger from Alternative 1 through 
Alternative 3. In 2035 and 2050, however, emissions of all toxic air 
pollutants would decrease under the action alternatives as compared to 
the No-Action Alternative. In 2035, the largest relative decreases in 
emissions would occur for DPM, for which emissions would decrease by as 
much as 6.1 percent under Alternative 3 compared to the No-Action 
Alternative. In 2050, the largest relative decreases in emissions would 
occur for formaldehyde, for which emissions would decrease by as much 
as 10 percent under Alternative 3 compared to the No-Action 
Alternative. Percentage decreases in emissions of acetaldehyde, 
acrolein, benzene, and 1,3-butadiene would be smaller.
    As discussed above, while the majority of light-duty vehicles will 
continue to be powered by internal combustion engines in the near- to 
mid-term under all regulatory alternatives, the more stringent 
alternatives do appear in the analysis to lead to greater 
electrification in the mid- to longer-term. While NHTSA is prohibited 
from considering the fuel economy of electric vehicles in determining 
maximum feasible CAFE levels, electric vehicles (which appear both in 
the agency's baseline and which may be produced in model years 
following the period of regulation as an indirect effect of more 
stringent standards, or in response to other standards or to market 
demand) produce few to zero tailpipe emissions, and thus contribute 
meaningfully to the

[[Page 25990]]

decarbonization of the transportation sector, in addition to having 
environmental, health, and economic development benefits, although 
these benefits may not yet be equally distributed across society. They 
also present new environmental (and social) questions, like those 
associated with reduced tailpipe emissions, upstream electricity 
production, minerals extraction for battery components, and ability to 
charge an electric vehicle. The upstream environmental effects of 
extraction and refining for petroleum are well-recognized; minerals 
extraction and refining can also have significant downsides. As one 
example of documentation of these effects, the United Nations 
Conference on Trade and Development issued a report in July 2020 
describing acid mine drainage and uranium-laced dust associated with 
cobalt mines in the Democratic Republic of the Congo, along with child 
labor concerns; considerable groundwater consumption and dust issues 
that harm miners and indigenous communities in the Andes; issues with 
fine particulate matter causing human health effects and soil 
contamination in regions near graphite mines; and so forth.\988\ 
NHTSA's Final SEIS discusses these and other effects (such as 
production and end-of-life issues) in more detail, and NHTSA will 
continue to monitor these issues going forward insofar as CAFE 
standards may increase electrification levels even if NHTSA does not 
expressly consider electrification in setting those standards, because 
NHTSA does not control what technologies manufacturers use to meet 
those standards, and because NHTSA is required to consider the 
environmental effects of its standards under NEPA.
---------------------------------------------------------------------------

    \988\ UNCTAD, ``Commodities at a Glance: Special issue on 
strategic battery raw materials,'' No. 13, Geneva, 2020, at 46. 
Available at https://unctad.org/system/files/official-document/ditccom2019d5_en.pdf (accessed: March 15, 2022) and in the docket 
for this rulemaking, NHTSA-2021-0053.
---------------------------------------------------------------------------

    NHTSA carefully considered the environmental effects of this rule, 
both quantitative and qualitative, as discussed in the Final SEIS and 
in Sections VI.C and VI.D.
    A number of commenters pointed to the importance of climate change 
as a consideration of the need of the U.S. to conserve energy as a 
reason to set stringent standards.\989\ Mr. Douglas stated that ``[t]he 
need of the United States to conserve energy now includes the need to 
avert the impending climate atrocity, and must therefore be given far 
more weight than it has been given in the past. . . . it is now many 
orders of magnitude greater than it was before. The impending climate 
atrocity is going to make the OPEC oil embargo look like a picnic in 
the park. Technological and economic barriers are not so immovable that 
they cannot give way to the dramatically increased need to improve fuel 
economy.'' \990\ The Great Lakes and Midwest Environmental 
Organizations commented that ``[w]hile the Clean Air Act locates 
authority to regulate tailpipe greenhouse gas emissions from 
automobiles with the [EPA], NHTSA can and should still consider the 
effects of its automobile fuel efficiency standards on reducing the 
threat of climate change and its devastating impacts on the 
environment, agriculture, public health, and critical energy and 
transportation infrastructure.'' \991\ SELC noted that ``NHTSA has 
always interpreted the need to conserve energy to include consideration 
of environmental implications. The significant environmental impacts of 
improved fuel economy deserve substantial weight in this rulemaking 
since greenhouse gas emissions from the combustion of fossil fuels 
continue to drive climate change.'' \992\ Our Children's Trust \993\ 
and Elders Climate Action \994\ both commented that if the final rule 
did not explain how it would specifically contribute to getting the 
United States to zero GHG emissions by 2050 or how it would reduce 
Earth's energy imbalance to zero, it would be arbitrary and capricious. 
Mr. Kreucher, in contrast, commented that the climate benefits 
associated with the proposal were extremely small, as noted in the 
SEIS.\995\
---------------------------------------------------------------------------

    \989\ See, e.g., Lucid, at 4; CARB, at 15; Bay Area Quality 
Management Air District, NHTSA-2021-0053-1472, at 5.
    \990\ Peter Douglas, at 14, 16-17.
    \991\ Great Lakes and Midwest Environmental Organizations, at 2.
    \992\ SELC, at 2.
    \993\ Our Children's Trust, at 6; Elders Climate Action, Docket 
No. NHTSA-2021-0053-1589, at 2.
    \994\ Elders Climate Action, Docket No. NHTSA-2021-0053-1589, at 
2.
    \995\ Walter Kreucher, at 10.
---------------------------------------------------------------------------

    Other commenters argued that the idea that the ``need of the U.S. 
to conserve energy'' includes climate considerations has been upheld in 
case law. California Attorney General et al. stated that NHTSA ``. . . 
has long considered environmental impacts as part of the need of the 
U.S. to conserve energy, and this interpretation has been approved by 
both the D.C. Circuit and the Ninth Circuit.'' \996\ IPI et al. 
similarly commented that:
---------------------------------------------------------------------------

    \996\ California Attorney General et al., at 8-9, 25.

    For decades, courts have affirmed that this language does not 
bar, but in fact compels NHTSA to consider the environmental 
implications of energy conservation, including effects on climate 
change. In 1988 the [D.C. Circuit] highlighted that [EPCA] contains 
no statutory command prohibiting environmental considerations 
recognizing ``no conflict'' between considering ``environmental 
consequences'' with ``the factors NHTSA must weigh under EPCA.'' 
[citing Public Citizen, 848 F.2d 256, 263 n. 17 (D.C. Cir. 1988)] 
The court further approved of [DOT's] interpretation that the 
reference to ``the need of the United States to conserve energy' 
``requires consideration of . . . environmental . . . 
implications.'' [Id.] More recently, in 2008, the [9th Circuit] 
indicated that, due to advancements ``in scientific knowledge of 
climate change and its causes,'' ``the need of the United States to 
conserve energy is even more pressing today than it was at the time 
of EPCA's enactment.'' [citing CBD, 538 F.3d 1172, at 1197-98] 
Accordingly, the court concluded `EPCA does not limit NHTSA's duty . 
. . to assess the environmental impacts, including the impact on 
climate change, of its rule.' [Id. at 1214].'' \997\
---------------------------------------------------------------------------

    \997\ IPI, Docket No. NHTSA-2021-0053-1547, at 5.

    In response, NHTSA agrees that the agency has cited climate as a 
consideration relevant to the need of the U.S. to conserve energy for 
several decades of CAFE rulemakings, and that that practice has been 
upheld in court. NHTSA thus considers climate effects as part of its 
determination of maximum feasible standards, although they are fairly 
straightforward--more stringent standards obviously reduce emissions 
further, and less stringent standards reduce them less. Climate effects 
will be discussed in more specific detail in Section VI.D below.
    On the other hand, while climate effects represent one reason the 
Nation needs to conserve energy, there are other reasons, and NHTSA's 
approach carefully considers these, as well, in part by including a 
range of estimated types of energy-related benefits and costs in the 
agency's overall benefit-cost analysis. Moreover, while some commenters 
cite agreements under the UNFCCC as necessitating more stringent CAFE 
standards, and the U.S. has, for example, rejoined the ``Paris 
Accord,'' we note that any commitments the U.S. has made under the 
UNFCCC involve aggregate greenhouse gas emissions, not emissions from 
any specific sector. NHTSA can consider climate effects as an aspect of 
the need of the United States to conserve energy, but climate effects 
are one of a number of aspects that the agency considers. NHTSA 
considers all aspects of the need of the United States to conserve 
energy, and then balances those considerations with the other factors 
given to us by statute (and their attendant considerations).

[[Page 25991]]

    A number of commenters also noted environmental justice and equity 
concerns. Great Lakes and Midwest Environmental Organizations, ELPC, 
SELC, CARB, California Attorney General et al., CBD et al., ACEEE, and 
Chicago Metropolitan Agency for Planning all echoed NHTSA's discussion 
of these topics from the NPRM.\998\ California Attorney General et al. 
also noted that reducing criteria pollutants and air toxics ``is 
crucial to improve public health and to assist States in attaining and 
maintaining the NAAQS. Reductions in criteria pollutant emissions will 
also help mitigate some of the impact of climate change, including poor 
air quality and other impacts. . . . Moreover, reducing these emissions 
is critical to meeting our States and Cities' environmental justice 
goals. But we need federal help to reduce emissions that are outside 
our control and to meet those goals.'' \999\ The Metropolitan 
Washington Council of Governments agreed and added that the proposed 
rule would also ``provide considerable support for metropolitan 
Washington and communities across the United States to meet their GHG 
emissions reduction goals.'' \1000\
---------------------------------------------------------------------------

    \998\ Great Lakes and Midwest Environmental Organizations, at 3; 
ELPC public hearing comments, at 2; SELC, at 4-5; CARB, at 17-18; 
California Attorney General et al., at 26; CBD et al., at 9; ACEEE, 
at 2; Chicago Metropolitan Agency for Planning, Docket No. NHTSA-
2021-0053-0050, at 2.
    \999\ California Attorney General et al., at 17-18.
    \1000\ Metropolitan Washington Council of Governments, Docket 
No. NHTSA-2021-0053-0048, at 2.
---------------------------------------------------------------------------

    NHTSA continues to agree that environmental justice, like consumer 
fuel costs, are clearly an equity concern for low-income and 
historically disadvantaged communities, and vitally important to 
consider. Chapter 7 of the Final SEIS discusses NHTSA's consideration 
of environmental justice issues in detail. With regard to the comments 
about State NAAQS compliance, NHTSA reiterates that the final rule 
analysis shows that increases in CAFE standards generally lead to 
decreases in overall emissions of NOX and PM2.5 
for all alternatives evaluated, in contrast to the NPRM analysis in 
which emissions of NOX and PM2.5 for the more 
stringent alternatives surpassed the baseline (No-Action Alternative) 
and Alternative 1 in most calendar years, and a trend for 
SOX that is similar to the trend shown in the NPRM, with 
overall emissions rising under the three most stringent alternatives, 
when compared to the baseline, while also marginally decreasing during 
a few of the middle years and then going up in the latter years for 
Alternative 1. As noted previously, contemporaneous effects to 
decarbonize the power sector could powerfully abate these emissions.
(4) Foreign Policy Implications
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum or in the prices paid by consumers for petroleum 
products such as gasoline. These costs include (1) higher prices for 
petroleum products resulting from the effect of U.S. oil demand on 
world oil prices; (2) the risk of disruptions to the U.S. economy, and 
the effects of those disruptions on consumers, caused by sudden 
increases in the global price of oil and its resulting impact of fuel 
prices faced by U.S. consumers, (3) expenses for maintaining the 
strategic petroleum reserve (SPR) to provide a response option should a 
disruption in commercial oil supplies threaten the U.S. economy, to 
allow the U.S. to meet part of its International Energy Agency 
obligation to maintain emergency oil stocks, and to provide a national 
defense fuel reserve, and (4) the threat of significant economic 
disruption, and the underlying effect on U.S. foreign policy, if an 
oil-exporting country threatens the United States and uses as part of 
its threat its power to upend the U.S. economy. Reducing U.S. 
consumption of crude oil or refined petroleum products (by reducing 
motor fuel use) can reduce these external costs.
    In addition, a 2006 report by the Council on Foreign Relations 
identified six foreign policy costs that it said arose from U.S. 
consumption of imported oil: (1) The adverse effect that significant 
disruptions in oil supply will have for political and economic 
conditions in the U.S. and other importing countries; (2) the fears 
that the current international system is unable to ensure secure oil 
supplies when oil is seemingly scarce and oil prices are high; (3) 
political realignment from dependence on imported oil that limits U.S. 
alliances and partnerships; (4) the flexibility that oil revenues give 
oil-exporting countries to adopt policies that are contrary to U.S. 
interests and values; (5) an undermining of sound governance by the 
revenues from oil and gas exports in oil-exporting countries; and (6) 
an increased U.S. military presence in the Middle East that results 
from the strategic interest associated with oil consumption.
    CAFE standards over the last few decades have conserved significant 
quantities of oil, and the petroleum intensity of the U.S. fleet has 
decreased significantly. Continuing to improve energy conservation and 
reduce U.S. oil consumption by raising CAFE standards further has the 
potential to continue to help with all of these considerations.
    EDF commented that CAFE standards were crucial for reducing ``all 
oil consumption, not just foreign imports. Because oil is a global 
market, increasing domestic production will not insulate Americans from 
price fluctuations.'' \1001\ Securing America's Future Energy and CBD 
et al. offered similar comments.\1002\ California Attorney General et 
al. agreed, and suggested that climate change would cause more oil 
price shocks because extreme weather affects supply chains, and that 
more stringent CAFE standards would mitigate these risks.\1003\ CARB 
suggested ``that NHTSA consider a broader range of sectors that can be 
impacted by oil imports and prices. This is expected to more accurately 
show the benefits from stricter standards, including on the budgets of 
the federal government and consumers.''
---------------------------------------------------------------------------

    \1001\ EDF, at 6-7.
    \1002\ Securing America's Future Energy, at 1; CBD et al., at 4.
    \1003\ California Attorney General et al., Appendix A, at 6-7.
---------------------------------------------------------------------------

    NHTSA agrees with these comments, and will take CARB's suggestion 
under advisement for future rulemaking efforts, although this 
particular exercise may be beyond the scope of the agency's expertise. 
NHTSA looks forward to seeing scholarship develop further in this area 
as Brown (2018) describes the need for, above.
    AFPM, in contrast, argued that the risks of oil price shocks had 
decreased substantially since EPCA was passed, due to increased U.S. 
energy exports, ``Yet [the NPRM] would ignore these changed 
circumstances and trade our energy independence for a dependence on 
foreign supply chains for the commodities required to produce EV 
batteries.'' \1004\ Valero offered similar comments, and added that 
``promot[ing] the substantial use of electric vehicle technology'' 
could ``affirmatively undermine both energy security objectives and the 
market for domestically-produced renewable fuels that EISA and the RFS 
clearly seek to promote.'' \1005\ The High Octane Low Carbon Fuel 
Alliance also argued that increasing use of ethanol would displace more 
oil than would be saved by the NHTSA and EPA CAFE and GHG proposals 
together and produce ``an oil

[[Page 25992]]

security premium valued at more than $1 billion per year.'' \1006\
---------------------------------------------------------------------------

    \1004\ AFPM, at 13.
    \1005\ Valero, Docket No. NHTSA-2021-0053-1541, at 2-3.
    \1006\ High Octane Low Carbon Fuel Alliance, Docket No. NHTSA-
2021-0053-1475, at 6.
---------------------------------------------------------------------------

    Auto Innovators commented that ``energy security benefits are a 
less compelling rationale for the proposed standards and for the 
transition to EVs than they were when the CAFE program was created in 
1975, and even when the Obama-era standards were finalized in 2012. 
This, of course, would weigh in favor of less stringent CAFE standards 
since the primary policy benefit supporting stringent fuel economy 
standards is the need of the nation to conserve energy.'' \1007\ Auto 
Innovators commented that ``. . . GHG and CAFE standards seem unlikely 
to have any meaningful impact on imports from Canada and Mexico because 
U.S. buyers can obtain good prices, secure supplies, and/or long-term 
contracts from Canadian and Mexican producers. Since oil is produced, 
refined and sold in a global marketplace, the [a]gencies should provide 
a rigorous analysis of which oil producers/refiners in the world will 
be adversely impacted by an incremental decline in U.S. demand for oil. 
This issue will be even more important in future rulemakings insofar as 
the agencies estimate much larger reductions in gasoline consumption.'' 
\1008\
---------------------------------------------------------------------------

    \1007\ Auto Innovators, at 21.
    \1008\ Auto Innovators, at 93.
---------------------------------------------------------------------------

    While NHTSA agrees that the energy security picture has changed 
since the 1970s, due in no small part to the achievements of the CAFE 
program itself in increasing fleetwide fuel economy, as discussed in 
the NPRM, NHTSA disagrees that energy security in the petroleum 
consumption context is no longer of concern. Auto Innovators notes that 
oil is produced, refined, and sold in a global marketplace, and thus 
must realize that the fact that oil can be obtained from Canada and 
Mexico does not mean that prices cannot be affected by events occurring 
elsewhere in the world. Congress' original concern with energy security 
was the impact of supply shocks on American consumers in the event that 
the U.S.'s foreign policy objectives lead to conflicts with oil-
producing nations or that global events more generally lead to fuel 
disruptions, and improving fuel economy and reducing fuel consumption 
still helps with that. The world is dealing with these effects at the 
time this rule is being issued. In addition to the immediate human 
suffering caused by the Russian invasion of Ukraine, there has also 
been a significant increase in the price of petroleum, caused by market 
concerns over both the invasion itself and the economic sanctions 
levied against Russia by the U.S. and many other countries. A motor 
vehicle fleet with greater fuel economy is better able to absorb 
increased fuel costs, particularly in the short-term, without those 
costs leading a broader economic crisis, as had occurred in the 1973 
and 1979 oil crises. Thus, the U.S. is able to take certain economic 
actions in response to the invasion that would otherwise be 
unavailable, including the recent prohibition on Russian petroleum. 
Ensuring that the U.S. fleet is positioned to take advantage of the 
cost-effective technology innovations will allow the U.S. to continue 
to base its international activities on foreign policy objectives that 
are not limited, at least not completely, by petroleum issues.
    Further, as explained above, when U.S. oil consumption is linked to 
the globalized and tightly interconnected oil market, as it is now, the 
only means of reducing the exposure of U.S. consumers to global oil 
shocks is to reduce their oil consumption and the overall oil-intensity 
of the U.S. economy. U.S. oil supply does not effectively insulate U.S. 
drivers from higher gas prices (or other price increases driven by oil 
prices), because those prices are currently largely determined by oil 
prices set in the globally integrated market. Given these dynamics, the 
most effective policies to protect consumers from oil price spikes are 
those that reduce the oil-intensity of the economy, including fuel 
economy standards. Thus, the reduction in oil consumption driven by 
fuel economy standards creates an energy security benefit.
    This benefit is the original purpose behind the CAFE standards. Oil 
prices are inherently volatile, in part because geopolitical risk 
affects prices. International conflicts, sanctions, civil conflicts 
targeting oil production infrastructure, pandemic-related economic 
upheaval, cartels have all had dramatic and sudden effects on oil 
prices in recent years. For all of these reasons, energy security 
remains quite relevant for NHTSA in determining maximum feasible CAFE 
standards. There are extremely important energy security benefits 
associated with raising CAFE stringency that are not discussed in TSD 
Chapter 6.2.4, and which are difficult to quantify, but have weighed 
heavily for NHTSA in determining the maximum feasible standards in this 
final rule.
    Regarding the comments about the energy security benefits of 
ethanol use, these are, for the most part, beyond the scope of the CAFE 
program. Flex-fueled vehicles capable of running on ethanol are 
incentivized by EPA's CAFE calculation regulations, and generally 
speaking, the benefit depends on the amount of ethanol actually 
consumed by the vehicles.
    Regarding climate risks in particular, ELPC commented at the public 
hearing that increasing CAFE standards improved national security 
because ``The impacts of climate change include impacts on the 
environment, agriculture, public health, and infrastructure, including 
critical energy and transportation infrastructure, that can compromise 
America's energy security and national security.'' \1009\ Tesla agreed 
that reducing climate impacts can benefit national security.\1010\ 
California Attorney General et al. agreed that reducing fuel use can 
benefit our national security, including insofar as the environmental 
costs of oil use are intertwined with the security costs of oil 
use.\1011\ Elders Climate Action argued that NHTSA had not enumerated 
specifically ``what must be achieved . . . with respect to emissions 
reductions to protect the national security, what its `long-term GHG 
reduction goals' are, how it intends to achieve them, or whether and 
how the current rulemaking contributes to achieving those goals.'' 
\1012\
---------------------------------------------------------------------------

    \1009\ ELPC public hearing comments, at 1-2.
    \1010\ Tesla, Attachment 1, at 3.
    \1011\ California Attorney General et al., at 7-8 (citing Brown, 
2018).
    \1012\ Elders Climate Action, at 11.
---------------------------------------------------------------------------

    NHTSA agrees that climate effects in turn affect national (and 
global) security, as also discussed in the NPRM. However, this is a 
consideration for estimating the social cost of carbon. NHTSA lacks any 
empirical basis to quantify these potential effects beyond the point 
they have already been accounted for by the interagency working group 
(IWG) charged with estimating the social cost of carbon.
    With regard to military security specifically, Securing America's 
Future Energy commented that ``[a]ccording to [our] Energy Security 
Leadership Council . . . member and former Secretary of the Navy John 
F. Lehman, `more than half the Defense budget is for the security of 
Persian Gulf oil.' And `defending Persian Gulf oil is a major 
distraction from existential defense issues. Oil dependency complicates 
the military equation beyond our comprehension.' '' \1013\ Securing 
America's Future Energy also commented that the U.S. was falling behind 
China on vehicle electrification,

[[Page 25993]]

and that losing automotive manufacturing capacity (if this was allowed 
to continue) ``would not only threaten our economy and millions of 
jobs, but it could also undermine our capacity to innovate, with 
implications extending to the military and defense industry.'' \1014\ 
Securing America's Future Energy therefore argued that ``[u]sing the 
regulatory powers of the federal government is an important tool in 
creating the demand for EVs that are the engine of that transition, and 
. . . the fuel economy rule should be developed in a manner to 
accelerate this critical transition.'' \1015\
---------------------------------------------------------------------------

    \1013\ Securing America's Future Energy, at 9.
    \1014\ Id. at 5.
    \1015\ Id. at 5.
---------------------------------------------------------------------------

    In response, while NHTSA does not consider the fuel economy of EVs 
expressly in determining maximum feasible CAFE standards, NHTSA 
appreciates the comments from Securing America's Future Energy and 
recognizes that reducing global oil consumption by raising CAFE 
standards can improve national security, which may facilitate reduced 
military spending. Chapter 6 of the TSD discusses these issues in more 
detail.
    To the extent that the U.S. light-duty vehicle fleet toward 
electrification, different potential foreign policy implications arise. 
Most vehicle electrification is currently enabled by lithium-ion 
batteries. Lithium-ion battery global value chains have several phases: 
Sourcing (mining/extraction); processing/refining; cell manufacturing; 
battery manufacturing; installation in an EV; and recycling.\1016\ 
Because lithium-ion battery materials have a wide global diversity of 
origin, accessing them can pose varying geopolitical challenges.\1017\ 
The U.S. International Trade Commission recently summarized 2018 data 
from the U.S. Geological Survey on the production/sourcing of the four 
key lithium-ion battery materials, as shown in Table VI-9.
---------------------------------------------------------------------------

    \1016\ Scott, Sarah, and Robert Ireland, ``Lithium-Ion Battery 
Materials for Electric Vehicles and their Global Value Chains,'' 
Office of Industries Working Paper ID-068, U.S. International Trade 
Commission, June 2020, at 7. Available at https://www.usitc.gov/publications/332/working_papers/gvc_overview_scott_ireland_508_final_061120.pdf and in the docket 
for this rulemaking, NHTSA-2021-0053.
    \1017\ Id. at 8.
    \1018\ Id., citing U.S. Geological Survey, Mineral Commodity 
Summaries, Feb. 2019.
[GRAPHIC] [TIFF OMITTED] TR02MY22.232

    Of these sources, the USITC notes that while ``lithium has 
generally not faced political instability risks,'' ``[b]ecause of the 
[Democratic Republic of Congo's] ongoing political instability, as well 
as poor labor conditions, sourcing cobalt faces significant 
geopolitical challenges.'' \1019\ Nickel is also used extensively in 
stainless steel production, and much of what is produced in Indonesia 
and the Philippines is currently exported to China for stainless steel 
manufacturing.\1020\ Obtaining graphite for batteries does not 
currently pose geopolitical obstacles, but the USITC notes that Turkey 
has great potential to become a large graphite producer, which would 
make stability there a larger concern.\1021\
---------------------------------------------------------------------------

    \1019\ Id. at 8, 9.
    \1020\ Id. at 9.
    \1021\ Id.
---------------------------------------------------------------------------

    For materials processing and refining, China is the largest 
importer of unprocessed lithium, which it then transforms into 
processed or refined lithium,\1022\ the leading producer of refined 
cobalt (with Finland a distant second),\1023\ one of the leading 
producers of primary nickel products (along with Indonesia, Japan, 
Russia, and Canada) and one of the leading refiners of nickel into 
nickel sulfate, the chemical compound used for cathodes in lithium-ion 
batteries,\1024\ and one of the leading processors of graphite intended 
for use in lithium-ion batteries as well.\1025\ In all regions, 
increasing attention is being given to vertical integration in the 
lithium-ion battery industry from material extraction, mining and 
refining, battery materials, cell production, battery systems, reuse, 
and recycling. The United States is lagging in upstream capacity; 
although the U.S. has some domestic lithium deposits, it has very 
little capacity in mining and refining any of the key raw materials. As 
mentioned elsewhere, however, there can be benefits and drawbacks in 
terms of environmental consequences associated with increased mining, 
refining, and battery production.
---------------------------------------------------------------------------

    \1022\ Id.
    \1023\ Id. at 10.
    \1024\ Id.
    \1025\ Id.
---------------------------------------------------------------------------

    China and the European Union are also major consumers of lithium-
ion batteries, along with Japan, Korea, and others. Lithium-ion 
batteries are used not only in light-duty vehicles, but in many 
ubiquitous consumer goods, and

[[Page 25994]]

are likely to be used eventually in other forms of transportation as 
well. Thus, securing sufficient batteries to enable large-scale shifts 
to electrification in the U.S. light-duty vehicle fleet may face new 
issues as vehicle companies compete with other new sectors. NHTSA will 
continue to monitor these issues going forward.
    President Biden has already issued an Executive order on 
``America's Supply Chains,'' aiming to strengthen the resilience of 
America's supply chains, including those for automotive 
batteries.\1026\ Reports are to be developed within one year of 
issuance of the Executive order, and NHTSA will monitor these findings 
as they develop.
---------------------------------------------------------------------------

    \1026\ Executive Order 14017, ``America's Supply Chains,'' Feb. 
24, 2021. 86 FR 11849 (Mar. 1, 2021).
---------------------------------------------------------------------------

    Securing America's Future Energy commented that ``[a]s we navigate 
the transition to electrification, we must ensure that we do not swap 
our current dependence on an unstable oil market for reliance on China 
for our future transportation needs.'' \1027\ The UAW similarly 
commented that ``[i]t is projected that by 2029, 70 percent of lithium-
ion battery manufacturing capacity will be in China and another 16 
percent will be in Europe. Without significant efforts to increase 
domestic production, the U.S. could be left behind, with just 9 percent 
of global battery production capacity.'' \1028\ Auto Innovators echoed 
many of the issues NHTSA raised in the NPRM regarding minerals sourcing 
and availability.\1029\
---------------------------------------------------------------------------

    \1027\ Securing America's Future Energy, at 2.
    \1028\ UAW, citing testimony to Congress by Benchmark Mineral 
Intelligence in 2020, available at https://www.energy.senate.gov/services/files/6A3B3A00-8A72-4DC3-8342-F6A7B9B33FEF. (Accessed: 
March 15, 2022)
    \1029\ Auto Innovators, at 108-115.
---------------------------------------------------------------------------

    AFPM argued that NHTSA ``fails to address'' the fact that ``The 
current Administration has cancelled mineral development projects in 
the U.S., which increases U.S. dependence on other countries to supply 
minerals required to meet the demand from its policies, including this 
rulemaking.'' \1030\ AFPM further argued that:
---------------------------------------------------------------------------

    \1030\ AFPM, at 15.

    Transportation electrification requires substantial, foreign-
sourced raw and processed materials to produce EVs and batteries. 
This proposal, taken to its logical end, would put the United States 
into a situation resembling the oil embargoes of the 1970s, where 
unreliable foreign states whose interests often do not align with 
the United States', control majorities of the critical raw material 
supplies used in the manufacturing of batteries and motor components 
required for transportation services . . . . Increasing dependence 
on foreign sources of energy and materials cannot be what Congress 
intended. This is not the renewed focus on energy conservation and 
security risk reduction that NHTSA promises in the proposal.\1031\
---------------------------------------------------------------------------

    \1031\ Id. at 14.

    In contrast, EDF commented that the battery supply chain issues 
were improving, that President Biden had made increasing domestic 
supply a priority, that industry was responding by investing 
domestically and developing battery chemistries whose minerals might be 
easier to source reliably, and that perhaps industry would develop 
greater recycling capabilities in the future.\1032\
---------------------------------------------------------------------------

    \1032\ EDF, at 7-9.
---------------------------------------------------------------------------

    Another security-related consideration of increasing fleet 
electrification is electricity supply. CARB commented that energy 
security considerations change with electrification, and that ``[w]ith 
a possible large-scale shift to electrify the transportation sector, 
any future discussion around energy security would benefit from 
considering the availability of a sufficient supply or availability of 
electricity as well as petroleum.'' \1033\
---------------------------------------------------------------------------

    \1033\ CARB, at 11.
---------------------------------------------------------------------------

    While NHTSA agrees that all of these considerations bear ongoing 
attention, as discussed in greater detail below, the agency is 
prohibited from considering the fuel economy of electric vehicles in 
setting the standards. Independent of that consideration, we do not 
believe that this issue is entirely ripe in this rulemaking 
establishing CAFE standards for MYs 2024-2026 given the low 
electrification rates, even among the most stringent alternatives. As 
stated above, NHTSA will continue to monitor these issues going 
forward.
(e) Factors That NHTSA is Prohibited From Considering
    EPCA also provides that in determining the level at which it should 
set CAFE standards for a particular model year, NHTSA may not consider 
the ability of manufacturers to take advantage of several EPCA 
provisions that facilitate compliance with CAFE standards and thereby 
reduce the costs of compliance.\1034\ NHTSA cannot consider compliance 
credits that manufacturers earn by exceeding the CAFE standards and 
then use to achieve compliance in years in which their measured average 
fuel economy falls below the standards. NHTSA also cannot consider the 
use of alternative fuels by dual fueled automobiles, nor the fuel 
economy (i.e., the availability) of dedicated alternative fueled 
automobiles--including battery-electric vehicles--in any model year for 
which standards are being set. EPCA encourages the production of 
alternative fuel vehicles by specifying that their fuel economy is to 
be determined using a special calculation procedure that results in 
those vehicles being assigned a higher equivalent fuel economy level 
than they actually achieve.
---------------------------------------------------------------------------

    \1034\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    The effect of the prohibitions against considering these statutory 
flexibilities in setting the CAFE standards is that the flexibilities 
remain voluntarily employed measures. If NHTSA were instead to assume 
manufacturer use of those flexibilities in setting new standards (as 
NHTSA does in the ``EIS analysis,'' but not the ``standard setting 
analysis''), compliance with higher standards would appear more cost-
effective and, potentially, more feasible, which would thus effectively 
require manufacturers to use those flexibilities if NHTSA determined 
that standards should be more stringent. By keeping NHTSA from 
including them in our stringency determination, the provision ensures 
that those statutory credits remain true compliance flexibilities. 
However, the flip side of the effect described above is that preventing 
NHTSA from assuming use of dedicated alternative fuel vehicles for 
compliance makes it more difficult for the CAFE program to facilitate a 
complete transition of the U.S. light-duty fleet to full 
electrification.
    In contrast, for the non-statutory fuel economy improvement value 
program that NHTSA developed by regulation, NHTSA does not consider 
these fuel economy adjustments subject to the 49 U.S.C. 32902(h) 
prohibition on considering flexibilities. The statute is very clear as 
to which flexibilities are not to be considered. When the agency has 
introduced additional flexibilities such as AC efficiency and ``off-
cycle'' technology fuel improvement values, NHTSA has considered those 
technologies as available in the analysis. Thus, this analysis includes 
assumptions about manufacturers' use of those technologies, as detailed 
in Chapter 3.8 of the accompanying TSD.
    NHTSA notes that one of the recommendations in the 2021 NAS Report 
was for Congress to ``amend the statute to delete the [49 U.S.C. 
32902(h)] prohibition on considering the fuel economy of dedicated 
alternative fueled vehicles in setting CAFE standards.'' \1035\ Mr. 
Douglas also commented that new legislation was needed to remove this 
restriction.\1036\

[[Page 25995]]

Recognizing that changing statutory text is Congress' affair and not 
NHTSA's, the NAS committee further recommended that if Congress does 
not change the statute, NHTSA should consider adding another attribute 
to the fuel economy standard function, like ``the expected market share 
of ZEVs in the total U.S. fleet of new light-duty vehicles--such that 
the standards increase as the share of ZEVs in the total U.S. fleet 
increases.'' \1037\ NHTSA sought comment on this recommendation in the 
proposal, but is not pursuing it at this time, as discussed further in 
Section III.B.
---------------------------------------------------------------------------

    \1035\ 2021 NAS Report, Summary Recommendation 5.
    \1036\ Peter Douglas, at 6.
    \1037\ Id.
---------------------------------------------------------------------------

    While NHTSA does not consider the prohibited items in its standard-
setting analysis or for making its decision about what levels of 
standards would be maximum feasible, NHTSA notes that they are included 
in the ``EIS'' analysis presented in the FRIA appendix. The EIS 
analysis does not contain these restrictions, and therefore accounts 
for credit availability and usage, and manufacturers' ability to employ 
alternative fueled vehicles, for purpose of conformance with E.O. 12866 
and NEPA regulations. Under the EIS analysis, compliance generally 
appears less costly. For example, this EIS analysis shows 
manufacturers' incremental costs (vs. the No-Action Alternative) 
averaging about $1,000 in MY 2029 under the final standards, as 
compared to the $1,087 shown by the standard setting analysis. Again, 
however, for purposes of determining maximum feasible CAFE levels, 
NHTSA considers only the standard setting analysis shown in this final 
rule, consistent with Congress' direction.
    Auto Innovators commented that ``[i]n order to be faithful to both 
the text and the intent of Section 32902(h), NHTSA must completely 
exclude the sale of BEVs and the electric portion of the operation of 
PHEVs from its standard-setting analyses, unless and until Congress 
modifies the prohibitions against their inclusion in setting maximum 
feasible standards.'' \1038\ Discussing further their understanding of 
Congress' intent, Auto Innovators argued that:
---------------------------------------------------------------------------

    \1038\ Auto Innovators, at 47.

    The structure of EPCA--where by the fuel economy of EVs must be 
excluded from the standard setting but are included in a 
manufacturer's compliance fleet--was intentionally crafted by 
Congress in order to incentivize automaker investments in the 
manufacture and sale of such alternative fuel vehicles. . . . 
NHTSA's inclusion of EVs in its standard-setting here, coupled with 
EPA's different treatment of these vehicles for GHG compliance 
purposes, has the exact opposite effect. Rather than disincentivize 
EVs, at a minimum, the CAFE program should not stand as an obstacle 
to achieving the nation's electrification goals.\1039\
---------------------------------------------------------------------------

    \1039\ Id., at 25.

    Kia commented that ``[d]ue to NHTSA's statutory restriction on 
including dedicated EVs in its evaluation of all technical pathways 
that can be taken, [Kia] suggests that NHTSA should consider re-
evaluating its stringency levels in this rulemaking.'' \1040\ AFPM 
offered similar comments,\1041\ as did Stellantis.\1042\ Mr. Kreucher 
commented that ``[o]nce [dedicated and dual fueled AFVs] are excluded 
from consideration, the . . .CAFE Model and assumptions demonstrates 
that the proposed standards ARE NOT technologically feasible.'' \1043\
---------------------------------------------------------------------------

    \1040\ Kia, at 3.
    \1041\ AFPM, at 2.
    \1042\ Stellantis, at 2-3.
    \1043\ Walt Kreucher, at 5.
---------------------------------------------------------------------------

    Auto Innovators also argued that for NHTSA even to describe vehicle 
electrification as a policy goal was ``duplicative and confusing'' 
because ``one of the central aims of EPA's light-duty greenhouse gas 
standards is to reduce emissions of those gases to address climate 
change concerns,'' and ``[i]t is not the role of NHTSA to pick 
technology pathways for reducing energy use and associated greenhouse 
gas emissions.'' \1044\ Instead, Auto Innovators argued that 
``[a]lthough reductions in greenhouse gas emissions are an effect of 
fuel economy improvements, the primary purposes of the CAFE program are 
to improve energy efficiency of motor vehicles, and to move the U.S. 
toward greater energy independence and security.'' \1045\
---------------------------------------------------------------------------

    \1044\ Auto Innovators, at 15-16.
    \1045\ Id.
---------------------------------------------------------------------------

    With regard to the provision at 49 U.S.C. 32902(h)(2), Auto 
Innovators commented that ``[f]or purposes of the standard-setting 
analysis, NHTSA should consider only the fuel economy of a PHEV when 
operating on conventional fuel.'' \1046\ Stellantis offered similar 
comments.\1047\
---------------------------------------------------------------------------

    \1046\ Id., at 43.
    \1047\ Stellantis, at 2-3.
---------------------------------------------------------------------------

    In contrast, NCAT agreed that NHTSA cannot consider the fuel 
economy of alternative fuel vehicles when deciding maximum feasible 
CAFE standards, and stated that ``[t]herefore, NHTSA does not consider 
the fuel economy of alternative fuel vehicles when deciding how much 
more fuel efficient passenger cars and light trucks should become in MY 
2024-2026 when setting the `maximum feasible average fuel economy' 
levels.'' \1048\ (emphasis in original). California Attorney General et 
al. argued that:
---------------------------------------------------------------------------

    \1048\ NCAT, at 9.

    . . . by excluding increased adoption of ZEV technology (and 
credit trading) from its modeling of fuel economy improvements, 
NHTSA ensures that these potential compliance strategies are not 
essential to achieving such improvements in the fleet average. Thus, 
NHTSA's regulatory analysis of the proposed action alternatives 
remains focused exclusively on the fuel economy improvements 
automakers could make to their [ICE] vehicles and without trading in 
the relevant compliance period.\1049\
---------------------------------------------------------------------------

    \1049\ California Attorney General et al., Appendix A, at 40.

    Tesla commented that 49 U.S.C. 32902(h) ``does not prohibit . . . 
ZEV-related considerations such as the effect [that CAFE standards] 
will have on the market share of ZEVs and the degree to which 
electrification provides positive consumer cost benefits and favorable 
automaker compliance strategies.'' \1050\
---------------------------------------------------------------------------

    \1050\ Tesla, Attachment 1, at 4.
---------------------------------------------------------------------------

    With regard to consideration of credits in determining maximum 
feasible CAFE standards, AFPM argued that all manufacturers were 
relying on credits for compliance with the current standards, and 
stated that ``NHTSA has not demonstrated that manufacturers can meet 
more stringent standards within the confines of EPCA's guardrails. In 
fact, knowing that manufacturers have been relying on credits to meet 
the current standard and then proposing to tighten them is arbitrary 
and capricious and contrary to the explicit statutory prohibition on 
considering credits when setting maximum feasible fuel economy 
standards.'' \1051\
---------------------------------------------------------------------------

    \1051\ AFPM, at 3-4.
---------------------------------------------------------------------------

    In response, NHTSA interprets 49 U.S.C. 32902(h) as applying to 
NHTSA's determination of what standards are maximum feasible, and as 
allowing NHTSA to reflect the very real existence of dedicated and 
dual-fueled alternative fueled vehicles in the analytical baseline, as 
discussed in more detail in Section IV above. NHTSA also interprets 
32902(h) as not prohibiting application by the CAFE Model of vehicles 
such as EVs in model years outside the rulemaking time frame, for 
example in MYs 2027 and beyond in this analysis, because those years 
are not the ones for which we are currently determining CAFE standards. 
NHTSA agrees that the intent of 32902(h), when combined with the other 
statutory incentives in EPCA such as those at 49 U.S.C. 32905 and 
32906, was to encourage production of alternative fueled vehicles. 
NHTSA disagrees that

[[Page 25996]]

the approach taken here to modeling the current existence of 
alternative fueled vehicles (AFVs) and their possible application in 
model years beyond those for which we are setting standards in any way 
disincentivizes their application or conflicts with EPA or 
Administration electrification goals. As long as the actual compliance 
treatment of AFVs is unchanged, production of AFVs is more strongly 
encouraged by more stringent standards, irrespective of the analysis 
informing decisions about those standards.
    NHTSA disagrees that constraints on its analysis should be applied 
beyond the specific model years for which the agency is issuing new 
CAFE standards, and notes that the wider NHTSA applies these 
constraints, the more it is forced to divorce its analysis from 
reality. Nevertheless, noting related comments discussed above, NHTSA 
has expanded its sensitivity analysis to apply these constraints 
throughout MYs 2023-2029. This case, therefore, excludes the potential 
application of compliance credits throughout MYs 2023-2029, as well as 
the introduction of new BEV models beyond those projected to be 
introduced in MYs 2021-2022 and/or in response to the ZEV mandate. This 
sensitivity case shows estimated average incremental costs (including 
civil penalties) under the Preferred Alternative increasing from $240-
$1,216 per vehicle during MYs 2023-2029 in the reference case to about 
$384-$1,371, with differences varying further between regulatory 
alternatives and among manufacturers. Differences in broader societal 
impacts (e.g., benefits and costs) are presented above in Section V.
    In Massachusetts v. EPA, the Supreme Court suggested that both EPA 
and NHTSA could implement their programs concurrently, and that is what 
NHTSA is doing in this rulemaking. We agree that the overarching 
purpose of EPCA is energy conservation, and that reducing GHG emissions 
is an effect of improving fuel economy. Noting Administration 
electrification goals, and even aspiring to see the new light-duty 
fleet head in that direction, is not a violation of 49 U.S.C. 32902(h). 
It is always up to manufacturers what technology path they take to meet 
CAFE standards, and the CAFE standards do not mandate a path that 
involves electrification even while acknowledging that electric 
vehicles exist in the fleet and may be applied in future model years 
beyond those for which we are now setting standards. Moreover, contrary 
to Mr. Kreucher's suggestion, NHTSA finds that standards are maximum 
feasible without electrification beyond what is already expected in the 
baseline.
    In response to the industry comments regarding how NHTSA considers 
the fuel economy of dual-fueled vehicles in determining maximum 
feasible CAFE standards, NHTSA has held the interpretation since the 
2012 final rule that it is reasonable and appropriate to begin 
considering the full calculated fuel economy of dual-fueled vehicles. 
Moreover, given that the costs of hybridization and electrification 
continue to fall, NHTSA continues to believe that it is foreseeable 
that manufacturers will comply with future CAFE standards using PHEVs 
(and BEVs, for that matter), and if costs continue on this path, then 
industry compliance costs will be even lower than what we currently 
estimate. In response to these comments, however, NHTSA conducted a 
sensitivity analysis, presented in Chapter 7 of the FRIA. Findings from 
that analysis indicate that even if NHTSA constrained PHEV 
applicability in the CAFE Model during the rulemaking time frame, 
results in MY 2029 would be extremely close to results in the main 
standard-setting analysis. For Alternative 2.5, per-vehicle costs are 
estimated to drop from $1,087 to $1,072; SHEV adoption industry-wide 
would increase from 21 to 27 percent; BEV adoption industry-wide would 
increase from 6.7 percent to just 6.9 percent; along with other minor 
shifts in engine and vehicle technologies. Thus, NHTSA concludes that 
even if we had run standard setting with this restriction, the 
extremely small differences in results would not have led us to change 
our decision about how we are balancing the statutory factors or what 
levels of fuel economy would be maximum feasible in the rulemaking time 
frame. With regard to AFPM's comment that it is arbitrary and 
capricious and a violation of 49 U.S.C. 32902(h) for NHTSA to increase 
CAFE stringency when automakers have been using credits in recent years 
toward compliance, in order to rely on the fact that automakers have 
been using credits as a basis not to increase CAFE stringency, NHTSA 
would have to consider the availability of credits, contrary to 
32902(h).\1052\ While NHTSA is aware that the past several model years 
have been more challenging ones for CAFE compliance for a variety of 
reasons, as discussed in Section VI.A.5.b) above, NHTSA continues to 
believe that the technology exists to raise fuel economy consistent 
with the levels represented by the action alternatives in this final 
rule, and that manufacturers are ready to begin applying it, consistent 
with their public positions about heading toward zero emissions fleets. 
Further, NHTSA does not view the use of banked credits as anything 
other than an indication that program flexibilities are working as 
intended to allow automakers to optimize compliance over time and 
thereby to reduce compliance costs.
---------------------------------------------------------------------------

    \1052\ This is sometimes described as the ``white bear 
problem.''
---------------------------------------------------------------------------

(f) Other Considerations in Determining Maximum Feasible CAFE Standards
    NHTSA has historically considered the potential for adverse safety 
effects in setting CAFE standards. This practice has been upheld in 
case law.\1053\ South Coast AQMD commented that ``NHTSA is . . . 
correct to abandon the SAFE Rule's arbitrary focus on non-statutory 
factors including its flawed theory crediting reduced fuel economy with 
fewer fatalities due to consumers choosing to drive less.'' \1054\ 
While NHTSA agrees that the safety effects of the different regulatory 
alternatives are in no way dispositive for the agency's decision in 
this final rule, NHTSA still considers the safety effects, consistent 
with case law. The agency's findings are discussed in Section V of this 
preamble and in Chapter 5 of the accompanying FRIA, and NHTSA discusses 
its consideration of these effects in Section VI.D.
---------------------------------------------------------------------------

    \1053\ As courts have recognized, ``NHTSA has always examined 
the safety consequences of the CAFE standards in its overall 
consideration of relevant factors since its earliest rulemaking 
under the CAFE program.'' Competitive Enterprise Institute v. NHTSA, 
901 F.2d 107, 120 n. 11 (DC Cir. 1990) (``CEI-I'') (citing 42 FR 
33534, 33551 (Jun. 30, 1977). Courts have consistently upheld 
NHTSA's implementation of EPCA in this manner. See, e.g., 
Competitive Enterprise Institute v. NHTSA, 956 F. 2d 321, 322 (DC 
Cir. 1992) (``CEI-II'') (in determining the maximum feasible 
standard, ``NHTSA has always taken passenger safety into account) 
(citing CEI-I, 901 F.2d at 120 n. 11); Competitive Enterprise 
Institute v. NHTSA, 45 F.3d 481, 482-83 (DC Cir. 1995) (CEI-III) 
(same); Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 
1203-04 (9th Cir. 2008) (upholding NHTSA's analysis of vehicle 
safety issues associated with weight in connection with the MYs 
2008-2011 light truck CAFE rulemaking).
    \1054\ South Coast AQMD, at 2.
---------------------------------------------------------------------------

B. Administrative Procedure Act

    The Administrative Procedure Act governs agency rulemaking 
generally and provides the standard of judicial review for agency 
actions. To be upheld under the ``arbitrary and capricious'' standard 
of judicial review under the APA, an agency rule must be rational, 
based on consideration of the relevant factors, and within the scope of 
the authority delegated to the agency by statute. The agency must 
examine the

[[Page 25997]]

relevant data and articulate a satisfactory explanation for its action 
including a ``rational connection between the facts found and the 
choice made.'' \1055\
---------------------------------------------------------------------------

    \1055\ Burlington Truck Lines, Inc. v. United States, 371 U.S. 
156, 168 (1962).
---------------------------------------------------------------------------

    Statutory interpretations included in an agency's rule are subject 
to the two-step analysis of Chevron, U.S.A. v. Natural Resources 
Defense Council.\1056\ Under step one, where a statute ``has directly 
spoken to the precise question at issue,'' id. at 842, the court and 
the agency ``must give effect to the unambiguously expressed intent of 
Congress.'' \1057\ If the statute is silent or ambiguous regarding the 
specific question, the court proceeds to step two and asks ``whether 
the agency's answer is based on a permissible construction of the 
statute.'' \1058\ The APA also requires that agencies provide notice 
and comment to the public when proposing regulations,\1059\ as NHTSA 
did for the proposal that preceded this final rule.
---------------------------------------------------------------------------

    \1056\ 467 U.S. 837 (1984).
    \1057\ Id. at 843.
    \1058\ Id.
    \1059\ 5 U.S.C. 553.
---------------------------------------------------------------------------

    NHTSA recognizes that this final rule, like the 2020 final rule, is 
reconsidering standards previously promulgated. NHTSA, like any other 
Federal agency, is afforded an opportunity to reconsider prior views 
and, when warranted, to adopt new positions. Indeed, as a matter of 
good governance, agencies should revisit their positions when 
appropriate, especially to ensure that their actions and regulations 
reflect legally sound interpretations of the agency's authority and 
remain consistent with the agency's views and practices. As a matter of 
law, ``an [a]gency is entitled to change its interpretation of a 
statute.'' \1060\ Nonetheless, ``[w]hen an [a]gency adopts a materially 
changed interpretation of a statute, it must in addition provide a 
`reasoned analysis' supporting its decision to revise its 
interpretation.'' \1061\
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    \1060\ Phoenix Hydro Corp. v. FERC, 775 F.2d 1187, 1191 (DC Cir. 
1985).
    \1061\ Alabama Educ. Ass'n v. Chao, 455 F.3d 386, 392 (DC Cir. 
2006) (quoting Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm 
Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983)); see also Encino 
Motorcars, LLC v. Navarro, 136 S.Ct. 2117, 2125 (2016) (``Agencies 
are free to change their existing policies as long as they provide a 
reasoned explanation for the change.'') (citations omitted).
---------------------------------------------------------------------------

    ``Changing policy does not, on its own, trigger an especially 
`demanding burden of justification.' '' \1062\ Providing a reasoned 
explanation ``would ordinarily demand that [the agency] display 
awareness that it is changing position.'' \1063\ Beyond that, however, 
``[w]hen an agency changes its existing position, it `need not always 
provide a more detailed justification than what would suffice for a new 
policy created on a blank slate.' '' \1064\ While the agency ``must 
show that there are good reasons for the new policy,'' the agency 
``need not demonstrate to a court's satisfaction that the reasons for 
the new policy are better than the reasons for the old one.'' \1065\ 
``[I]t suffices that the new policy is permissible under the statute, 
that there are good reasons for it, and that the [a]gency believes it 
to be better, which the conscious change of course adequately 
indicates.'' \1066\ For instance, ``evolving notions'' about the 
appropriate balance of varying policy considerations constitute 
sufficiently good reasons for a change in position.\1067\ Moreover, it 
is ``well within an [a]gency's discretion'' to change policy course 
even when no new facts have arisen: Agencies are permitted to conduct a 
``reevaluation of which policy would be better in light of the facts,'' 
without ``rely[ing] on new facts.'' \1068\
---------------------------------------------------------------------------

    \1062\ See Mingo Logan Coal Co. v. EPA, 829 F.3d 710, 718 (DC 
Cir. 2016) (quoting Ark Initiative v. Tidwell, 816 F.3d 119, 127 (DC 
Cir. 2016)).
    \1063\ FCC v. Fox Television Stations, Inc. 556 U.S. 502, 515 
(2009) (emphasis in original) (``An agency may not, for example, 
depart from a prior policy sub silentio or simply disregard rules 
that are still on the books.'').
    \1064\ Encino Motorcars, LLC, 136 S.Ct. at 2125-26 (quoting Fox 
Television Stations, Inc. 556 U.S. at 515).
    \1065\ Fox Television Stations, Inc., 556 U.S. at 515 (emphasis 
in original).
    \1066\ Id. (emphasis in original).
    \1067\ N. Am.'s Bldg. Trades Unions v. Occupational Safety & 
Health Admin., 878 F.3d 271, 303 (DC Cir. 2017) (quoting the 
agency's rule).
    \1068\ Nat'l Ass'n of Home Builders v. EPA, 682 F.3d 1032, 1037-
38 (DC Cir. 2012).
---------------------------------------------------------------------------

    Mr. Kreucher commented that NHTSA did not offer ``any new science 
that would compel a change in the stringency of the CAFE standards . . 
., especially one under `unusually condensed' timing. No evidence is 
presented on technological breakthroughs in support of the proposal[]. 
The only thing that changed [is] the Administrator[ ] of the [agency]. 
Political ideology is not science. The will of the Administrators is 
not a reason for changing a rule. Instituting a rule change (or 
withdrawing a previous rule) because of political ideology is the 
definition of arbitrary and capricious rulemaking.'' \1069\
---------------------------------------------------------------------------

    \1069\ Walt Kreucher, Docket No. NHTSA-2021-0053-0013, at 14.
---------------------------------------------------------------------------

    NHTSA disagrees that the basis for amending the MY 2024-2026 
standards is political ideology. The agency has updated many aspects of 
the analysis; our thinking about the appropriate balance of various 
policy considerations has evolved; and the updated analysis helps to 
inform the agency about the effects of different regulatory actions. As 
explained in the NPRM, to be sure, providing ``a more detailed 
justification'' is appropriate in some cases. ``Sometimes [the agency] 
must [provide a more detailed justification than what would suffice for 
a new policy created on a blank slate]--when, for example, its new 
policy rests upon factual findings that contradict those which underlay 
its prior policy; or when its prior policy has engendered serious 
reliance interests that must be taken into account.'' \1070\ This 
preamble, and the accompanying TSD and FRIA, all provide extensive 
detail on the agency's updated analysis, and Section VI.D contains the 
agency's explanation of how the agency has considered that analysis and 
other relevant information in determining that the final CAFE standards 
are maximum feasible for MY 2024-2026 passenger cars and light trucks.
---------------------------------------------------------------------------

    \1070\ See Fox Television Stations, Inc., 556 U.S. at 515 
(2009).
---------------------------------------------------------------------------

C. National Environmental Policy Act

    As discussed above, EPCA requires the agency to determine the level 
at which to set CAFE standards for each model year by considering the 
four factors of technological feasibility, economic practicability, the 
effect of other motor vehicle standards of the Government on fuel 
economy, and the need of the United States to conserve energy. The 
National Environmental Policy Act (NEPA) directs that environmental 
considerations be integrated into that process.\1071\ To explore the 
potential environmental consequences of this rulemaking action, the 
agency prepared a Draft SEIS for the NPRM and a Final SEIS for the 
final rule.\1072\ The purpose of an EIS is to ``provide full and fair 
discussion of significant environmental impacts and [to] inform 
decisionmakers and the public of the reasonable alternatives which 
would avoid or minimize adverse impacts or enhance the quality of the 
human environment.'' \1073\
---------------------------------------------------------------------------

    \1071\ NEPA is codified at 42 U.S.C. 4321-47. The Council on 
Environmental Quality (CEQ) NEPA implementing regulations are 
codified at 40 CFR parts 1500-1508.
    \1072\ Because this final rule revises CAFE standards 
established in the 2020 final rule, NHTSA chose to prepare a SEIS to 
inform that amendment of the MYs 2024-2026 standards. See the SEIS 
for more details.
    \1073\ 40 CFR 1502.1.
---------------------------------------------------------------------------

    The agency's overall EIS-related obligation is to ``take a `hard 
look' at the environmental consequences before

[[Page 25998]]

taking a major action.'' \1074\ Significantly, ``[i]f the adverse 
environmental effects of the proposed action are adequately identified 
and evaluated, the agency is not constrained by NEPA from deciding that 
other values outweigh the environmental costs.'' \1075\ The agency must 
identify the ``environmentally preferable'' alternative but need not 
adopt it.\1076\ ``Congress in enacting NEPA . . . did not require 
agencies to elevate environmental concerns over other appropriate 
considerations.'' \1077\ Instead, NEPA requires an agency to develop 
and consider alternatives to the proposed action in preparing an 
EIS.\1078\ The statute and implementing regulations do not command the 
agency to favor an environmentally preferable course of action, only 
that it make its decision to proceed with the action after taking a 
hard look at the potential environmental consequences and consider the 
relevant factors in making a decision among alternatives.\1079\
---------------------------------------------------------------------------

    \1074\ Baltimore Gas & Elec. Co. v. Natural Resources Defense 
Council, Inc., 462 U.S. 87, 97 (1983).
    \1075\ Robertson v. Methow Valley Citizens Council, 490 U.S. 
332, 350 (1989).
    \1076\ 40 CFR 1505.2(b).
    \1077\ Baltimore Gas, 462 U.S. at 97.
    \1078\ 42 U.S.C. 4332(2)(C)(iii).
    \1079\ 40 CFR 1505.2(b).
---------------------------------------------------------------------------

    The agency received many comments on the Draft SEIS. Among the 
comments received, many commenters stated that the Preferred 
Alternative was not stringent enough and argued that either the 
environmental benefits of the proposal were (1) insufficient or (2) 
incorrectly assessed in a variety of ways. Comments regarding the 
environmental analyses presented in this preamble are addressed in 
Section VIII.D, while those regarding the Draft SEIS are addressed in 
Chapter 10 of the Final SEIS.
    When preparing an EIS, NEPA requires an agency to compare the 
potential environmental impacts of its proposed action and a reasonable 
range of alternatives. In the Draft SEIS, NHTSA analyzed a No-Action 
Alternative and three action alternatives. In the Final SEIS, the 
agency analyzed a No-Action Alternative and four action alternatives. 
The alternatives represent a range of potential actions the agency 
could take, and they are described more fully in Section IV of this 
preamble, Chapter 1 of the TSD, and Chapter 2 of the FRIA. The 
environmental impacts of these alternatives, in turn, represent a range 
of potential environmental impacts that could result from the agency's 
setting maximum feasible fuel economy standards for passenger cars and 
light trucks.
    To derive the direct and indirect impacts of the action 
alternatives, the agency compared each action alternative to the No-
Action Alternative, which reflects baseline trends that would be 
expected in the absence of any further regulatory action. More 
specifically, the No-Action Alternative in the Draft SEIS and Final 
SEIS assumed that the CAFE standards set in the 2020 final rule for MY 
2021-2026 passenger cars and light trucks would remain in effect. In 
addition, the No-Action Alternative assumes that the MY 2026 SAFE rule 
standards continue to apply for MY 2027 and beyond, for both NHTSA and 
EPA. Like all of the Action Alternatives, the No-Action Alternative 
also includes other legal requirements and automaker commitments that 
will be in place during the rulemaking time frame, as discussed in more 
detail in Section IV above: (1) California's ZEV mandate (and its 
adoption by 177 states); (2) the ``Framework Agreements'' between 
California and BMW, Ford, Honda, VWA, and Volvo, which the agency 
implemented by including EPA's baseline GHG standards (i.e., those set 
in the 2020 final rule) and introducing more stringent GHG target 
functions for those manufacturers; and (3) the assumption that 
manufacturers will also make any additional fuel economy improvements 
estimated to reduce owners' estimated average fuel outlays during the 
first 30 months of vehicle operation by more than the estimated 
increase in new vehicle price. The No-Action Alternative provides a 
baseline (i.e., an illustration of what would be occurring in the world 
in the absence of new Federal regulations) against which to compare the 
environmental impacts of other alternatives presented in the Draft SEIS 
and Final SEIS.\1080\
---------------------------------------------------------------------------

    \1080\ See 40 CFR 1502.2(e), 1502.14(d). CEQ has explained that 
``[T]he regulations require the analysis of the No-Action 
Alternative even if the agency is under a court order or legislative 
command to act. This analysis provides a benchmark, enabling 
decision makers to compare the magnitude of environmental effects of 
the action alternatives [See 40 CFR 1502.14(c).] . . . Inclusion of 
such an analysis in the EIS is necessary to inform Congress, the 
public, and the President as intended by NEPA. [See 40 CFR 
1500.1(a).]'' Forty Most Asked Questions Concerning CEQ's National 
Environmental Policy Act Regulations, 46 FR 18026 (Mar. 23, 1981).
---------------------------------------------------------------------------

    For the Final SEIS, the agency analyzed four action alternatives, 
Alternatives 1, 2, 2.5, and 3. Alternative 1 would require a 10.5 
percent annual increase for MY 2024 over MY 2023 and a 3.26 percent 
annual average annual fleet-wide increase in fuel economy for both 
passenger cars and light trucks for MYs 2025-2026. Alternative 2 would 
require an 8.0 percent average annual fleet-wide increase in fuel 
economy for both passenger cars and light trucks for MYs 2024-2026. 
Alternative 2.5 would require an 8.0 percent average annual fleet-wide 
increase in fuel economy for both passenger cars and light trucks for 
MYs 2024 and 2025, and a 10.0 percent average annual fleet-wide 
increase in fuel economy for both passenger cars and light trucks for 
MY 2026. Alternative 3 would require a 10.0 percent average annual 
fleet-wide increase in fuel economy for both passenger cars and light 
trucks for MYs 2024-2026. The primary differences between the action 
alternatives considered for the Draft SEIS and the Final SEIS is that 
the Final SEIS added an alternative, Alternative 2.5. Both of the 
ranges of action alternatives, as well as the No-Action Alternative, in 
the Draft SEIS and Final SEIS encompassed a spectrum of possible 
standards the agency could determine was maximum feasible based on the 
different ways the agency could weigh EPCA's four statutory factors. 
Throughout the Final SEIS, estimated impacts were shown for all of 
these action alternatives, as well as for the No-Action Alternative. 
For a more detailed discussion of the environmental impacts associated 
with the alternatives, see Chapters 3-8 of the Final SEIS, as well as 
Section VIII.D of this preamble.
    The agency's Final SEIS describes potential environmental impacts 
to a variety of resources, including fuel and energy use, air quality, 
climate, land use and development, hazardous materials and regulated 
wastes, historical and cultural resources, noise, and environmental 
justice. The Final SEIS also describes how climate change resulting 
from global greenhouse gas emissions (including CO2 
emissions attributable to the U.S. light-duty transportation sector 
under the alternatives considered) could affect certain key natural and 
human resources. Resource areas are assessed qualitatively and 
quantitatively, as appropriate, in the Final SEIS, and the findings of 
that analysis are summarized here.\1081\
---------------------------------------------------------------------------

    \1081\ The impacts described in this section come from NHTSA's 
Final SEIS, which is being publicly issued simultaneously with this 
Final Rule. As described above, the SEIS is based on 
``unconstrained'' modeling rather than ``standard setting'' 
modeling. NHTSA conducts modeling both ways in order to reflect the 
various statutory requirements of EPCA/EISA and NEPA. The preamble 
employs the ``standard setting'' modeling in order to aid the 
decision-maker in avoiding consideration of the prohibited items in 
49 U.S.C. 32902(h) in determining maximum feasible standards, but as 
a result, the impacts reported here may differ from those reported 
elsewhere in this preamble. However, NHTSA considers the impacts 
reported in the SEIS, in addition to the other information presented 
in this preamble, the TSD, and the FRIA, as part of its decision-
making process.

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

[[Page 25999]]

    As the stringency of the alternatives increases, total U.S. 
passenger car and light truck fuel consumption for the period of 2020 
to 2050 decreases. Total light-duty vehicle fuel consumption from 2020 
to 2050 under the No-Action Alternative is projected to be 3,559 
billion gasoline gallon equivalents (GGE). Light-duty vehicle fuel 
consumption from 2020 to 2050 under the action alternatives is 
projected to range from 3,471 billion GGE under Alternative 1 to 3,321 
billion GGE under Alternative 3. Under Alternative 2, light-duty 
vehicle fuel consumption from 2020 to 2050 is projected to be 3,391 
billion GGE. Under Alternative 2.5, light-duty vehicle fuel consumption 
from 2020 to 2050 is projected to be 3,371 billion GGE. All of the 
action alternatives would decrease fuel consumption compared to the No-
Action Alternative, with fuel consumption decreases that range from 88 
billion GGE under Alternative 1 to 238 billion GGE under Alternative 3.
    The relationship between stringency and criteria and air toxics 
pollutant emissions is less straightforward, reflecting the complex 
interactions among the tailpipe emissions rates of the various vehicle 
types (passenger cars and light trucks, ICE vehicles and Evs, older and 
newer vehicles, etc.), the technologies assumed to be incorporated by 
manufacturers in response to CAFE standards, upstream emissions rates, 
the relative proportions of gasoline, diesel, and electricity in total 
fuel consumption, and changes in VMT from the rebound effect. In 
general, emissions of criteria and toxic air pollutants increase very 
slightly in the short term, and then decrease dramatically in the 
longer term, across all action alternatives, with some exceptions. In 
addition, the action alternatives would result in decreased incidence 
of PM2.5-related health impacts in most years and 
alternatives due to the emissions decreases. Decreases in adverse 
health outcomes include decreased incidences of premature mortality, 
acute bronchitis, respiratory emergency room visits, and work-loss 
days.
    The air quality analysis in the Final SEIS identified the following 
impacts on criteria air pollutants:
    For CO, NOX, and SO2 in 2025, emissions 
increase slightly under the action alternatives compared to the No-
Action Alternative. The emission increases generally get larger 
(although they are still small) from Alternative 1 through Alternative 
3 (the most stringent alternative in terms of required miles per 
gallon). This temporary increase is largely due to new vehicle prices 
increasing in the short-term, which slightly slows new-vehicle sales 
and encourages consumers to buy used vehicles instead or retain 
existing vehicles for longer. As the analysis timeframe progresses, the 
new, higher fuel-economy vehicles become used vehicles, and the impacts 
of the standards change direction. In 2025, across all criteria 
pollutants and action alternatives, the smallest increase in emissions 
is .03 percent for NOX under Alternative 1; The largest 
increase is 0.6 percent and occurs for SO2 under Alternative 
3. We underscore that these are fractions of a single percent.
    In 2035 and 2050, emissions of CO, NOX, 
PM2.5, and VOCs decrease under the action alternatives 
compared to the No-Action Alternative with the more stringent 
alternatives having the largest decreases). SO2 emissions 
generally increase under the action alternatives compared to the No-
Action Alternative (except in 2035 under Alternative 1), with the more 
stringent alternatives having the largest increases. SO2 
increases are largely due to higher upstream emissions associated with 
electricity use by greater numbers of electrified vehicles being 
produced in response to the standards. In 2035 and 2050, across all 
criteria pollutants and action alternatives, the smallest decrease in 
emissions is 0.1 percent and occurs for CO and SO2 under 
Alternative 1; the largest decrease is 12.0 percent and occurs for VOCs 
under Alternative 3. The smallest increase in emissions is 0.03 percent 
and occurs for NOX under Alternative 1; the largest increase 
is 7.4 percent and occurs for SO2 under Alternative 3.
    The air quality analysis identified the following impacts on toxic 
air pollutants:
    Under each action alternative in 2025 compared to the No-Action 
Alternative, increases in emissions would occur for acetaldehyde, 
acrolein, benzene, and 1,3-butadiene by up to about 0.2 percent, and 
for formaldehyde by 0.1 percent. DPM emissions would decrease by as 
much as 0.7 percent. For 2025, the largest relative increases in 
emissions would occur for 1,3-butadiene, for which emissions would 
increase by as much as 0.23 percent. Percentage increases in emissions 
of acetaldehyde, acrolein, and formaldehyde would be lower.
    Under each action alternative in 2035 and 2050 compared to the No-
\Action Alternative, decreases in emissions would occur for all toxic 
air pollutants with the more stringent alternatives having the largest 
decreases. The largest relative decreases in emissions would occur for 
formaldehyde, for which emissions would decrease by as much as 10.3 
percent. Percentage decreases in emissions of acetaldehyde, acrolein, 
benzene, 1,3-butadiene, and DPM would be less.
    The air quality analysis identified the following health impacts:
    In 2025, all action alternatives would result in decreases in 
adverse health impacts (mortality, acute bronchitis, respiratory 
emergency room visits, and other health effects) nationwide compared to 
the No-Action Alternative, primarily as a result of decreases in 
emissions of PM2.5. Decreases in adverse health impacts 
would be largest for Alternative 1, smaller for Alternative 3, still 
smaller for Alternative 2, and smallest for Alternative 2.5 relative to 
the No-Action Alternative. However, the differences among the action 
alternatives are small. These decreases result from projected decreases 
in emissions of PM2.5 under all action alternatives, which 
is in turn attributable to shifts in modeled technology adoption from 
the baseline and to where the rebound effect would be offset by 
upstream emissions reductions due to decreases in fuel usage. Again, in 
the short-term, these slight changes in health impacts are projected 
under the action alternatives as the result of increases in the prices 
of new vehicles slightly delaying sales of new vehicles and encouraging 
more VMT in older vehicles instead, but this trend shifts over time as 
higher fuel-economy new vehicles become used vehicles and older 
vehicles are removed from the fleet.
    In 2035 and 2050, all action alternatives would result in decreased 
adverse health impacts nationwide compared to the No-Action Alternative 
as a result of general decreases in emissions of NOX and 
PM2.5. The decreases in adverse health impacts get larger 
from Alternative 1 to Alternative 3 in 2035 and 2050, except that for 
some health impacts in 2035 and 2050 the decreases are smaller for 
Alternative 2.5 than for Alternative 2. These decreases reflect the 
generally increasing stringency of the action alternatives as they 
become implemented.
    The alternatives would have the following impacts related to 
Climate:
    In terms of climate effects, all action alternatives would decrease 
U.S. passenger car and light truck fuel consumption compared with the 
No-Action Alternative, resulting in

[[Page 26000]]

reductions in the anticipated increases in global CO2 
concentrations, temperature, precipitation, and sea level, and 
increases in ocean pH that would otherwise occur. The impacts of the 
action alternatives on global mean surface temperature, precipitation, 
sea level, and ocean pH would be small in relation to global emissions 
trajectories. Although these effects are small, they occur on a global 
scale and are long lasting; therefore, in aggregate, they can have 
large consequences for health and welfare and can make an important 
contribution to reducing the risks associated with climate change.
    The alternatives would have the following impacts related to GHG 
emissions:
    Passenger cars and light trucks are projected to emit 89,200 
million metric tons of carbon dioxide (MMTCO2) from 2021 
through 2100 under the No-Action Alternative. Alternative 1 and 
Alternative 2 would decrease these emissions by 4 and 7 percent through 
2100. Alternative 3 would decrease these emissions by 10 percent 
through 2100. Emissions would be highest under the No-Action 
Alternative, and emission reductions would increase from Alternative 1 
to Alternative 3. All CO2 emissions estimates associated 
with the Proposed Action and alternatives include upstream emissions.
    Compared with total projected CO2 emissions of 967 
MMTCO2 from all passenger cars and light trucks under the 
No-Action Alternative in the year 2100, the action alternatives are 
expected to decrease CO2 emissions from passenger cars and 
light trucks in the year 2100 5 percent under Alternative 1, 9 percent 
under Alternative 2, 10 percent under Alternative 2.5, and 12 percent 
under Alternative 3.
    The emission reductions in 2025 compared with emissions under the 
No-Action Alternative are approximately equivalent to the annual 
emissions from 1,143,017 vehicles under Alternative 1, 1,613,007 
vehicles under Alternative 2, 1,763,066 vehicles under Alternative 2.5, 
and 2,379,681 vehicles under Alternative 3. For scale, a total of 
253,949,461 passenger cars and light truck vehicles are projected to be 
on the road in 2025 under the No-Action Alternative.
    The alternatives would have the following impacts related to Carbon 
Dioxide Concentration, Global Mean Surface Temperature, Sea Level, 
Precipitation, and Ocean pH:
    CO2 emissions affect the concentration of CO2 
in the atmosphere, which in turn affects global temperature, sea level, 
precipitation, and ocean pH. For the analysis of direct and indirect 
impacts, the agency used the Global Change Assessment Model Reference 
(GCAMReference) scenario and SSP3-7.0 scenario to represent the 
Reference Case emissions scenario (i.e., future global emissions 
assuming no comprehensive global actions to mitigate GHG emissions). 
NHTSA selected the GCAMReference and SSP3-7.0 scenarios for their 
incorporation of a comprehensive suite of GHG and pollutant gas 
emissions, including carbonaceous aerosols and a global context of 
emissions with a full suite of GHGs and ozone precursors
    Estimated CO2 concentrations in the atmosphere for 2100 
under the GCAMReference scenario would range from 788.33 ppm under 
Alternative 3 to approximately 789.11 ppm under the No-Action 
Alternative, indicating a maximum atmospheric CO2 decrease 
of approximately 0.78 ppm compared to the No-Action Alternative. 
Atmospheric CO2 concentration under Alternative 1 would 
decrease by 0.31 ppm compared with the No-Action Alternative. The 
CO2 concentrations under the SSP3-7.0 emissions scenario in 
2100 would range from 799.57 ppm under Alternative 3 to approximately 
800.39 ppm under the No-Action Alternative, indicating a maximum 
atmospheric CO2 decrease of approximately 0.82 ppm compared 
to the No-Action Alternative. Alternative 1 would decrease by 0.30 ppm 
compared with the No-Action Alternative.
    Under the GCAMReference scenario, global mean surface temperature 
is projected to increase by approximately 3.48[deg]C (6.27 [deg]F) 
under the No-Action Alternative by 2100. Implementing the most 
stringent alternative (Alternative 3) would decrease this projected 
temperature rise by 0.003[deg]C (0.006 [deg]F), while implementing 
Alternative 1 would decrease projected temperature rise by 0.001[deg]C 
(0.002 [deg]F). Under the SSP3-7.0 emissions scenario, global mean 
surface temperature is projected to increase by approximately 
3.56[deg]C (6.41 [deg]F) under the No-Action Alternative by 2100. 
Implementing the most stringent alternative (Alternative 3) would 
decrease this projected temperature rise by 0.004[deg]C (0.007 [deg]F), 
while implementing Alternative 1 would decrease projected temperature 
rise by 0.001[deg]C (0.002 [deg]F).
    Projected sea-level rise in 2100 under the GCAMReference scenario 
ranges from a high of 76.28 centimeters (30.03 inches under the No-
Action Alternative to a low of 76.22 centimeters (30.01 inches) under 
Alternative 3. Alternative 3 would result in a decrease in sea-level 
rise equal to 0.07 centimeter (0.03 inch) by 2100 compared with the 
level projected under the No-Action Alternative compared to a decrease 
under Alternative 1 of 0.03 centimeter (0.01 inch) compared with the 
No-Action Alternative. Projected sea-level rise in 2100 under the SSP3-
7.0 scenario ranges from a high of 78.53 centimeters (30.92 inches) 
under the No-Action Alternative to a low of 78.43 centimeters (30.88 
inches) under Alternative 3. Alternative 3 would result in a decrease 
in sea-level rise equal to 0.10 centimeter (0.04 inch) by 2100 compared 
with the level projected under the No-Action Alternative. Alternative 1 
would result in a decrease of 0.02 centimeter (0.008 inch) compared 
with the No-Action Alternative.
    Under the GCAMReference scenario, global mean precipitation is 
anticipated to increase by 5.85 percent by 2100 under the No-Action 
Alternative. Under the action alternatives, this increase in 
precipitation would be reduced by 0.00 to 0.01 percent. Under the SSP3-
7.0 scenario, global mean precipitation is anticipated to increase by 
6.09 percent by 2100 under the No-Action Alternative. Under the action 
alternatives, this increase in precipitation would be reduced by 0.00 
to 0.01 percent.
    Ocean pH in 2100 under the GCAMReference scenario is anticipated to 
be 8.2180 under Alternative 3, about 0.0004 more than the No-Action 
Alternative. Under Alternative 1, ocean pH in 2100 would be 8.2178, or 
0.0002 more than the No-Action Alternative. Ocean pH in 2100 under the 
SSP3-7.0 scenario is anticipated to be 8.2123 under Alternative 3, 
about 0.0004 more than the No-Action Alternative. Under Alternative 1, 
ocean pH in 2100 would be 8.2120, or 0.0002 more than the No-Action 
Alternative.
    The action alternatives would reduce the impacts of climate change 
that would otherwise occur under the No-Action Alternative. Although 
the projected reductions in CO2 and climate effects are 
small compared with total projected future climate change, they are 
quantifiable and directionally consistent and would represent an 
important contribution to reducing the risks associated with climate 
change.
    The alternatives would have the following impacts related to 
Health, Societal, and Environmental Impacts of Climate Change:
    The Proposed Action and alternatives would reduce the impacts of 
climate change that would otherwise occur under the No-Action 
Alternative. The magnitude of the changes in climate effects that would 
be produced by the most stringent action alternative

[[Page 26001]]

(Alternative 3) using the three degree sensitivity analysis by the year 
2100 is between 0.73 ppm and 0.80 ppm lower concentration of 
CO2, three thousandths of a degree increase in temperature 
rise, a small percentage change in the rate of precipitation increase, 
between 0.10 and 0.11 centimeter (0.04 inch) decrease in sea-level 
rise, and an increase of between 0.0004 and 0.0005 in ocean pH. 
Although the projected reductions in CO2 and climate effects 
are small compared with total projected future climate change, they are 
quantifiable, directionally consistent, and would represent an 
important contribution to reducing the risks associated with climate 
change.
    Although the agency does quantify the changes in monetized damages 
that can be attributable to each action alternative, many specific 
impacts of climate change on health, society, and the environment 
cannot be estimated quantitatively. Therefore, the agency provides a 
qualitative discussion of these impacts by presenting the findings of 
peer-reviewed panel reports including those from IPCC, the Global 
Change Research Program, the Climate Change Science Program, the 
National Research Council, and the Arctic Council, among others. While 
the action alternatives would decrease growth in GHG emissions and 
reduce the impact of climate change across resources relative to the 
No-Action Alternative, they would not themselves prevent climate change 
and associated impacts. Long-term climate change impacts identified in 
the scientific literature are briefly summarized below, and vary 
regionally, including in scope, intensity, and directionality 
(particularly for precipitation). While it is difficult to attribute 
any particular impact to emissions that could result from this final 
rule, the following impacts are likely to be beneficially affected to 
some degree by reduced emissions from the action alternatives:
     Impacts on freshwater resources are projected to include 
changes in rainfall and streamflow patterns, warming temperatures and 
reduced snowpack, changes in water availability paired with increasing 
water demand for irrigation and other needs, and decreased water 
quality from increased algal blooms. Inland flood risk is projected to 
increase in response to increasing intensity of precipitation events, 
drought, changes in sediment transport, and changes in snowpack and the 
timing of snowmelt.
     Impacts on terrestrial and freshwater ecosystems are 
projected to include shifts in the range and seasonal migration 
patterns of species, relative timing of species' life-cycle events, 
potential extinction of sensitive species that are unable to adapt to 
changing conditions, increases in the occurrence of forest fires and 
pest infestations, and changes in habitat productivity due to increased 
atmospheric concentrations of CO2.
     Impacts on ocean systems, coastal regions, and low-lying 
areas are projected to include the loss of coastal areas due to 
inundation, submersion, or erosion from sea-level rise and storm surge, 
with increased vulnerability of the built environment and associated 
economies. Changes in key habitats (e.g., increased temperatures, 
decreased oxygen, decreased ocean pH, increased salinization) and 
reductions in key habitats (e.g., coral reefs) are projected to affect 
the distribution, abundance, and productivity of many marine species.
     Impacts on food, fiber, and forestry are projected to 
include increasing tree mortality, forest ecosystem vulnerability, 
productivity losses in crops and livestock, and changes in the 
nutritional quality of pastures and grazing lands in response to fire, 
insect infestations, increases in weeds, drought, disease outbreaks, or 
extreme weather events. Increased concentrations of CO2 in 
the atmosphere are projected to also stimulate plant growth to some 
degree, a phenomenon known as the CO2 fertilization effect, 
but the impact varies by species and location. Many marine fish species 
are projected to migrate to deeper or colder water in response to 
rising ocean temperatures, and global potential fish catches could 
decrease. Impacts on food and agriculture, including yields, food 
processing, storage, and transportation, are projected to affect food 
prices, socioeconomic conditions, and food security globally.
     Impacts on rural and urban areas are projected to affect 
water and energy supplies, wastewater and stormwater systems, 
transportation, telecommunications, provision of social services, 
incomes (especially agricultural), air quality, and safety. The impacts 
are projected to be greater for vulnerable populations such as lower-
income populations, historically underserved populations, some 
communities of color and tribal and Indigenous communities, the 
elderly, those with existing health conditions, and young children.
     Impacts on human health are projected to include increases 
in mortality and morbidity due to excessive heat and other extreme 
weather events, increases in respiratory conditions due to poor air 
quality and aeroallergens, increases in water and food-borne diseases, 
increases in mental health issues, and changes in the seasonal patterns 
and range of vector-borne diseases. The most disadvantaged groups such 
as children, the elderly, the sick, those experiencing discrimination, 
historically underserved populations, some communities of color and 
tribal and Indigenous communities, and low-income populations are 
especially vulnerable and are projected to experience disproportionate 
health impacts.
     Impacts on human security are projected to include 
increased threats in response to adversely affected livelihoods, 
compromised cultures, increased or restricted migration, increased risk 
of armed conflicts, reduction in adequate essential services such as 
water and energy, and increased geopolitical rivalry.
    In addition to the individual impacts of climate change on various 
sectors, compound events may occur more frequently. Compound events 
consist of two or more extreme weather events occurring simultaneously 
or in sequence when underlying conditions associated with an initial 
event amplify subsequent events and, in turn, lead to more extreme 
impacts. To the extent the action alternatives would result in 
reductions in projected increases in global CO2 
concentrations, this rulemaking would contribute to reducing the risk 
of compound events.
    In most cases, NHTSA presents the findings of a literature review 
of scientific studies in the Final SEIS, such as in Chapter 6, where 
NHTSA provides a literature synthesis focusing on existing credible 
scientific information to evaluate the most significant lifecycle 
environmental impacts from some of the fuels, materials, and 
technologies that may be used to comply with the alternatives. In 
Chapter 7, NHTSA discusses land use and development, hazardous 
materials and regulated waste, historical and cultural resources, 
noise, and environmental justice. Finally, in Chapter 8, NHTSA 
discusses cumulative impacts related to energy, air quality, and 
climate change, and provides a literature synthesis of the impacts on 
key natural and human resources of changes in climate change variables. 
In these chapters, NHTSA concludes that impacts would vary between the 
action alternatives.
    Based on the foregoing, NHTSA concludes from the Final SEIS that 
Alternative 3 is the overall environmentally preferable alternative 
because, assuming full compliance were achieved regardless of the 
agency's assessment of the costs to industry and

[[Page 26002]]

society, it would result in the largest reductions in fuel use and 
CO2 emissions among the alternatives considered. In 
addition, Alternative 3 would result in the lowest overall emissions 
levels over the long term of criteria air pollutants and of the toxic 
air pollutants studied by NHTSA. Impacts on other resources (especially 
those described qualitatively in the Final SEIS) would be proportional 
to the impacts on fuel use and emissions, as further described in the 
Final SEIS, with Alternative 3 expected to have the fewest negative 
impacts. Although the CEQ regulations require NHTSA to identify the 
environmentally preferable alternative,\1082\ the agency need not adopt 
it, as described above. The following section explains how NHTSA 
balanced the relevant factors to determine which alternative 
represented the maximum feasible standards, including why NHTSA does 
not believe that the environmentally preferable alternative is maximum 
feasible.
---------------------------------------------------------------------------

    \1082\ 40 CFR 1505.2(b).
---------------------------------------------------------------------------

    NHTSA has considered the discussion above and the Final SEIS 
carefully in arriving at its conclusion that Alternative 2.5 is maximum 
feasible, as discussed below. The following section (Section VI.D) 
explains how NHTSA balanced the relevant factors to determine which 
alternative represented the maximum feasible standards.

D. Evaluating the EPCA Factors and Other Considerations To Arrive at 
the Final Standards

    Despite only two years having passed since the 2020 final rule, 
enough has changed in the United States and in the world that 
revisiting the CAFE standards for MYs 2024-2026 is reasonable and 
appropriate. The agency has determined that the standards should be 
revised to emphasize the purpose of the program: Energy conservation. 
NHTSA continues to believe that strong fuel economy standards function 
as an important insurance policy against oil price volatility, 
particularly to protect consumers even as the U.S. has improved its 
energy independence over time. The only way to continue to insulate 
consumers and the U.S. economy further against the negative effects of 
swings in oil prices is to continue to improve fleet fuel economy and 
take other steps to reduce the oil-intensity of the economy. Moreover, 
as climate change progresses, the U.S. may face new energy-related 
security risks if climate effects exacerbate geopolitical tensions and 
destabilization. Thus, mitigating climate effects by increasing fuel 
economy standards, as all of the action alternatives considered in this 
final rule would do, can also potentially improve U.S. security. There 
are extremely important energy security benefits associated with 
raising CAFE stringency that are not discussed in TSD Chapter 6.2.4, 
and which are difficult to quantify, but have weighed heavily for NHTSA 
in determining the maximum feasible standards in this final rule.
    Additionally, nearly all auto manufacturers have announced 
forthcoming advanced technology, high-fuel-economy vehicle models, and 
made strong public commitments that mirror the goals of the 
Administration, with those announcements continuing as the economy 
recovers from the global coronavirus pandemic, even despite slow-to-
resolve supply chain challenges. Five major manufacturers voluntarily 
bound themselves to stricter GHG national-level requirements as part of 
the California Framework Agreements, which were finalized in fall 2020. 
Many, though not all, of the technologies that automakers will use to 
comply with those agreements will also improve fuel economy. 
Importantly, NHTSA's own updated analysis of technological feasibility 
and cost indicates that significant improvements in fuel economy 
relative to the existing standards are feasible and economically 
practicable. Some facts on the ground remain similar to what was before 
NHTSA in the prior analysis--gas prices have risen recently but remain 
forecasted to stay relatively low in the mid- to longer-term according 
to AEO 2021,\1083\ for example, and light-duty vehicle sales since 2020 
have struggled to recover from the effects of the pandemic. The 
vehicles that did sell have tended to be, on average, larger, heavier, 
and more powerful, all factors which increase fuel consumption. Yet 
overall fleet fuel economy still achieved a record high according to 
the 2021 EPA Automotive Trends Report--thus, again, enough has changed 
that a rebalancing of the EPCA factors is appropriate for MYs 2024-
2026. South Coast AQMD commented that ``NHTSA . . . should be 
forthright that the balancing of statutory factors is changed not 
merely because of new facts, but because the SAFE rule took an 
unprecedented approach of elevating non-statutory factors above 
Congress' express directives and overriding purpose. . . .'' \1084\ 
NHTSA agrees that the agency's current determination of what CAFE 
standards are maximum feasible for MYs 2024-2026 is based on a 
combination of changed facts and evolved legal interpretations--again, 
that a rebalancing of the factors is in order. As discussed in Section 
VI.B, agencies are entitled to change their minds, and the record 
contained in this preamble and the accompanying rulemaking documents 
provides extensive evidence of why the agency is making this new 
determination.
---------------------------------------------------------------------------

    \1083\ Even AEO 2022 continues to reflect gasoline retail prices 
that are well below $4/gallon through 2050. See https://www.eia.gov/outlooks/aeo/pdf/AEO2022_ChartLibrary_Petroleum.pdf (accessed: Mar. 
24, 2022).
    \1084\ South Coast AQMD, Docket No. NHTSA-2021-0053-1477, at 1.
---------------------------------------------------------------------------

    NHTSA believes, as we will explain in more detail below, that 
Alternative 2.5 is the maximum feasible alternative that manufacturers 
can achieve for MYs 2024-2026, based on its significant fuel savings 
benefits to consumers and its environmental and energy security 
benefits relative to all other alternatives except Alternative 3. 
Although Alternative 3 would provide greater fuel savings benefits, 
NHTSA estimates that Alternative 3 would result in a large average per-
vehicle cost increase, which for many automakers could exceed $2,000, 
compared to the price of vehicles under Alternative 2.5. In contrast to 
Alternative 3, and that it comes at a cost we believe the market can 
bear. While Alternative 1 produces higher net benefits, it also 
continues to allow fuel consumption and accompanying disbenefits that 
could have been avoided in a cost-beneficial manner. And while 
Alternative 3 achieves greater reductions in fuel consumption than 
Alternative 2, it shows lower net benefits under a 7 percent discount 
rate. Alternative 3 also, as detailed above, adds technology costs of 
over $2,000 per vehicle for more manufacturers as compared to the 
baseline, while Alternative 2.5 has somewhat lower costs and greater 
lead time for the largest increase in standards for MY 2026. Regardless 
of net benefits, NHTSA would still conclude that Alternative 2.5 is 
economically practicable, based on per-vehicle costs, technology levels 
estimated to be required to meet the standards, and the slight 
additional lead time provided as compared to Alternative 3.
    Additionally, these standards represent some of the largest year 
over year increases in CAFE stringency that NHTSA has ever required, so 
we believe that providing maximum lead time for the biggest increase of 
10 percent for MY 2026 is reasonable and appropriate, particularly 
given the ongoing rapid changes in the auto industry. Choosing 
Alternative 3 would require industry to

[[Page 26003]]

ramp up even faster, and thus provide less lead time, with consequences 
for economic practicability. With relatively small estimated sales 
effects and actually positive estimated effects on employment, we are 
confident that Alternative 2.5 is feasible, and that industry can meet 
these standards.
    In re-evaluating all of the factors that NHTSA considers in 
determining maximum feasible CAFE standards, the agency was compelled 
to balance what we believe is a credible case for choosing Alternative 
3 as opposed to Alternative 2.5. In doing so, NHTSA must balance the 
four statutory factors. Alternative 2.5 and Alternative 3 each produce 
significant reductions in fuel use, and while Alternative 3 is 
estimated to result in more savings, it could require significant 
additional technology application. Alternative 3 also appears to be 
slightly beyond the level of economic practicability for the model 
years addressed by this rule, when considering per-vehicle costs, 
technology application rates, and lead time. Even though Alternative 3 
maximizes energy conservation, and NHTSA believes it is technologically 
feasible, economic practicability tips the balance for the agency to 
Alternative 2.5. Alternative 2.5 is an ambitious but achievable set of 
standards that NHTSA has concluded represents the right balancing for 
MYs 2024-2026--it is technologically feasible; it continues to push 
fuel economy improvements, bolstering the industry's trajectory toward 
higher future standards by keeping stringency high in the mid-term. It 
meets the need of the U.S. to conserve energy, creating important (if 
unquantifiable) energy security benefits, but in our estimation, not 
beyond the point of economic practicability; and we believe that it is 
complementary to other motor vehicle standards of the Government. For 
these reasons, NHTSA concludes that Alternative 2.5 is maximum feasible 
for MYs 2024-2026.
    NHTSA notes that the issues raised by commenters and with which the 
agency is grappling have become more intertwined over time. 
Increasingly, the issues do not parse neatly into the separate 
considerations that Congress directs NHTSA to evaluate in determining 
what CAFE standards are maximum feasible. Factors that Congress directs 
NHTSA not to consider are, in many ways, also intertwined with the 
factors that NHTSA must consider. Yet NHTSA is still required to set 
CAFE standards for cars and trucks, for each model year, at the maximum 
feasible level, and if the evidence suggests that more stringent 
standards are maximum feasible, then EPCA's overarching purpose of 
energy conservation must guide us. The discussion below seeks to 
untangle the issues so that the statutory factors and their 
relationship to each other can be evaluated, while still avoiding the 
prohibited considerations, while still being aware of and informed by 
reality.
    In the 2020 final rule, NHTSA interpreted the need of the U.S. to 
conserve energy as less important than in previous rulemakings. This 
was in part because of structural changes in global oil markets as a 
result of shale oil drilling in the U.S., but also because in the 
context of environmental effects, NHTSA narrowly interpreted EPCA/EISA 
as not requiring the agency to ``single-mindedly address carbon 
emissions at the expense of all other considerations.'' \1085\ Focusing 
heavily on the ``very small'' ``impacts on global mean surface 
temperature resulting from this action,'' NHTSA concluded then that 
``[t]aking climate change into account elevates the importance of the 
`need of the United States to conserve energy' criterion in NHTSA's 
balancing,'' and stated that, ``[h]owever, in light of the limits in 
what the agency can achieve, the potential offsetting impacts to the 
environment, and the statutory requirement to consider other factors, 
the impacts of carbon emissions alone cannot drive the outcome of 
NHTSA's decision-making.'' \1086\
---------------------------------------------------------------------------

    \1085\ 85 FR 25173 (Apr. 30, 2020).
    \1086\ Id.
---------------------------------------------------------------------------

    One of those other factors was consumer demand for vehicles with 
higher fuel economy levels, which is relevant to the economic 
practicability of potential CAFE standards--if industry's response to 
standards is to make vehicles that consumers refuse to purchase, then 
the standards may not be economically practicable.\1087\ In the 2020 
final rule, NHTSA expressed concern that low gasoline prices and 
apparent consumer preferences for larger, heavier, more powerful 
vehicles would make it exceedingly difficult for manufacturers to 
achieve higher standards without negative consequences to sales and 
jobs, and would cause consumer welfare losses. Since then, however, 
more and more manufacturers are announcing more and more vehicle models 
with advanced engines and varying levels of electrification. In the 
NPRM, NHTSA argued that it is reasonable to conclude that manufacturers 
(who are all for-profit companies) would not be announcing plans to 
offer these types of vehicles if they did not expect to be able to sell 
them,\1088\ and thus that manufacturers are more sanguine about 
consumer demand for fuel efficiency going forward than they have been 
previously.
---------------------------------------------------------------------------

    \1087\ Mr. Douglas commented that ``[w]hen automakers argue that 
they cannot feasibly increase fuel economy any further, what they 
are really saying is that they cannot possibly increase fuel economy 
any further while continuing to produce the vehicles that consumers 
demand.'' Peter Douglas, Docket No. NHTSA-2021-0053-0085, at 20.
    \1088\ To the extent that manufacturers are offering these 
vehicles in response to expected regulations, NHTSA still believes 
that they would not do so before any required standards had been 
announced if they believed the vehicles were unsaleable or 
unmanageably detrimental to profits. Vehicle manufacturers are 
sophisticated corporate entities well able to communicate their 
views to regulatory agencies.
---------------------------------------------------------------------------

    Additionally, NHTSA no longer believes that it is reasonable or 
appropriate to focus only on ``avoiding waste'' in evaluating the need 
of the U.S. to conserve energy. EPCA's overarching purpose is energy 
conservation. The need of the U.S. to conserve energy may be reasonably 
interpreted as continuing to push the balancing toward greater 
stringency. Recent events have further reinforced the enduring 
importance of reducing Americans' exposure to volatility in globalized 
oil markets through improved fuel economy. There are extremely 
important energy security benefits associated with raising CAFE 
stringency that are not discussed in TSD Chapter 6.2.4, and which are 
difficult to quantify, but have weighed heavily for NHTSA in 
determining the maximum feasible standards in this final rule.
    The following text will walk through the four statutory factors in 
more detail and discuss NHTSA's decision-making process more 
thoroughly. To be clear at the outset, however, the fundamental 
balancing of factors for this final rule is different from the 2020 
final rule because NHTSA reconsidered how to balance its relevant 
statutory obligations under EPCA, and interprets the need of the U.S. 
to conserve energy as weighing more heavily than it did at the time of 
the 2020 final rule. As noted earlier in this preamble NHTSA, like any 
other Federal agency, is afforded an opportunity to reconsider prior 
views and, when warranted, to adopt new positions. The evidence also 
suggests that higher standards are economically practicable, as well as 
being technologically feasible and feasible in the context of (and 
complementary of) the effects of other motor vehicle standards of the 
Government on fuel economy. In order to be maximum feasible in the 
rulemaking time frame, CAFE standards need to be set at levels that 
reflect all of that evidence.

[[Page 26004]]

    Again, for context and for the reader's reference, here are the 
regulatory alternatives among which NHTSA has chosen maximum feasible 
CAFE standards for MYs 2024-2026, representing different annual rates 
of stringency increase over the required levels in MY 2023:
[GRAPHIC] [TIFF OMITTED] TR02MY22.233

    In evaluating the statutory factors to determine maximum feasible 
standards, we may begin with the need of the U.S. to conserve energy, 
which is being considered more holistically in this final rule as 
compared to in the 2020 final rule. According to the analysis presented 
in Section V and in the accompanying FRIA and Final SEIS, Alternative 3 
would save consumers the most in fuel costs, and would achieve the 
greatest reductions in climate change-causing CO2 emissions. 
Alternative 3 would also maximize fuel consumption reductions, better 
protecting consumers from international oil market instability and 
price spikes. Alternative 2.5 saves somewhat less fuel (and thus, saves 
consumers somewhat less on fuel costs and reduces CO2 
emissions by somewhat less), but still saves more fuel (and thus fuel 
cost and CO2 emissions) than Alternatives 1 and 2. For now, 
gasoline is still the dominant fuel used in light-duty transportation. 
As such, consumers, and the economy more broadly, are subject to 
fluctuations in gasoline price that impact the cost of travel and, 
consequently, the demand for mobility. Vehicles are long-lived assets 
and the long-term price uncertainty and volatility of petroleum still 
represents a risk to consumers. By increasing the fuel economy of 
vehicles in the marketplace, more stringent CAFE standards better 
insulate consumers against these risks over longer periods of time, 
even when accounting for the increased upfront technology costs. Fuel 
economy improvements that reduce demand for oil are a more effective 
hedging strategy against price volatility than increasing U.S. energy 
production, because gasoline prices are at this time linked to global 
oil prices. Continuing to reduce the amount of money consumers spend on 
vehicle fuel thus remains an important consideration for the need of 
the U.S. to conserve energy.
    As discussed in Section VI.A, many commenters agreed that 
Alternative 3 likely best met the need of the U.S. to conserve energy, 
because it maximized fuel conservation, with attendant energy security 
benefits from reduced petroleum use, more fuel savings for consumers, 
and the most positive impacts on the climate. Tens of thousands of 
commenters thus urged NHTSA to choose Alternative 3.\1089\ Commenters 
arguing that Alternative 3 was maximum feasible and also that 
compliance flexibilities should be curtailed (in order to maximize 
real-world fuel savings and emissions reductions) included the Climate 
Group,\1090\ ELPC,\1091\ American Lung Mid-Atlantic,\1092\ Sierra 
Club,\1093\ UCS,\1094\ SELC,\1095\ Zero Emission Transportation 
Association (ZETA),\1096\ ACEEE,\1097\ Great Lakes and Midwest 
Environmental Organizations,\1098\ National Parks Conservation 
Association,\1099\ roughly 17,000 citizen-members of UCS,\1100\ and 
24,700 citizens who signed a petition from Consumer Reports.\1101\ NRDC 
submitted over 27,000 letters from citizen-members asking NHTSA to set 
standards at least as stringent as EPA's Alternative 2 and to reduce 
compliance flexibilities, to ``put us on the road to the goal of 
reaching 100 [percent] net-zero vehicle sales by 2035.'' \1102\ Sierra 
Club members also submitted over 4,000 letters asking NHTSA to set 
stringent fuel economy standards.\1103\
---------------------------------------------------------------------------

    \1089\ See, e.g., CFA, Docket No. NHTSA-2021-0053-1482-Al, at 1; 
Peter Douglas, Docket No. NHTSA-2021-0053-0085, at 1; Ceres, Docket 
No. NHTSA-2021-0053-0076, at 1; many individual citizen commenters 
who submitted form letters to the docket beginning with ``As a 
person of faith and conscience . . .''; and many individual citizen 
commenters at the public hearing.
    \1090\ Climate Group, Docket No. NHTSA-2021-0053-0052, at 1.
    \1091\ ELPC public hearing comments, Docket No. NHTSA-2021-0053-
0060, at 1.
    \1092\ American Lung Mid-Atlantic, Docket No. NHTSA-2021-0053-
0067, at 3.
    \1093\ Sierra Club public hearing comments, Docket No. NHTSA-
2021-0053-0562, throughout.
    \1094\ UCS public hearing comments, Docket No. NHTSA-2021-0053-
1085, at 1-2, and UCS, Docket No. NHTSA-2021-0053-1567, at 3-4.
    \1095\ SELC, Docket No. NHTSA-2021-0053-1495, at 1-2.
    \1096\ ZETA, Docket No. NHTSA-2021-0053-1510, at 1.
    \1097\ ACEEE, Docket No. NHTSA-2021-0053-0074, at 6.
    \1098\ Great Lakes and Midwest Environmental Organizations, 
Docket No. NHTSA-2021-0053-1520, at 1.
    \1099\ National Parks Conservation Association, Docket No. 
NHTSA-2021-0053-1569, at 2.
    \1100\ UCS citizen-member letters, Docket No. NHTSA-2021-0053-
1583, at 1.
    \1101\ Consumer Reports, Docket No. NHTSA-2021-0053-1576-A7, at 
1.
    \1102\ NRDC, Docket No. NHTSA-2021-0053-1594, at 1.
    \1103\ Sierra Club, Docket No. NHTSA-2021-0053-1611, at 1.
---------------------------------------------------------------------------

    Other commenters focused on the need to maximize fuel savings 
because Congress directs NHTSA to set maximum feasible CAFE standards. 
California Attorney General et al. stated that ``Congress' purpose in 
drafting this language--and specifically, in requiring NHTSA to 
establish `maximum feasible' standards--is clear. Congress intended the 
agency to conserve fuel, and thereby save consumers money, insulate the

[[Page 26005]]

United States from global oil price instabilities, and reduce the 
impact of oil consumption on the environment.'' \1104\ ACEEE similarly 
commented that maximum feasible ``means that NHTSA is empowered and 
required to push efficiency as far as technically feasible. Maximizing 
fuel savings would deliver the greatest fuel cost savings to consumers 
and greatest benefits to public health and national security.'' \1105\ 
EDF similarly commented that ``maximum feasible'' means prioritizing 
energy conservation.\1106\ EDF thus stated that the statutory factors 
were balanced appropriately in the proposal because ``NHTSA 
recognize[d] that the need of the U.S. to conserve energy must include 
serious consideration of the energy security risks of continuing to 
consume oil, which more stringent fuel economy standards can reduce.'' 
\1107\ South Coast AQMD stated that the 2020 final rule had interpreted 
the need of the U.S. to conserve energy incorrectly, and argued that 
``NHTSA should make unequivocal that the statute-set purpose of EPCA to 
conserve energy necessarily requires affording that statutory factor 
great weight in setting fuel economy standards, and the agency lacks 
authority to alter the relative priorities set by Congress.'' \1108\ 
Mr. Douglas commented that ``[t]he agency is explicitly directed [by 
statute] to maximize fuel economy, not economic prosperity. Nor is the 
agency directed to maximize the ease by which automakers might overcome 
technological barriers while still remaining profitable.'' \1109\ Other 
commenters argued that choosing Alternative 3 would represent the best 
balancing of all statutory factors, and also would be optimal for 
energy conservation and its attendant effects.\1110\
---------------------------------------------------------------------------

    \1104\ California Attorney General et al., Docket No. NHTSA-
2021-0053-1530, at 22.
    \1105\ ACEEE, Docket No. NHTSA-2021-0053-0074, at 4.
    \1106\ EDF, Docket No. NHTSA-2021-0053-1617, at 2.
    \1107\ EDF, Docket No. NHTSA-2021-0053-1617, at 6.
    \1108\ South Coast AQMD, Docket No. NHTSA-2021-0053-1477, at 2.
    \1109\ Peter Douglas, Docket No. NHTSA-2021-0053-0085, at 14.
    \1110\ See, e.g., South Coast AQMD, Docket No. NHTSA-2021-0053-
1477, at 6; WDNR, Docket No. NHTSA-2021-0053-0059, at 2; Ceres, 
Docket No. NHTSA-2021-0053-0076, at 1.
---------------------------------------------------------------------------

    With regard to another subset of considerations under the need of 
the U.S. to conserve energy, a coalition of health-oriented 
organizations commented that NHTSA should finalize standards at least 
as stringent as Alternative 3 to maximize long-term health benefits and 
achieve health equity nationwide.\1111\ The Carbon Fuel Alliance also 
commented that Alternative 3 was best for meeting health and 
environmental concerns,\1112\ and Bay Area Air Quality Management 
District and the Mid-Atlantic Regional Council Air Quality Forum both 
commented that Alternative 3 was best for climate, air quality, and 
equity.\1113\
---------------------------------------------------------------------------

    \1111\ American Lung Association, Docket No. NHTSA-2021-0053-
1502, at 1.
    \1112\ Carbon Fuel Alliance, Docket No. NHTSA-2021-0053-1475, at 
2.
    \1113\ Bay Area Quality Management Air District, Docket No. 
NHTSA-2021-0053-1472, at 2-4; Mid-Atlantic Regional Council Air 
Quality Forum, Docket No. NHTSA-2021-0053-1470, at 1.
---------------------------------------------------------------------------

    NHTSA continues to believe, as many commenters agreed, that 
Alternative 3 best meets the need of the U.S. to conserve energy of the 
regulatory alternatives considered, because it saves the most fuel, 
which means that it maximizes consumer savings on fuel costs, reduces 
climate emissions by the greatest amount, and reduces U.S. 
participation in global oil markets, with attendant benefits to energy 
security and the national balance of payments. The table below shows, 
among other things, NHTSA's estimated quantified private and social 
benefits associated with the need of the U.S. to conserve energy.

[[Page 26006]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.234

    Saving money on fuel and reducing CO2 and other 
pollutant emissions by reducing fuel consumption are also important 
equity goals. NHTSA recognizes the comments discussed in Section VI.A 
which suggested that fuel expenditures are a more significant budget 
item for citizens who are part of lower-income and disadvantaged 
communities. Part of our goal in determining maximum feasible CAFE 
standards is trying to improve fuel savings across the fleet as a 
whole, rather than for a handful of new vehicle buyers. By maximizing 
fuel savings to consumers, CAFE standards can help to improve equity. 
By maximizing CO2 reductions, the U.S. is able to achieve 
the most toward reaching our goals under the Paris Climate Agreements, 
President Biden's goals as set forth via Executive order, and to 
maximize climate equity concerns.
    The Final SEIS finds that overall, projected changes in both 
upstream and downstream emissions of criteria and toxic air pollutants 
are generally beneficial but still mixed, with emissions of some 
pollutants remaining constant or increasing and emissions of some 
pollutants decreasing. These increases are associated with both 
upstream and downstream sources, and therefore, may disproportionately 
affect minority and low-income populations that reside in proximity to 
these sources. However, the magnitude of the change in emissions 
relative to the No-Action Alternative is minor for all action 
alternatives, and would not be characterized as high or adverse; over 
time, adverse health impacts are projected to decrease nationwide under 
each of the action alternatives.
    While NHTSA recognizes the comments discussed above in Section VI.A 
suggesting that eventual fleet electrification could create new energy 
security questions, the CAFE standards in this time frame are not the 
but-for cause of those questions. NHTSA will continue to monitor these 
questions going forward.
    On that note, however, many comments received to the NPRM discussed 
vehicle electrification. These comments are part of why the issues are 
increasingly intertwined, because these commenters believe 
electrification touches at least three and possibly all of the 
statutory factors simultaneously--technological feasibility (to some 
extent), economic practicability (to a

[[Page 26007]]

greater extent), the effect of other motor vehicle standards of the 
Government on fuel economy (also to a greater extent), and the need of 
the United States to conserve energy (also to a greater extent, as 
discussed already). Some comments mentioned it in terms of whether 
industry was committed to electrification \1114\ or insufficiently 
committed to electrification,\1115\ or whether the CAFE standards would 
result in sufficient levels of electrification in order to meet climate 
goals.\1116\ Many industry comments expressed commitment to 
electrification and climate goals, but concurrently argued that the 
proposed standards would require too much electrification \1117\ and 
that in order to meet those stated commitments to electrification and 
climate goals, no further improvements on the remaining ICE vehicles 
should be required,\1118\ and significant government assistance would 
be necessary regardless.\1119\ Other comments (often from the same 
commenters) insisted that NHTSA must attend to the levels of 
electrification being deployed (in order to avoid requiring further 
investments in improving ICE-technology vehicles), while concurrently 
noting that Congress prohibited consideration of the fuel economy of 
BEVs in determining maximum feasible fuel economy.\1120\
---------------------------------------------------------------------------

    \1114\ See, e.g., Auto Innovators, Docket No. NHTSA-2021-0053-
1492, at 11-12 (stating that the same day as President Biden's 
announcement of the Executive order establishing the electrification 
target for 2030, ``. . . multiple automobile manufacturers announced 
a shared aspiration to achieve sales of 40-50 [percent] of annual 
U.S. volumes of EVs by 2030 to move the nation closer to a zero-
emissions future consistent with Paris climate goals. Other 
automobile manufacturers made similar commitments leading up to and 
following the signing of E.O. 14037. Collectively, automakers have 
committed to investing more than $330 billion to transforming cars 
and trucks to an exciting, electrified future, and are on pace to 
debut almost 100 BEV models by the end of 2024.''). See also Volvo, 
Docket No. NHTSA-2021-0053-1565, at 2 (``Volvo Cars is committed to 
electrification and every new Volvo motor launched since 2019 has 
had an electric motor. Over the next four years, Volvo Cars is 
launching a fully electric car every year and our aim is to make 
all-electric cars 50 [percent] of global sales by 2025, with the 
rest hybrids.''); Stellantis, Docket No. NHTSA-2021-0053-1527, at 1 
(stating that it planned ``to spend over $35 billion to support a 
targeted 40 [percent] electric vehicle mix--consisting of plug-in 
hybrid and battery electric vehicles--in the U.S. by 2030. This 
includes investments in developing four all-new electric 
platforms.''); Nissan, Docket No. NHTSA-2021-0053-0022, at 3 
(stating that ``As part of its corporate sustainability efforts, . . 
. In January 2021 . . . Nissan announced that every all-new Nissan 
vehicle offered in Japan, China, Europe, and the U.S. will be 
electrified by the early 2030s. Further, in August 2021, Nissan set 
an ambitious target that 40 percent of its U.S. vehicle sales by 
2030 will be fully electric, with even more to be electrified.'').
    \1115\ See, e.g., Tesla, Docket No. NHTSA-2021-0053-1480-A1, at 
6 (commenting that ``NHTSA should set standards that are technology 
forcing'' and that ``this technology forcing component compels NHTSA 
to adopt Alternative 3 with additional stringency to set the country 
on a pathway to encourage widespread deployment of ZEVs.''); Lucid, 
Docket No. NHTSA-2021-0053-1584, at 4 (stating that ``Alternative 3 
would meet the statutory requirement to set fuel efficiency 
standards at the maximum feasible level, push the automobile 
industry away from continued reliance on ICE vehicles, and ensure 
its focus remains on increasing electrification,'' and pointing to 
NHTSA's conclusions in the NPRM that Alternative 3 likely best met 
the need of the U.S. to conserve energy.); Rivian, Docket No. NHTSA-
2021-0053-1562, at 7 (stating that current EV sales trajectories 
indicated that much more electrification was possible, stating that 
``The industry is ready to meet new challenges, and this is a moment 
for doubling down on the ambition of our fuel economy standards.'').
    \1116\ See, e.g., ICCT, Docket No. NHTSA-2021-0053-1581, at 13 
(``The proposed CAFE standards may not ensure even the modeled 14.4 
[percent] market share of electric vehicles, as conventional 
technology could be implemented at much higher rates than modeled 
for the proposed rule instead of increasing electric vehicle share 
to 14.4 [percent]. Without the additional stringency of Alternative 
3, the standards for years 2027-2030 will have to be that much more 
ambitious in order to meet the target set by the President and 
achieve fuel consumption reductions that are clearly feasible and 
consistent with NHTSA's statutory mandate.''); Securing America's 
Future Energy, Docket No. NHTSA-2021-0053-1513, at 7 (stating that 
the NPRM had not established that automakers were incapable of 
meeting Alternative 3, and that ``For there to be any possibility of 
EV sales approaching President Biden's goal, NHTSA must consider a 
more stringent standard.''); Tesla, Docket No. NHTSA-2021-0053-1480-
A1, at 4 (stating that Alternative 3 would result in more 
electrification and be consistent with the President's call for more 
fleet electrification.); Rivian, Docket No. NHTSA-2021-0053-1562, at 
3 (Alternative 2 would be ``inconsistent with the . . . Biden 
Administration's stated goals and priorities . . . .''); Our 
Children's Trust, Docket No. NHTSA-2021-0053-1587, at 2 (``Many 
studies have shown that the U.S. vehicle fleet to be regulated by 
this CAFE standard can and should be 100 [percent] electric by 
2030,'' and ``This rule should be on track to require the industry 
to do so.'').
    \1117\ See, e.g., Nissan, Docket No NHTSA-2021-0053-0022, at 7 
(stating that the proposed standards would actually require more 
electrification than NHTSA estimated, and that because ``the level 
of EV market development and implementation of critical EV market 
policies remains uncertain, considering more stringent standards 
than those proposed is premature during this rulemaking time 
period.''); Stellantis, Docket No. NHTSA-2021-0053-1527, at 13 
(stating that to meet even Alternative 2, ``significant market 
penetration of strong electrification (e.g., hybrid, PHEV, or FCEV) 
is needed,'' because 8 percent year over year increases 
``significantly outpaces historical improvements achieved with 
internal combustion engine technology'' and ``Eleven of fourteen 
major automakers have fallen behind EPA's MY2019 standards as they 
have been adding technology since 2012.''); Kia, Docket No. NHTSA-
2021-0052-1525, at 3 (stating that 8 percent increases were 
``unprecedented'' and ``with virtually no lead-time and without the 
inclusion of all vehicle types (specifically, dedicated EV 
platforms)--will be a challenge to meet at a manageable price for 
all consumers.''); AFPM, Docket No. NHTSA-2021-0053-1530, at 1-2 
(stating that the proposal would have set CAFE standards ``at a 
level that is not feasibly achievable by ICEVs, effectively 
establishing a partial EV mandate.''). Mr. Kreucher also commented 
that electric vehicles do not pay back in fuel savings over their 
lifetimes, and do not result in genuine climate benefits. Walter 
Kreucher, Docket No. NHTSA-2021-0053-0013, at 12.
    \1118\ See, e.g., Ford, Docket No. NHTSA-2021-0053-1545, at 1 
(stating that further fuel efficiency improvements to ICE vehicles 
``will be marginal, and will come at high cost. Ford requests that 
the agencies . . . ensure that resources and investment are not 
diverted from our primary objective: Fulfilling President Biden's 
goal of achieving 40-50 [percent] ZEV sales by 2030.''); GM, Docket 
No. NHTSA-2021-0053-1523, at 2, 4 (stating that ``The standards 
should not force industry to split its resources between investments 
in legacy propulsion technologies and electric vehicles, as this 
will slow down the nation's progress toward its climate 
commitments'' and that ``Every dollar spent propping up legacy 
engines is a dollar not spent on the investments necessary for 
future battery electric vehicles.''); Stellantis, Docket No. NHTSA-
2021-0053-1527, at 12 (arguing that even if manufacturers could meet 
the proposed MYs 2024-2026 standards with conventional ICE 
technology, ``it would make little economic sense to pursue a 
duplicate ICE investment path only to abandon it a few short years 
later to meet 2030 electrification goals.''); ZETA, Docket No. 
NHTSA-2021-0053-1510, at 2 (``More stringent standards will 
incentivize all auto manufacturers to produce more EVs--rather than 
strive to make inherently inefficient ICEVs marginally more 
efficient.''); AVE, Docket No. NHTSA-2021-0053-1488-A1, at 5 
(stating that the NPRM had cited automaker announcements about 
electrification but ``NHTSA does not, however, cite recent 
announcements that indicate several OEMs would not be making new 
investments in ICE architectures. NHTSA should account for the 
impact these decisions could have on overall fuel economy 
performance.'').
    \1119\ See, e.g., Auto Innovators, Docket No. NHTSA-2021-0053-
1492, at 12 (stating that in order to ``grow EV sales through MY 
2026 and significantly expand those sales beyond MY 2026,'' the 
United States would need (1) significant investments in refueling 
infrastructure, (2) consumer purchase incentives from the 
government, (3) government requirements that private and commercial 
fleets adopt electric vehicles, (4) government development of 
domestic supply chains, (5) a nationwide low carbon fuel standard, 
(6) government creation of a battery and vehicle component recycling 
system, (7) government investment in R&D, (8) government education 
of consumers, (9) government efforts to improve the availability, 
variety, and affordability of EVs, and (10) for all parties to 
``hold ourselves collectively accountable to metrics and milestones 
that align with state and nationwide targets of EVs.''); UAW, Docket 
No. NHTSA-2021-0053-0931, at 2-3 (stating that ``The achievability 
of these standards and their impact on the U.S. auto industry will 
depend on additional [government intervention and] policies that 
promote domestic manufacturing and support quality jobs.'').
    \1120\ See comments discussed and responded to in Section 
VI.A.5.e).

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

[[Page 26008]]

Many comments, as discussed elsewhere,\1121\ either agreed or disagreed 
with NHTSA's inclusion of State ZEV requirements in the analytical 
baseline. Many comments also either agreed or disagreed with NHTSA's 
statements in the NPRM that manufacturer announcements about future 
electrification or corporate zero-emissions targets, or actual rollout 
of new electric vehicle models, were evidence of manufacturer 
capability to raise fuel economy levels in a way that seemed likely to 
be economically practicable.\1122\
---------------------------------------------------------------------------

    \1121\ See Sections IV.B and VI.A.
    \1122\ See Section VI.A.
---------------------------------------------------------------------------

    In response, NHTSA has grappled extensively with how to consider 
these comments as we consider what levels of CAFE standards would be 
maximum feasible in MYs 2024-2026. Recognizing the 49 U.S.C. 32902(h) 
prohibition, NHTSA has limited electrification as a technology option 
in our analysis of how manufacturers might respond to the different 
regulatory alternatives during the rulemaking time frame. NHTSA 
therefore does not consider the fuel economy of electric vehicles in 
setting maximum feasible CAFE standards, consistent with Congress' 
direction. However, it remains a compliance option that many automakers 
are pursuing, and moreover, it would seem absurd to ignore the fact 
that NHTSA is setting these CAFE standards in the context of a much 
larger conversation about the future of the U.S. light-duty vehicle 
fleet, and for that matter, because of the nexus to climate change, the 
future of the planet and its inhabitants.
    We acknowledge the comments from industry about what additional 
government support (such as infrastructure improvements and consumer 
purchase incentives for electric vehicles) would be desirable in their 
efforts to reach those goals, but of course many of those requests are 
outside of NHTSA's authority, and outside the scope of this final rule.
    With regard to the economic practicability factor, the agency 
attempts to evaluate where the tipping point in the balancing of 
factors might be through a variety of metrics, examined in more detail 
below. If the amounts of technology or per-vehicle cost increases 
required to meet the standards appeared to be beyond what we believe 
the market could bear; or sales and employment appear to be unduly 
impacted, the agency could have decided that the standards represented 
by a regulatory alternative under consideration may not be economically 
practicable. Even though NHTSA recognizes that the amount of lead time 
available before MY 2024 is less than what was provided in the 2012 
rule, as will be discussed further below, NHTSA believes that the 
evidence suggests that the final standards are still economically 
practicable, even though they will be more challenging for some 
portions of the industry than others. CAFE standards can also help 
support industry in their intention to transition to a higher-fuel-
economy fleet by requiring ongoing improvements even if demand for more 
fuel economy flags unexpectedly.
    We underscore again, as throughout this preamble, that the modeling 
analysis does not dictate the ``answer,'' it is merely one source of 
information among others that aids the agency's balancing of the 
standards. We similarly underscore that there is no single bright line 
beyond which standards might be economically impracticable, and that 
these metrics are not intended to suggest one; they are simply ways to 
think about the information before us.
    One way that economic practicability may be evaluated is in terms 
of how much technology manufacturers would have to apply to meet a 
given regulatory alternative. Technology application can be considered 
as ``which technologies, and when''--both the technologies that NHTSA's 
analysis suggests would be used, and how that application occurs given 
manufacturers' product lifecycles. NHTSA agrees with commenters who 
suggested that the need of the U.S. to conserve energy may encourage 
the agency to be more technology-forcing in its balancing, and finds, 
as discussed in Section VI.A, that technological feasibility is not 
limiting in this rulemaking time frame given the state of technology in 
the industry. That said, regulatory alternatives that can only be 
achieved by the extensive application of advanced technologies (that 
may have known or unknown consumer acceptance issues) may not be 
economically practicable in this time frame, and may thus be beyond 
maximum feasible.\1123\
---------------------------------------------------------------------------

    \1123\ NHTSA does not mean to preclude the possibility that 
future fuel economy standards may be even more technology-forcing 
than the ones promulgated in this final rule, because we anticipate 
that, among other things, consumer acceptance toward advanced fuel 
economy-improving technologies will continue to grow, as it is 
clearly doing at the present time.
---------------------------------------------------------------------------

    In terms of the levels of technology required and which 
technologies those may be, NHTSA's analysis estimates manufacturers' 
product ``cadence,'' representing them in terms of estimated schedules 
for redesigning and ``freshening'' vehicles, and assuming that 
significant technology changes will be implemented during vehicle 
redesigns--as they historically have been. Once applied, a technology 
will be carried forward to future model years until superseded by a 
more advanced technology. NHTSA does not consider model years in 
isolation in the analysis, because doing so would be inconsistent with 
how industry responds to standards, and thus would not accurately 
reflect practicability. If manufacturers are already applying 
technology widely and intensively to meet standards in earlier years, 
requiring them to add yet more technology in the model years subject to 
the rulemaking may be less economically practicable; conversely, if the 
preceding model years require less technology, more technology during 
the rulemaking time frame may be more economically practicable. The 
tables below illustrate how the agency has modeled that process of 
manufacturers applying technologies to comply with different 
alternative standards. The TSD accompanying this document described the 
technologies and corresponding input estimates (of, e.g., efficacy and 
cost) in detail in Chapters 2 and 3. The accompanying FRIA and 
appendices provide extensive detail regarding the estimated application 
of specific technologies to each manufacturers' fleets of passenger 
cars and light trucks in each model year. Finally, the underlying model 
outputs available on NHTSA's website provide estimates of the potential 
to apply specific technologies to specific vehicle model/configurations 
in each model year. In response to the commenters who stated that the 
proposed standards would require more electrification (i.e., in 
particular, BEVs) than the NPRM showed, that is not what NHTSA's 
analysis finds. The following two tables show average incremental 
application rates--that is, levels beyond those projected under the No-
Action Alternative--by regulatory alternative for selected 
technologies, including electrification technologies. For example, our 
analysis indicates that under the proposed standards (Alternative 2), 
the application of strong HEVs (HEVs) to passenger cars in MY 2026 
could increase by 10 percent (of total passenger car production) 
compared to the levels projected to occur under the No-Action 
Alternative, and by 14 and 17 percent, respectively, under Alternative 
2.5 and Alternative 3:

[[Page 26009]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.235

    For light trucks, increases in estimated SHEV application show 
broadly similar trends, impacting an additional 17 percent of the 
overall light truck market by MY 2026 under the most stringent 
regulatory alternative considered here:

[[Page 26010]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.236

    The estimated increases in technology application shown in the 
preceding two tables are all computed relative to the No-Action 
Alternative, under which considerable fuel-saving technology is applied 
beyond that already present on the MY 2020 fleet used as the baseline 
for this analysis. As discussed above and in the FRIA and TSD 
accompanying this document, the No-Action Alternative includes fuel-
saving technology applied in response to baseline (set in 2020) CAFE 
and CO2 standards, fuel prices, agreements some 
manufacturers have reached with California regarding national 
CO2 levels to be achieved through MY 2026, and ZEV mandates 
in place in California and other States. The effects of this baseline 
application of technology are not attributable to this action, and 
NHTSA has therefore excluded these from the agency's estimates of the 
incremental benefits and costs that could result from each Action 
alternative considered here. Some manufacturers and other stakeholders 
have called for NHTSA to consider the accumulated impacts of successive 
actions, logically implying that NHTSA should be reporting on 
technologies deployed since DOT first imposed fuel economy standards in 
the late 1970s, such as front-wheel drive configurations, unibody 
construction, and 4-speed automatic transmissions. NHTSA disagrees that 
such an accounting would be informative toward the decisions regarding 
tomorrow's fuel economy standards. Nevertheless, within its context, 
which starts with the MY 2020 fleet, our analysis does account for 
technology present in the MY 2020 fleet, and any additional technology 
estimated to potentially be applied under the No-Action Alternative. 
Including this technology results in the estimated technology market 
shares (also referred to as technology [market] penetration rates) 
summarized in the following two tables:
BILLING CODE 4910-59-P

[[Page 26011]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.237


[[Page 26012]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.238

BILLING CODE 4910-59-C
    As the tables illustrate, Alternative 2, Alternative 2.5, and 
Alternative 3 appear to require rapid deployment of fuel efficiency 
technology across a variety of vehicle systems--body improvements due 
to weight reduction and improved aerodynamic drag, engine advancements, 
and electrification.\1124\ However, importantly, the aggressive 
application that is simulated to occur between MY 2020 (which NHTSA 
observed and is the starting point of this analysis) and MY 2023 occurs 
in all of the alternatives, for both cars and light trucks. This 
reflects technology application by manufacturers participating in the 
California Framework Agreements and existing compliance positions (in 
some fleets) across the industry to improve fuel economy in the near-
term.
---------------------------------------------------------------------------

    \1124\ While these technology pathways reflect NHTSA's statutory 
restrictions under EPCA/EISA, it is worth noting again that they 
represent only one possible solution. In the simulations that 
support the Final SEIS, PHEV market share grows by less, and is 
mostly offset by an increase in BEV market share.
---------------------------------------------------------------------------

    As the results summarized above showed, while NHTSA's analysis 
suggests some increase in SHEV penetration rates between alternatives 2 
and 3, PHEVs and BEVs are (logically) limited--but in response to the 
comments about the standards requiring too much electrification, 
widespread compliance can be achieved with minimal further application 
of PHEVs or BEVs for any of the regulatory alternatives considered in 
this final rule. SHEV may still have plenty of room to grow in the 
market to reach the levels suggested by the analysis, but hybrid 
offerings have been increasing rapidly in number and variety, and some 
new offerings have been so popular that manufacturers cannot keep up 
with

[[Page 26013]]

demand,\1125\ which seems to bode well for future growth opportunities.
---------------------------------------------------------------------------

    \1125\ See, e.g., https://www.reuters.com/business/autos-transportation/ford-cut-orders-hybrid-pick-up-maverick-wsj-2022-01-24/ (accessed: March 15, 2022).
---------------------------------------------------------------------------

    Of course, CAFE standards are performance-based, and NHTSA does not 
dictate specific technology paths for meeting them, so it is entirely 
possible (even entirely foreseeable) that individual manufacturers and 
industry as a whole will take a different path from the one that NHTSA 
presents here. Nonetheless, this is a path toward compliance, relying 
on known, existing technology, that may (if used) address some of the 
consumer acceptance concerns raised by industry commenters about the 
future levels of electrification to which they are all committing. 
However, if automakers would prefer to rely more heavily on BEVs, for 
example, for CAFE compliance, and less heavily on the SHEVs that we 
show in this analysis, they are free to do so.
    NHTSA also recognizes the industry comments suggesting that further 
investments in improving vehicle fuel economy with ICE technologies are 
not investments in electrification. Other comments suggested that ICE 
technologies still had room to improve and could be added cost-
effectively during the rulemaking time frame.\1126\ As the tables above 
showed, Alternatives 2, 2.5, and 3 are all estimated to require fairly 
widespread deployment of advanced AERO and MR4 (although particularly 
in the case of MR4, this may be an artifact of the statutory 
restrictions reflected in the ``standard-setting'' modeling runs), as 
well as additional application of SHEVs. While, again, CAFE standards 
are performance-based and manufacturer technology solutions to meet the 
standards will certainly be different from what NHTSA presents here, 
NHTSA believes that these levels of vehicle technology and strong 
hybrid penetration are reasonable in the rulemaking time frame. NHTSA 
absolutely disagrees that these investments in improving vehicle 
technologies and hybrids, if actually made, would be ``wasted,'' as 
some comments suggest. Even if 50 percent of the new vehicle fleet was 
BEV, 50 percent of that same fleet would still not be BEV, and much 
higher percentages of the on-road fleet as a whole would continue not 
to be BEV for some time. NHTSA believes it is consistent with the need 
of the U.S. to conserve energy for standards to encourage new vehicles 
across the fleet to continue improving, and that it is particularly 
consistent with equity concerns for consumers who purchase any vehicle 
to be able to benefit from the reduced fuel costs that more stringent 
CAFE standards could facilitate, even if they are not yet willing or 
able to purchase a BEV. Moreover, improving the fuel efficiency of new 
vehicles has effects over time, not just at point of first sale, on 
consumer fuel savings. Somewhat-more-expensive-but-more-efficient new 
vehicles eventually become more-efficient used vehicles, which may be 
purchased by consumers who may be put off by higher new vehicle prices. 
The benefits have the potential to continue across the fleet and over 
time, for all consumers regardless of their current purchasing power.
---------------------------------------------------------------------------

    \1126\ See, e.g., ICCT, Docket No. NHTSA-2021-0053-1581, at 12-
13. While NHTSA discusses ICCT's comments on this topic in more 
detail in Section III above, NHTSA agrees with the basic principle 
that non-electric fuel economy may still be improved.
---------------------------------------------------------------------------

    We are also cautiously optimistic that if automakers do continue to 
improve the fuel economy of their non-BEV vehicles, that it may 
actually improve fleetwide fuel consumption over time, given that the 
evidence suggests that ICE VMT has been than BEV VMT on average thus 
far. Many higher-fuel-economy ICEs (with or without SHEVs) may save 
more fuel as they drive through their lifetimes, than relatively fewer 
higher-fuel-economy ICEs and relatively few BEVs. Thus, although 
(again) CAFE standards are performance-based and NHTSA does not dictate 
a technology path, there may be energy conservation benefits beyond 
just the average fuel economy level from setting standards that lead to 
more technology applied to more vehicles across the fleets.
    Another facet of automaker comments about their intent to invest in 
electrification rather than improving the fuel economy of non-electric 
models is simply the capital investments and R&D dollars expected to be 
directed to electrification--and thus, commenters suggested, 
unavailable for other uses. For example, Auto Innovators stated that 
its members had collectively committed to spending $330 billion toward 
reaching the 2030 electrification goals, as part of arguing that CAFE 
standards should require no further investment in improving the fuel 
economy of the rest of the new vehicle fleet.
    In response, NHTSA's analysis seeks to account for manufacturers' 
capital and resource constraints in several ways--through the 
restriction of technology application to refreshes and redesigns, 
through the phase-in caps applied to certain technologies, and through 
the explicit consideration of vehicle components (like powertrains) and 
technologies (like platforms based on advanced materials) that are 
shared by models throughout a manufacturer's portfolio. NHTSA is aware 
that there is a significant difference in the level of capital and 
resources required to implement one or more new technologies on a 
single vehicle model, and the level of capital and resources required 
to implement those same technologies across the entire vehicle fleet. 
NHTSA realizes that it would not be economically practicable to expand 
some of the most advanced technologies to every vehicle in the fleet 
within the rulemaking time frame, although it should be possible to 
increase the application of advanced technologies across the fleet in a 
progression that accounts for those resource constraints. That is what 
NHTSA's analysis tries to do and what our selection of Alternative 2.5 
reflects. While the tables above do not provide information at 
sufficient granularity, the per-vehicle cost tables that follow help to 
illustrate that technology is added at redesigns (as evidenced by 
increases in per-vehicle cost from one model year to the next for 
individual manufacturers), which helps ensure the practicability of the 
technology changes. Further, as always, manufacturers remain free to 
meet the standards using whatever technologies they choose. Thus, a 
decision to invest available research and development capital in BEV 
technology instead of advanced ICE technologies (or vice versa) is a 
compliance choice, not a requirement of this rule.
    Hundreds of billions of dollars are large sums, but they are the 
collective effect of many decisions about per-vehicle costs. Another 
consideration for economic practicability is the extent to which new 
standards could increase the average cost to acquire new vehicles, 
because even insofar as the underlying application of technology leads 
to reduced outlays for fuel over the useful lives of the affected 
vehicles, these per-vehicle cost increases provide both a measure of 
the degree of effort faced by manufacturers, and also the degree of 
adjustment, in the form of potential vehicle price increases, that will 
ultimately be required of vehicle purchasers. Table VI-16, Table VI-17, 
and Table VI-18 show the agency's estimates of average cost increase 
under the Preferred Alternative for passenger cars and light trucks, 
respectively. Because our analysis includes estimates of manufacturers' 
indirect costs and profits, as well as civil penalties that some 
manufacturers (as allowed under

[[Page 26014]]

EPCA/EISA) might elect to pay in lieu of achieving compliance with CAFE 
standards, we report cost increases as estimated average increases in 
vehicle price (as MSRP). These are average values, and the agency does 
not expect that the prices of every vehicle would increase by the same 
amount; rather, the agency's underlying analysis shows unit costs 
varying widely between different vehicle models. For example, a small 
SUV that replaces an advanced internal combustion engine with a plug-in 
hybrid system may incur additional production costs in excess of 
$10,000, while a comparable SUV that replaces a basic engine with an 
advanced internal combustion engine incurs a cost closer to $2,000. 
While we recognize that manufacturers will distribute regulatory costs 
throughout their fleet to maximize profit, we have not attempted to 
estimate strategic pricing, having insufficient data (which would 
likely be confidential business information (CBI)) on which to base 
such an attempt. Additionally, even recognizing that manufacturers will 
distribute regulatory costs throughout their fleet, NHTSA still 
believes that average per-vehicle cost is illustrative of the 
affordability implications of new standards, as raised by NADA and 
other commenters. If the per-vehicle cost increases seem consistent 
with those previously found to be economically practicable, given what 
we estimate about conditions during the rulemaking time frame, it will 
seem more likely that the standards causing those increases are 
economically practicable.
    Relative to the vehicles that will be built anyway in the absence 
of further regulatory action by NHTSA, NHTSA judges these cost 
increases to be possible for the market to bear. Moreover, cost 
increases will be offset by fuel savings, which consumers will 
experience over the lifetime of the vehicle, if not concurrent with the 
upfront increase in purchase price. Further, as discussed above, the 
time period during which these technology costs would be paid off 
through reduced fuel expenditures aligns well with average vehicle 
financing periods, indicating that many consumers will experience the 
net fuel economy savings immediately. NADA commented that eventual fuel 
savings are not relevant to auto lending decisions, and thus do not 
improve vehicle affordability, but again, NHTSA believes that the 
additional cost attributable to the CAFE standards is feasible, 
particularly given the potential for fuel expenditure savings to accrue 
during vehicle financing periods, and notes that even with average 
MSRPs at historically high levels,\1127\ vehicles are still selling, 
often with dealer ``market adjustments'' that push the vehicle prices 
well over MSRP.\1128\ Whereas in the 2020 final rule, NHTSA expressed 
concern about what appeared to be a growing trend of consumers finding 
themselves upside down on their auto loans, but as vehicle residual 
value continues to rise, NHTSA believes this may be less of an issue 
going forward unless vehicle prices collapse unexpectedly, which seems 
unlikely. Some of this is a function of limited vehicle supply, but 
even in that context, as discussed previously, nearly every 
manufacturer has already indicated their intent to continue introducing 
advanced technology vehicles between now and MY 2026. Again, NHTSA 
believes that manufacturers introduce new vehicles (and technologies) 
expecting that there is a market for them--if not immediately, then in 
the near future, because for-profit companies cannot afford to lose 
money indefinitely--and dealers currently seem able to accommodate 
consumers despite considerable price increases, so perhaps the 
situation is not as dire as NADA argued in its comments. This trend 
suggests that manufacturers believe that at least some cost increases 
should be manageable for consumers.
---------------------------------------------------------------------------

    \1127\ https://www.kbb.com/car-news/average-new-car-sales-price-now-over-46000/ (accessed March 15, 2022).
    \1128\ https://www.forbes.com/wheels/news/car-buying-advice-navigate-shortage/ (accessed March 15, 2022).
---------------------------------------------------------------------------

    The tables below show additional technology costs estimated to be 
incurred under each action alternative as compared to the No-Action 
Alternative.
BILLING CODE 4910-59-P

[[Page 26015]]

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[GRAPHIC] [TIFF OMITTED] TR02MY22.240


[[Page 26016]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.241

BILLING CODE 4910-59-C
    While it is clear from the tables that results vary by 
manufacturer, by year, and by fleet,\1129\ the average results are 
still informative. Average per-vehicle cost increases for MY 2024, for 
all alternatives, are well under $1,000; for MY 2025, there appears to 
be a significant inflection point between Alternatives 2.5 and 3; and 
for MY 2026, that inflection point remains, and seems especially 
pronounced for light trucks. As discussed in Section VI.A, while NHTSA 
has no bright-line rule regarding the point at which per-vehicle cost 
becomes economically impracticable, while the difference in cost 
between Alternatives 2 and 2.5 may be manageable, the difference 
between Alternatives 2 and 3 is more than 50-60 percent, and the number 
of cases in which manufacturers' average MY 2026 costs appear to 
increase beyond $2,000 per vehicle increases noticeably between 
Alternatives 2.5 and 3.
---------------------------------------------------------------------------

    \1129\ Honda commented to the NPRM that NHTSA should consider a 
slower rate of increase in stringency for passenger cars rather than 
light trucks, because the regulatory burden on passenger cars was 
higher, the MSRP tended to be lower (and thus have more difficulty 
passing forward regulatory costs), and market share had declined in 
recent years. Honda, Docket No. NHTSA-2021-0053-1501, at 7. In 
response, while per-vehicle costs for all action alternatives look 
somewhat higher in some years for passenger cars as compared to 
light trucks, the burden seems to even out by MY 2026. NHTSA does 
not believe that the evidence suggests that a slower rate of 
increase for passenger cars is necessary at this time.
---------------------------------------------------------------------------

    The table also illustrates that, in some respects, economic 
practicability points in the opposite direction than the need of the 
U.S. to conserve energy. Weighing the competing considerations, NHTSA 
believes that the large increase in the average per-vehicle cost 
between Alternatives 1 and 2 is worth the energy conservation benefits 
of choosing higher standards. The average per-vehicle cost increase 
between Alternatives 2 and 2.5 is smaller, and thus still worth the 
increased energy conservation benefits. The per-vehicle cost increase 
between Alternative 2.5 and 3, however, does not seem economically 
practicable in the rulemaking time frame, and it is within NHTSA's 
discretion to forgo additional energy conservation benefits if NHTSA 
believes that more stringent standards would be economically 
impracticable, and thus, beyond maximum feasible.
    The estimated price increases shown in the preceding three tables 
are all computed relative to the No-Action Alternative, under which 
considerable fuel-saving technology is applied beyond that already 
present on the MY 2020 fleet, using this analysis as a starting point. 
Nevertheless, within its context, which starts with the MY 2020 fleet, 
our analysis does provide estimates of impacts attributable to 
technology applied in the baseline--that is, technology beyond that 
present in the MY 2020 fleet. For new vehicle prices, doing so results 
in the following estimated average price increases relative to the 
continued reliance on MY 2020 technologies:

[[Page 26017]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.242

    With regard to timing of technology application, as discussed in 
Section VI.A, some commenters also disagreed with NHTSA's suggestion in 
the NPRM that while the MY 2024 standards provide less lead time for an 
increase in stringency than was provided by the standards set in 2012, 
the less-stringent CAFE standards for MYs 2021-2023 should provide a 
relative ``break'' for compliance purposes. In the context of 
determining how to balance the statutory factors, UAW argued that 
Alternative 2 represented a ``significant and more rapid increase in 
stringency levels over the term of the regulations, particularly in 
comparison to current standards,'' so UAW opposed ``alternative 
proposals that would increase stringency levels beyond those proposed 
in Alternative 2, including the proposal to increase the stringency of 
Alternative 2 in 2026 by an additional 2 [percent] [i.e., Alternative 
2.5].'' \1130\ UAW stated that ``[a] drastic increase in standards for 
MY 2026 could undermine the overall achievability of regulations, 
discount the lead time required for automotive product planning, and 
fail to acknowledge the industry disruptions of recent years. After 
all, automakers are currently operating under the SAFE standards put in 
place by the last administration.'' \1131\ JLR stated that Alternative 
2.5 was not viable for them, because their product plans were already 
set through MY 2026 and they had been planning for, at most, the 2012 
targets.\1132\
---------------------------------------------------------------------------

    \1130\ UAW, Docket No. NHTSA-2021-0053-0931, at 2.
    \1131\ Id.
    \1132\ JLR, Docket No. NHTSA-2021-0053-1505, at 4.
---------------------------------------------------------------------------

    However, other commenters argued that the less-stringent CAFE 
standards for MYs 2021-2023 would provide automakers, especially those 
who had not deviated from planning to meet the standards set forth in 
2012 or those who had signed onto the California Framework Agreements, 
an opportunity to over-comply in CAFE space to ease future compliance 
obligations. Consumer Reports commented that ``[a]utomakers had agreed 
to [the Obama] levels of stringency in 2012 and had plans in place to 
meet them as recently as last year. With extra credits earned under the 
weak SAFE rule, they should easily be able to catch up. NHTSA should 
set the stringency in 2026 at least as strong as their Alternative 3. 
The U.S. is behind the curve on our climate commitments, and only 
setting aggressive CAFE targets will allow us to catch up.'' \1133\ 
ACEEE agree that ``[s]etting stringency to maximize fuel savings can 
also help us reach the fuel savings we would have reached if the 2012 
Final Rule were fully implemented.'' \1134\
---------------------------------------------------------------------------

    \1133\ Consumer Reports, Docket No. NHTSA-2021-0053-1576-A9, at 
5.
    \1134\ ACEEE, Docket No. NHTSA-2021-0053-0074, at 4-5.
---------------------------------------------------------------------------

    NHTSA cannot and does not consider the availability of credits in 
determining what levels of standards would be maximum feasible, so 
NHTSA does not mean to say that NHTSA believes that Alternative 2.5 is 
feasible for MYs 2024-2026 because manufacturers will be earning 
overcompliance credits in CAFE space during MYs 2021-2023. It is 
important, however, to consider the following facts (and would be 
absurd not to do so). First, in a world in which we are only 
considering CAFE standards, if the standards in the years immediately 
preceding the rulemaking time frame do not require significant 
additional technology application, then more technology should 
theoretically be available for meeting the standards during the 
rulemaking time frame. Second, if we reasonably believe that 
manufacturers' public statements indicate that they will be applying at 
least some of that technology regardless of the stringency of MY 2021-
2023 CAFE standards, those manufacturers should be better positioned to 
comply

[[Page 26018]]

with the MY 2024-2026 standards--not because they have credits in the 
bank, but because their vehicles already have more technology on them, 
and their fleet fuel economy is simply higher than it would otherwise 
have been. This is what reassures NHTSA that the lead time for these 
standards is adequate. As discussed in Section VI.A, while automakers 
may have recently been selling relatively larger, heavier, lower-fuel-
economy vehicles, we do not think that from a technology perspective, 
they really left the path laid out in 2012. JLR's comment above 
supports this idea--their product plans are set and they had been 
planning for, at most, the 2012 targets.
    NHTSA recognizes that lead time here is less than past rulemakings 
have provided, and that the economy and the country are in the process 
of recovering from a global pandemic. NHTSA also recognizes that at 
least parts of the industry are nonetheless making announcement after 
announcement of new forthcoming advanced technology, high-fuel-economy 
vehicle models, and does not believe that they would be doing so if 
they thought there was no market at all for them. As discussed above, 
many industry comments trumpeted their own commitments and 
announcements while simultaneously expressing concern and uncertainty 
about consumer demand for the vehicles being committed to and 
announced. Perhaps some of the introductions are driven by industry 
perceptions of future regulation, but the fact remains that the 
introductions are happening even in the face of that uncertainty, and 
uncertainty about future government assistance with that transition. 
CAFE standards can help to buttress this momentum by continuing to 
require the fleets as a whole to improve their fuel economy levels 
steadily over the coming years, so that a handful of advanced 
technology vehicles do not inadvertently allow backsliding in the 
majority of the fleet that will continue to be powered by internal 
combustion for likely the next 5-10 years. CAFE standards that increase 
steadily may help industry make this transition more smoothly.
    Moreover, the standards represented by Alternative 2.5 actually 
give industry slightly more lead time to meet targets equivalent to 
those set forth in 2012. The figures below show when several of the 
different regulatory alternatives considered in this final rule would 
reach parity with the targets set forth in 2012. As shown, Alternative 
1 would never reach the levels set forth in 2012, while Alternatives 2 
and 2.5 would get there with slightly extra lead time for passenger 
cars and slightly more extra lead time for light trucks, and 
Alternative 3 would get there early as compared to 2012.
[GRAPHIC] [TIFF OMITTED] TR02MY22.243


[[Page 26019]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.244


[[Page 26020]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.245


[[Page 26021]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.246

    If manufacturers were planning their fleets from a technology 
perspective to meet the 2012 targets for MY 2025, but feel that they 
``got off track'' in compliance terms by selling larger, heavier, 
lower-fuel-economy vehicles over the last several model years relative 
to what the 2012 rule expected them to sell, then the figures above are 
instructive. As mentioned above, while Alternative 3 would reach parity 
with the 2012 targets ``early''--for passenger cars and light trucks, 
Alternatives 2 and 2.5 actually provide slightly more lead time for 
trucks--Alternative 2 would reach parity with the 2012 targets ``on 
time,'' in 2025, for passenger cars, and in 2026 for light trucks, 
while Alternative 2.5 pushes trucks just slightly faster. Alternative 
2.5 thus acknowledges industry concerns about lead time, because 
Alternative 2.5 provides more time to reach the 2012 targets, but also 
helps to reconcile those expressed concerns with evidence that 
companies have planned for 2012 targets and appear to be moving 
voluntarily toward more stringent standards.
    Many industry and other commenters objected to NHTSA suggesting in 
the NPRM that the California Framework Agreements or automakers' public 
commitments to electrification, decarbonization, and higher fuel 
economy vehicles were relevant to economic practicability, as discussed 
in Section VI.A, and thus how NHTSA considered them in determining 
maximum feasible standards. Yet at the same time, many of those 
commenters vaunted these commitments in their comments to the NPRM, as 
noted above.
    Manufacturers that agreed with CARB to increase their emissions 
performance during those model years are contractually bound to apply 
sufficient technology to meet those higher levels, and specifically, 
electrification technology which NHTSA does not model as part of its 
standard-setting analysis, due to the 49 U.S.C. 32902(h) restrictions 
for MYs 2024-2026. As noted above, however, some, though not all, of 
the non-electrification technology will both reduce emissions and 
improve fuel economy, and is thus relevant to NHTSA's assessment of 
technological feasibility and economic practicability. NHTSA interprets 
these agreements as binding because they are contracts, but also as 
evidence that the participating companies believe that applying that 
additional technology is practicable, because for-profit companies can 
reasonably be relied upon to make decisions that maximize their profit. 
Companies who did not agree with CARB to meet higher emission reduction 
targets may apply equivalent technology during MYs 2021-2023, but they, 
too, will get the relative ``break'' in CAFE obligations mentioned 
above, and have additional time to plan for the higher stringency 
increases in subsequent years. Those manufacturers can opt to employ 
more modest technologies to improve fuel economy (beyond their legal 
requirements) to be in a stronger fuel economy position heading into 
more challenging years, or concentrate their research and development 
resources on the next generation of higher fuel economy

[[Page 26022]]

vehicles that will be needed to meet the proposed standards in MYs 
2024-2026 (and beyond), rather investing in more modest improvements in 
the near-term. As always, the CAFE program leaves it to automakers to 
determine how they wish to achieve compliance.
    Changes in costs for new vehicles are not the only costs that NHTSA 
considers in balancing the statutory factors--fuel costs for consumers 
are relevant to the need of the United States to conserve energy, and 
NHTSA believes that consumers themselves weigh expected fuel savings 
against increases in purchase price for vehicles with higher fuel 
economy. Fuel costs (or savings) continue to be the largest source of 
benefits for CAFE standards, and GHG reduction benefits, which are also 
part of the need of the U.S. to conserve energy, are also increasing. 
E.O. 12866 and Circular A-4 also direct agencies to consider maximizing 
net benefits in rulemakings whenever possible and consistent with 
applicable law. Thus, because it can be relevant to balancing the 
statutory factors and because it is directed by E.O. 12866 and OMB 
guidance, NHTSA also considers the net benefits attributable to the 
different regulatory alternatives, as shown in Table VI-20.
[GRAPHIC] [TIFF OMITTED] TR02MY22.247

BILLING CODE 4910-59-C
    Section VI.A discussed a number of comments received on net 
benefits and whether it was a valid consideration in determining 
maximum feasible standards, along with the agency's response. South 
Coast AQMD argued that it was unreasonable for NHTSA to balance the 
factors in the NPRM by stating that ``it is reasonable to consider 
choosing the regulatory alternative that produces the largest reduction 
in fuel consumption, while remaining net beneficial,'' because that 
approach elevated economic practicability as the decisive factor and 
rested on a cost-benefit analysis that ``is riddled with uncertainty.'' 
\1135\ Mr. Douglas also argued that NHTSA relied too heavily in the 
proposal on its cost-benefit analysis and quantitative approaches, 
``which attempt to determine the maximum feasible level of stringency 
by focusing almost exclusively on the precise extent of technological 
and economic barriers,'' \1136\ and stated that ``cost-benefit analysis 
is a useless quantitative approach unless we assign an extraordinarily 
high value to the social cost of carbon,'' because otherwise too little 
value is placed on ``unquantifiable, extraordinarily precious benefits 
that are the fundamental goals of environmental preservation . . . .'' 
\1137\ AFPM also argued with the validity of the cost-benefit analysis, 
but by noting that if fuel prices were overstated, it could ``entirely 
negate the stated $1 billion net benefit,'' and that ``minor changes to 
[fuel prices, vehicle miles traveled, scrappage rate, and/or the social 
cost of carbon] could push the Proposal from a small net benefit to a 
large net cost.'' \1138\ Other commenters suggested that analytical 
changes (that would lead to changes in the point at which net benefits 
were maximized) would make it clear in the final rule that Alternative 
3 was net beneficial and therefore maximum feasible.\1139\
---------------------------------------------------------------------------

    \1135\ South Coast AQMD, Docket No. NHTSA-2021-0053-1477, at 6.
    \1136\ Peter Douglas, Docket No. NHTSA-2021-0053-0085, at 3.
    \1137\ Id. at 19.
    \1138\ AFPM, Docket No. NHTSA-2021-0053-1530, at 16-17.
    \1139\ See, e.g., California Attorney General et al., Docket No. 
NHTSA-2021-0053-1499, at 2; CBD et al., Docket No. NHTSA-2021-0053-
1572, at 1; CARB, Docket No. NHTSA-2021-0053-1521, at 2-3.
---------------------------------------------------------------------------

    While maximizing net benefits is a valid decision criterion for 
choosing among alternatives, provided that appropriate consideration is 
given to impacts that cannot be monetized, we agree it is not the only 
reasonable decision perspective, and that what we include in our cost-
benefit analysis affects our estimates of net benefits. At the outset, 
we note that the net benefits for the alternatives under consideration 
here do not vary greatly amongst themselves, as was also the case in 
the 2020 final rule, particularly given the overall costs and benefits 
associated with those regulatory alternatives. We also note that 
important benefits cannot be monetized--including the full health and 
welfare benefits of reducing climate and other pollution, which means 
the benefits estimates are underestimates. Thus, given the 
uncertainties associated with many aspects of this analysis, NHTSA does 
not rely solely on net benefit maximization, and instead considers it 
as one piece of information that contributes to how we balance the 
statutory factors, in our discretionary judgment. NHTSA recognizes that 
the need of the U.S. to conserve fuel weighs importantly in the overall 
balancing of factors, and thus believes that it is reasonable to at 
least consider choosing the regulatory alternative that produces the 
largest reduction in fuel consumption, while remaining net beneficial. 
Of course, the benefit-cost analysis is not the sole factor that NHTSA 
considers in determining the maximum feasible stringency, though it 
informs NHTSA's conclusion that Alternative 2.5 is the maximum feasible 
stringency. While Alternative 1 produces higher net benefits, it also 
continues to allow fuel consumption and accompanying disbenefits that 
could have been avoided in a cost-beneficial manner. And while 
Alternative 3 achieves greater reductions in fuel consumption than 
Alternative 2, it shows lower net benefits under a 7 percent discount 
rate. Alternative 3 also, as detailed above, adds technology costs of 
over $2,000 per vehicle for more manufacturers as compared to the 
baseline, while Alternative 2.5 has somewhat lower costs and greater 
lead time for the largest increase in standards for MY 2026.

[[Page 26023]]

    Below, NHTSA discusses the sensitivity analysis presented in the 
FRIA, which demonstrates the effect that different assumptions would 
have on the costs and benefits associated with the standards.
    As also discussed in Section VI.A, NHTSA estimates that Alternative 
2.5 will result in significant additional technology application while 
producing only a slight decline (of about 1 percent over the entire 
period covered by MYs 2020-2026) in new vehicle sales as compared to 
the No-Action Alternative, as a consequence of the higher retail prices 
that result from that additional technology application. NHTSA does not 
believe that this very minor estimated change in new vehicle sales over 
the period covered by the rule is a persuasive reason to choose another 
regulatory alternative. Similarly, the estimated labor impacts within 
the automotive industry provide no evidence that another alternative 
should be preferred, and in fact, employment increases with alternative 
stringency according to the final rule analysis.\1140\
---------------------------------------------------------------------------

    \1140\ See FRIA Chapter 6.3.3, Table 6-1.
---------------------------------------------------------------------------

    As with any analysis of sufficient complexity, there are a number 
of critical assumptions here that introduce uncertainty about 
manufacturer compliance pathways, consumer responses to fuel economy 
improvements and higher vehicle prices, and future valuations of the 
consequences from higher CAFE standards. While NHTSA considers dozens 
of sensitivity cases to measure the influence of specific parametric 
assumptions and model relationships, only a small number of them 
demonstrate meaningful impacts to net benefits under the final 
standards.
    Looking at these cases more closely, the majority of both costs and 
benefits that occur under the standards accrue to buyers of new cars 
and trucks, rather than society in general (assuming that technology 
costs are passed down to consumers as higher prices, as we do in our 
analysis). It then follows that the assumptions that exert the greatest 
influence over private costs and benefits also exert the greatest 
influence over net benefits--chief among these is the assumed 
trajectory of future fuel prices, specifically gasoline. NHTSA 
considers the ``High Oil Price'' and ``Low Oil Price'' cases from AEO 
2021 as bounding cases, though they are asymmetrical (while the low 
case is only about 25 percent lower than the Reference case on average, 
the high case is almost 50 percent higher on average). The sensitivity 
cases suggest that fuel prices exert considerable influence on net 
benefits--where higher and lower prices not only determine the dollar 
value of each gallon saved, but also how market demand responds to 
higher levels of fuel economy in vehicle offerings. For Alternative 
2.5, under the low case, at 3 percent SC-GHG DR, net benefits become 
negative and exceed $14 billion, but increase to almost (positive) $60 
billion in the high case (the largest increase among any sensitivity 
cases run for this final rule). This suggests that the net benefits 
resulting from this final rule are dependent upon the future price of 
gasoline being at least as high as the AEO 2021 Reference Case 
projects.
    Another critical uncertainty that affects private benefits is the 
future cost of advanced electrification technologies, specifically 
batteries. These emerging technologies provide both the greatest fuel 
savings to new car buyers and impose the highest technology costs (at 
the moment). While the costs to produce large vehicle batteries have 
been declining, they are still expensive relative to advancements in 
internal combustion engines and transmissions. However, the analysis 
projects continued cost learning over time and shows battery electric 
vehicles reaching price parity with conventional vehicles in the 2030s 
for most market segments--after which market adoption of BEVs 
accelerates--although other estimates show price parity occurring 
sooner. Electrification is also a viable compliance strategy, as 
partially or fully electric vehicles benefit from generous compliance 
incentives that improve their estimated fuel economy relative to 
measured energy consumption. As such, the assumption about future 
battery costs has the ability to influence compliance costs to 
manufacturers and prices to consumers, the rate of electric vehicle 
adoption in the market, and thus the emissions associated with their 
operation. NHTSA considered two different mechanisms to affect battery 
costs: Higher/lower direct costs, and faster/slower cost learning 
rates. The two mechanisms that reduce cost (whether by faster cost 
learning or lower direct costs) both increase net benefits relative to 
the central case, though lowering initial direct costs by 20 percent 
had a greater effect than increasing the learning rate by 20 percent. 
Increasing cost (though either mechanism) by 20 percent produced a 
similar effect, but in the opposite direction (reducing net benefits). 
However, none of those cases exerted a level of influence that compares 
to alternative fuel price assumptions.
    There is one assumption that significantly affects the analysis 
without influencing the benefits and costs that accrue to new car 
buyers: The social cost of damages attributable to greenhouse gas 
emissions. The central analysis uses a SC-GHG cost based on the 3 
percent discount rate for both the 3 percent and the 7 percent social 
discount rate cases. Of course, the magnitude of the SC-GHG estimate 
used affects the monetization of the benefits of reducing greenhouse 
gas emissions. Using the highest SC-GHG, based on the 95th percentile 
estimate, pushes net benefits above $70 billion under Alternative 2.5 
at a 3 percent social discount rate and to approximately $60 billion at 
a 7 percent social discount rate. The 95th percentile estimate, drawn 
from the possible climate impact outcomes in the underlying modeling, 
helps decision-makers understand the value of reducing greenhouse gas 
emissions if the damages caused by climate change are in reality 
significantly higher than the ``best guess'' projections of those 
damages.
    Other sensitivity cases examine inputs that have also engendered 
much discussion over the past several rounds of rulemaking. Varying the 
rebound effect, for example, from five to 15 percent around the 
reference case value of 10 percent resulted in net costs ranging from 
$3 billion (five percent rebound) to $12 billion (15 percent rebound). 
Altering the price elasticity of demand that influences the sales and 
scrappage responses had a similarly small effect on net benefits; a 
price elasticity of -0.1 produced a net cost estimate of $2 billion, 
while increasing this elasticity parameter to -0.5 resulted in net 
costs of $9 billion. With battery costs, despite the extensive 
discussion and uncertainty over these values, they do not exert a level 
of influence in the analysis that significantly alters the analytical 
findings. Regardless of net benefits, NHTSA would still conclude that 
Alternative 2.5 is economically practicable, based on per-vehicle 
costs, technology levels estimated to be required to meet the 
standards, and the slight additional lead time provided as compared to 
Alternative 3.
    As also discussed in Section VI.A, many commenters raised the issue 
of harmonization. Many industry commenters suggested that CAFE 
standards would not be economically practicable, and thus would be 
beyond maximum feasible, if they required any technology investments 
beyond what EPA's recently finalized GHG standards for MYs 2024-2026 
would require. Consequently, these commenters suggested that 
Alternative 3 was beyond maximum feasible, and even Alternative

[[Page 26024]]

2 was beyond maximum feasible, because its stringency was not uniformly 
below EPA's stringency when all EPA flexibilities and NHTSA statutory 
restrictions on flexibilities were accounted for.\1141\ Some of these 
commenters, as described above, further argued that because 
Alternatives 2 and higher were ``too stringent'' compared to EPA's 
standards, that they would require application of additional electric 
vehicles beyond what EPA's standards would require.\1142\
---------------------------------------------------------------------------

    \1141\ See, e.g., Auto Innovators, Docket No. NHTSA-2021-0053-
1492, at 15, 32, 51; Stellantis, Docket No. NHTSA-2021-0053-1527, at 
2; Hyundai, Docket No. NHTSA-2021-0053-1512, at 5-6; Mercedes-Benz, 
Docket No. NHTSA-2021-0053-0952, at 3; AVE, Docket No. NHTSA-2021-
0053-1488-A1, at 3.
    \1142\ See, e.g., Stellantis, Docket No. NHTSA-2021-0053-1527, 
at 3.
---------------------------------------------------------------------------

    These commenters also generally objected to inclusion of State ZEV 
standards in NHTSA's analytical baseline, as discussed in Sections IV.B 
and VI.A. Conversely, California Attorney General et al. argued that 
they did not believe that NHTSA having added California's ZEV standards 
in the baseline was inherently dispositive for NHTSA's determination of 
maximum feasible standards, because ``The technological feasibility, 
economic practicability, and energy conservation factors . . . strongly 
favor NHTSA's proposed standards'' already.\1143\ California Attorney 
General et al. noted that simply ``by including California's ZEV 
standards in the . . . baseline, NHTSA has already demonstrated that 
the proposed changes to the CAFE standards and the California ZEV 
standards will not interfere with each other and that it is entirely 
feasible for automakers to comply with both.'' \1144\
    In response, as discussed in Section VI.A, NHTSA has carefully 
considered the effect of State ZEV standards as other legal 
requirements facing automakers during the rulemaking time frame and 
agrees with California Attorney General et al. that it appears to be 
feasible for automakers to comply with both. NHTSA has carefully 
considered the EPA GHG standards, and disagrees that CAFE standards 
must account precisely for each and every difference between the two 
programs and be calculated to avoid any additional need for technology 
outlay whatsoever. As explained in Section VI.A, NHTSA's statutory 
mandate is to set maximum feasible standards, considering the four 
statutory factors. In considering the effect of other motor vehicle 
standards of the Government on fuel economy, NHTSA considers whether 
any of those effects affect the maximum feasible determination. 
Pursuant to this directive, NHTSA has evaluated the feasibility of 
complying with the revised CAFE standards in the context of EPA's 
standards, and concluded that complying with both standards is 
feasible. As discussed above, even when the standards of the two 
programs are coordinated closely, it is still foreseeable that there 
could be situations in which different agencies' programs could be 
binding for different manufacturers in different model years. This was 
true for the 2012 final rule and it is true for the revised programs. 
Regardless of which agency's standards are binding given a 
manufacturer's chosen compliance path, manufacturers will choose a path 
that complies with both standards, and in doing so, will still be able 
to build a single fleet of vehicles--even if it is not exactly the 
fleet that the manufacturer might have preferred to build. This remains 
the case today.
    NHTSA does not believe that it is a reasonable interpretation of 
Congress' direction to set ``maximum feasible'' standards at ``the fuel 
economy level at which no manufacturer need ever apply any additional 
technology or spend any additional dollar beyond what EPA's standards, 
with their many flexibilities, would require.'' NHTSA disagrees that 
avoiding inconsistency with EPA's programs requires NHTSA standards to 
impose zero additional costs. Rather, NHTSA must fulfill its statutory 
mandate to set maximum feasible fuel economy standards. NHTSA evaluated 
whether it would be feasible for manufacturers complying with EPA's 
standards to achieve the level of fuel economy that NHTSA has 
identified as maximum feasible, and has determined that it is. Further, 
the technological improvements to which automakers have committed in 
the coming years will, no doubt, facilitate their compliance with CAFE 
standards, even if they are not credited as heavily as in the GHG 
program.
    NHTSA interprets ``maximum feasible'' instead, as it has done 
previously, as requiring a balancing of the relevant factors, rather 
than letting a single factor drive the decision entirely. The purpose 
of EPCA is energy conservation, and NHTSA is interpreting the need to 
conserve energy to be largely driven by fuel savings, energy security, 
and environmental concerns. Therefore, it makes sense to interpret 
EPCA's factors as asking the agency to push stringency as far as 
possible before it appears that standards may not be economically 
practicable or technologically feasible. NHTSA is also directed by 
statute to consider ``other motor vehicle standards of the Government'' 
and their effect on fuel economy in assessing what is maximum feasible. 
If compliance with other motor vehicle standards of the Government made 
certain fuel economy-improving technologies infeasible or less 
effective, for example, then NHTSA would be obligated to take that into 
account in determining what CAFE standards were maximum feasible. NHTSA 
has conducted the required weighing of the statutory factors, and in 
doing so the agency has concluded that Alternative 2.5 is maximum 
feasible. In drawing this conclusion, NHTSA has considered other motor 
vehicle standards of the Government and concluded they will not make 
compliance with Alternative 2.5 infeasible.
    Thus, again, in re-evaluating all of the factors that NHTSA 
considers in determining maximum feasible CAFE standards, the agency 
was compelled to balance what we believe is a credible case for 
choosing Alternative 3 as opposed to Alternative 2.5. In doing so, 
NHTSA must balance the four statutory factors. Alternative 2.5 and 
Alternative 3 each produce significant reductions in fuel use, and 
while Alternative 3 is estimated to result in more savings, it could 
require technology application well beyond what EPA's GHG standards and 
State ZEV standards will require. Alternative 3 is less economically 
practicable for the model years addressed by this rule, when 
considering per-vehicle costs, technology application rates, and lead 
time. Even though Alternative 3 maximizes energy conservation, and 
NHTSA believes it is technologically feasible, economic practicability 
tips the balance for the agency to Alternative 2.5. Alternative 2.5 is 
an aggressive but achievable set of standards that NHTSA has concluded 
represents the right balancing for MYs 2024-2026--it is technologically 
feasible; and it continues to push fuel economy improvements, 
bolstering the industry's trajectory toward higher future standards by 
keeping stringency high in the mid-term. It meets the need of the U.S. 
to conserve energy, but in our estimation, not beyond the point of 
economic practicability; and we believe that it is complementary to 
other motor vehicle standards of the Government and feasible to achieve 
in the context of those other standards. For these reasons, NHTSA 
concludes that Alternative 2.5 is maximum feasible for MYs 2024-2026.

[[Page 26025]]

VII. Compliance and Enforcement

A. Complying With the NHTSA CAFE Program

1. Overview
    NHTSA's CAFE enforcement program is largely established by statute, 
EPCA, as amended by EISA, and is very prescriptive with regard to 
enforcement. EPCA and EISA also clearly specify a number of 
flexibilities that are available to manufacturers to help them comply 
with the CAFE standards. Some of those flexibilities are constrained by 
statute--for example, while Congress required that NHTSA allow 
manufacturers to transfer credits earned for over-compliance from their 
car fleet to their truck fleet and vice versa, Congress also limited 
the amount by which manufacturers could increase their CAFE levels 
using those transfers. NHTSA believes Congress balanced the energy-
saving purposes of the statute against the benefits of certain 
flexibilities and incentives and intentionally placed some limits on 
certain statutory flexibilities and incentives. With that goal in mind, 
of maximizing compliance flexibility while also implementing EPCA/
EISA's overarching purpose of energy conservation as fully as possible, 
NHTSA has crafted the credit transfer and trading regulations 
authorized by EISA to ensure that total fuel savings are preserved when 
manufacturers exercise their statutorily provided compliance 
flexibilities.
    In addition, NHTSA and EPA have previously developed other 
compliance flexibilities and incentives for the CAFE program consistent 
with the statutory provisions regarding EPA's calculation of 
manufacturers' fuel economy levels. As discussed in the following 
sections, NHTSA is finalizing requirements for this final rule under 
EPA's program to be applied as fuel economy ``adjustments'' or 
``improvement values'' for the CAFE program. These include: (1) 
Technologies that cannot be measured or cannot be fully measured on the 
2-cycle test procedure, i.e., ``off-cycle'' technologies; (2) AC 
efficiency improvements that also improve fuel economy but cannot be 
measured on the 2-cycle test procedure, and; (3) full-size pickup 
trucks, such as hybridization, or full-size pickup trucks that 
overperform their fuel economy stringency target values by greater than 
a specified amount. More specifically, NHTSA is finalizing incentives 
in these areas increasing the benefits manufacturers can claim for off-
cycle menu technologies from 10 g/mile to 15 g/mile and adding 
definitions for technologies on the menu. Also, NHTSA is reinstituting 
previously deleted compliance incentives for advance full sized pickup 
trucks to start again in MY 2023, and extend through MY 2024. In 
addition, NHTSA is also finalizing several administrative processes to 
its off-cycle program including deadlines and greater oversight to 
ensure timely accounting of these incentives for CAFE compliance. 
Finally, NHTSA is providing clarifications to its criteria for 
classifying light trucks in the CAFE program to be added to its 
upcoming compliance test procedure.
    To help explain how the compliance changes being finalized affect 
the CAFE program, the following sections outline how NHTSA determines 
how manufacturers comply with CAFE standards for each model year, and 
how manufacturers may use compliance flexibilities, or alternatively, 
address noncompliance through civil penalties. Moreover, it explains 
how manufacturers submit data and information to the agency for 
compliance purposes. This includes a detailed discussion of NHTSA's 
standardized CAFE reporting and credit transactions templates and its 
requirements for manufacturers to provide information and the 
documentation associated with credit trades. These reporting templates 
and requirements were adopted as a part of the 2020 final rule and 
revised in the proposals for the 2021 NPRM.\1145\ In this rulemaking, 
NHTSA is finalizing the changes to its reporting and credit templates 
and issuing a new template to clarify the required costing information 
for credit trades. These new requirements are intended to streamline 
reporting and data collection from manufacturers, in addition to 
helping the agency use the best available data to inform CAFE program 
decision makers for future rulemakings, and when considering additional 
or revised flexibilities and incentives.
---------------------------------------------------------------------------

    \1145\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

2. Light Duty CAFE Compliance Data for MYs 2011-2021
    As the first step to understanding compliance with the CAFE 
program, NHTSA receives CAFE reports from manufacturers and evaluates 
the information in these reports. NHTSA uses compliance data in part to 
identify industry trends for policy makers as discussed above, then to 
conduct verification testing and audits and finally to provide 
aggregated reporting to uphold its commitment for public transparency. 
For this final rule, NHTSA is releasing aggregated CAFE compliance data 
for model years 2011 through 2021 using final compliance data for MYs 
2011 through 2017,\1146\ projections from end-of-the-model year reports 
submitted by manufacturers for MYs 2018 and 2019,\1147\ and projections 
from manufacturers' mid model year reports for MY 2020 and 2021.\1148\ 
Projections from the mid-year and end-of-the-model year reports may 
differ from EPA-verified final CAFE values either because of differing 
test results or final sales-volume figures. MY 2011 was selected as the 
start of the data because it represents the first compliance model year 
for which manufacturers were permitted to trade and transfer 
credits.\1149\ The data go up to MY 2021, because this was the most 
recent year compliance reports have been accessed for their 
completeness. Figure VII-1 through Figure VII-4 provide a graphical 
overview of the actual and projected compliance data for MYs 2011-
2021.\1150\
---------------------------------------------------------------------------

    \1146\ Final compliance data have been verified by EPA and are 
published on the NHTSA's Public Information Center (PIC) site. MY 
2017 is currently the most-recent model year verified by EPA.
    \1147\ MY 2018 data come from information received in 
manufacturers' final reports submitted to EPA according to 40 CFR 
600.512-12.
    \1148\ Manufacturers' mid-model year CAFE reports are submitted 
to NHTSA in accordance with 49 CFR part 537. At the time of the 
analysis, end of the model year data had not yet been submitted for 
MY 2020 or 2021.
    \1149\ 49 CFR 535.6(c).
    \1150\ As mentioned previously, the figures include estimated 
values for certain model years based on the most up to date 
information provided to NHTSA from manufacturers.
---------------------------------------------------------------------------

    In the figures, an overview is provided for the total fuel economy 
performance of the industry (the combination of all passenger cars and 
light trucks produced for sale during the model year) as a single 
fleet, and for each of the three CAFE compliance fleets: Domestic 
passenger car, import passenger car, and light truck fleets.

[[Page 26026]]

For each of the graphs, a sale-production weighting is applied to 
determine the average total or fleet Base CAFE 
performances.1151 1152 1153 The graphs do not include 
adjustments for full-size pickup trucks because manufactures have yet 
to reach the required market threshold to utilize the incentive.
---------------------------------------------------------------------------

    \1151\ In the figures, the label ``2-Cycle CAFE'' represents the 
maximum increase each year in the average fuel economy set to the 
limitation ``cap'' for manufacturers attributable to dual-fueled 
automobiles as prescribed in 49 U.S.C. 32906. The label ``AC/OC 
contribution'' represents the increase in the average fuel economy 
adjusted for AC and off-cycle FCIVs as prescribed by 40 CFR 600.510-
12.
    \1152\ Consistent with applicable law, NHTSA established 
provisions starting in MY 2017 allowing manufacturers to increase 
compliance performance based on fuel consumption benefits gained by 
technologies not accounted for during normal 2-cycle EPA compliance 
testing (called ``off-cycle technologies'' for technologies such as 
stop-start systems) as well as for AC systems with improved 
efficiencies and for hybrid or electric full-size pickup trucks.
    \1153\ Adjustments for earned credits include those that have 
been adjusted for fuel saving using the manufacturers CAFE values 
for the model years in which they were earned and adjusted to the 
average CAFE values for the fleets they exist within.
---------------------------------------------------------------------------

    The figures also show how many credits remain in the market each 
model year. One complicating factor for presenting credits is that the 
mpg-value of a credit is contingent where it was earned and applied. 
Therefore, the actual use of the credits for MY 2018 and beyond will be 
uncertain until compliance for those model years is completed. Also, 
since credits can be retained for up to six model years after they were 
earned or applied retroactively to the previous 3 model years, it is 
impossible to know the final application of credits for MY 2020 until 
MY 2023 compliance data are finalized. Instead of attempting to project 
how credits would be generated and used, the agency opted to value each 
credit based on its actual value when earned, by estimating the value 
when applied assuming it was applied to the overall average fleet and 
across all vehicles. In the figures, two different approaches were used 
to represent the mpg value of credits used to offset shortages (shown 
as CAFE after credit allocation in the figures). The mpg shortages for 
MYs 2011-2017 are based upon actual compliance values from EPA and the 
credit allocations or fines manufacturers instructed NHTSA to adjust 
and apply to resolve compliance shortages. For MYs 2018-2021, NHTSA 
used a different approach for representing the mpg shortages, deriving 
them from projected estimates adjusted for fuel savings calculated from 
the projected fleet average performances and standards for each model 
year and fleet. To represent the mpg value of manufacturers' remaining 
banked credits in the figures (shown as Credits in the Market) the same 
weighting approach was also applied to these credits based upon the 
fleet averages. For MYs 2011-2017, the remaining banked credits include 
those currently existing in manufacturers' credit accounts adjusted for 
fuel savings and subtracting any expired credits for each year. This 
approach was taken to represent these credits for the actual value that 
would likely exist if the credits were applied for compliance purposes. 
Without adjusting the banked credits, our analysis would provide an 
unrealistic value of the true worth of these credits when used for 
compliance. For MYs 2018-2021, the mpg value of the remaining banked 
credits is shown slightly differently where the value represents the 
difference between the adjusted credits carried forward from previous 
model years (minus expiring credits) and the projected earned credits 
minus any expected credit shortages. Since all the credits in these 
model years were adjusted using the same approach it was possible to 
subtract the credit amounts. However, readers are reminded that for MYs 
2018-2021 since the final CAFE reports have yet to be issued, the 
credit allocation process has not started, and the data shown in the 
graphs are a projection of potential overall compliance. Consequently, 
the credits included for MYs 2018-2021 are separated from earlier model 
years by a dashed line to highlight that there is a margin of 
uncertainty in the estimated values. Projecting how and where credits 
will be used is difficult for a number of reasons, such as not knowing 
which flexibilities manufacturers will utilize and the fact that 
credits are not valued the same across different fleets. As such, the 
agency reminds readers that the projections may not align with how 
manufacturers will actually approach compliance for these years.
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[[Page 26028]]


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[[Page 26029]]


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[[Page 26031]]


BILLING CODE 4910-59-C
    Table VII-1 provides the numerical CAFE performance values and 
standards for MYs 2011-2021 as shown in the figures.
    As shown in Figure VII-1, manufacturers' fuel economy performance 
(2-cycle CAFE plus AMFA) for the total fleet was better than the fleet-
wide target through MY 2015. On average, the total fleet exceeded the 
standards by approximately 0.9 mpg for MYs 2011 to 2015. As shown in 
Figure VII-2 through Figure VII-4, domestic and import passenger cars 
exceeded standards on average by 2.1 mpg and 2.3 mpg, respectively. By 
contrast, light truck manufacturers on average fell below the standards 
by 0.3 mpg over the same time period.
    For MYs 2016 through 2021, Figure VII-1 shows that the total fleet 
Base CAFE (including 2-Cycle CAFE plus AC and OC benefits) falls below 
and appears to remain below the fleet CAFE standards for these model 
years.\1154\ The projected compliance shortfall (i.e., the difference 
between CAFE performance values and the standards) remains constant and 
reaches its greatest difference between MYs 2019 and 2021. Compliance 
becomes even more complex when observing individual compliance fleets 
over these years. Only domestic passenger car fleets collectively 
appear to exceed CAFE standards while import passenger car fleets 
appear to have the greatest compliance shortages. In MY 2020, the 
import passenger car fleet appear to reach its highest compliance 
shortfall equal to 3.9 mpg.
---------------------------------------------------------------------------

    \1154\ Until MY 2023 compliance, the last year where earned 
credits can be retroactively applied to MY 2020, NHTSA will be 
unable to make a determination about the fleet's overall compliance 
over this timespan.
---------------------------------------------------------------------------

    The graphs provide an overall representation of the average values 
for each fleet, although they are less helpful for evaluating 
compliance with the minimum domestic passenger car standards given 
statutory prohibitions on manufacturers using traded or transferred 
credits to meet those standards.\1155\ NHTSA notes that several 
manufacturers have already reported insufficient earned credits and may 
have to make fine payments if they fail to reach the minimum domestic 
passenger car standards.
---------------------------------------------------------------------------

    \1155\ In accordance with 49 CFR 536.9(c), transferred or traded 
credits may not be used, pursuant to 49 U.S.C. 32903(g)(4) and 
(f)(2), to meet the domestically manufactured passenger automobile 
minimum standard specified in 49 U.S.C. 32902(b)(4) and in 49 CFR 
531.5(d).
---------------------------------------------------------------------------

    In summary, MY 2016 is the last compliance model year that 
passenger cars complied with CAFE standards relying solely on Base CAFE 
performance. Prior to this timeframe, passenger car manufacturers 
especially those building domestic fleets could and did exceed CAFE 
standards. MY 2016 marked the first time in the history of the CAFE 
program where compliance for passenger car manufacturers fell below 
standards thereby increasing shortfalls and forcing manufacturers to 
rely heavily upon credit flexibilities. Despite higher shortfalls, 
domestic passenger car manufacturers have continued to generate credits 
and increase their total credit holdings. The projections show that for 
MYs 2018-2021, domestic passenger car fleets will transition from 
generating to using credits but will maintain sizable amounts of banked 
credits sufficient to sustain compliance shortfalls in other regulatory 
fleets within statutory requirements. Figure VII-3 shows residual 
available banked credits even as far as MY 2021. Domestic passenger car 
credits and their off-cycle credits will play an important role in 
sustaining manufacturers in complying with CAFE standards.
    From the projections, it appears that based on the number of 
remaining domestic passenger credits in the market and the rate at 
which they are being used, there will be insufficient credits to cover 
the shortfalls in other compliance fleets in years following MY 2020. 
Figure VII-1 shows that the total remaining combined credits for the 
industry is expected to decline starting in MY 2018. Import passenger 
cars and light truck fleets will play a major role in the decline and 
possible depletion of all available credits to resolve shortfalls after 
MY 2020. Several factors exist that could produce this outcome. First, 
increasing credit shortages are occurring in the import passenger car 
and light truck fleets especially since the reduction and then 
termination of AMFA incentives in MY 2019 (a major contributor for 
light trucks). Next, residual banked credits for the light truck fleet 
are expected to be exhausted starting in MY 2018 and for import 
passenger cars in MY 2020. Finally, the use of AC/OC benefits for 
import passenger cars and lights trucks is not a significant factor for 
these fleets in complying with CAFE standards. Manufacturers will need 
to change their production strategies or introduce substantially more 
fuel saving technologies to sustain compliance in the future.
    Figure VII-5 provides a historical overview of the industry's use 
of CAFE credit flexibilities and fine payments for addressing 
compliance shortfalls.\1156\ As mentioned, MY 2017 is the last model 
year for which CAFE compliance determinations are completed, and credit 
application and civil penalty payment determinations finalized. As 
shown in the figure, for MYs 2011-2015, manufacturers generally 
resolved credit shortfalls by carrying forward earned credits from 
previous years. However, since 2011, the rise in manufacturers 
executing credit trades has become increasingly common and, in MY 2017, 
credit trades were the most frequently used flexibility for achieving 
compliance. Credit transfers have also become increasingly more 
prevalent for manufacturers. As a note to readers, credit trades in the 
figures can also involve credit transfers but are aggregated in the 
figure as credit trades to simplify results. In MY 2016, credit 
transfers constituted the highest contributor to credit flexibilities 
but are starting to decline, signifying that manufacturers are 
currently exhausting credit transfers within their own fleets. 
Manufacturers only occasionally carry back credits to resolve 
performance shortfalls. NHTSA believes that trading credits between 
manufacturers and to some degree transferring traded credit across 
fleets will be the most commonly used flexibility in complying with 
future CAFE standards as started in MY 2017.
---------------------------------------------------------------------------

    \1156\ Figure VII-5 includes all credits manufacturers have used 
in credit transactions to date. Credits contained in carryback plans 
yet to be executed or in pending enforcement actions are not 
included in Figure VII-5.
---------------------------------------------------------------------------

    Credit trading has generally replaced civil penalty payments as a 
compliance mechanism. Only a handful of manufacturers have made civil 
penalty payments since the implementation of the credit trading 
program. As previously shown, NHTSA believes that manufacturers have 
sufficient credits to resolve any import passenger car and light truck 
performance shortfalls expected through MY 2020. There were two fine 
payments made in MY 2016 and 2017 which fit this exact case. By 
statute, manufacturers cannot use traded or transferred credits to 
address performance shortfalls for failing to meet the minimum domestic 
passenger car standards. Because of this limitation, the fine payments 
made in MY 2016 and 2017 came from one manufacturer that had exhausted 
all of its earned domestic passenger credits and could not carryback 
future credits. NHTSA calculates that there will be 11 instances of 
MDPCS between 2018 and 2021 where substantial civil penalty payments 
will have to be made.

[[Page 26032]]

    In Figure VII-6, additional information is provided on the credit 
flexibilities exercised and fine payments made by manufacturers for MYs 
2011-2017. The figure includes the GGE for these credit flexibilities 
or for paying civil penalties. The figure shows that manufacturers used 
carrying forward credits most often to resolve shortfalls. Credit 
trades were the second leading benefit to manufacturers in using credit 
flexibilities and then followed by credit transfers. In summary, 
manufacturers used these flexibilities amounting to the equivalent of 
2,952,856 gallons of fuel by carrying forward credits in 2017 and 
583,720 gallons of fuel by trading credits in 2017.
---------------------------------------------------------------------------

    \1157\ For Figure VII-6; in each year, some flexibilities were 
not utilized by manufacturers. For example, carry backed credits 
were not utilized in 2011, 2013, 2014, 2015, 2016, or 2017. Transfer 
credits were not used in 2011, 2012 or 2013. No civil penalties were 
paid in 2015.
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[[Page 26033]]


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BILLING CODE 4910-59-C
(a) Manufacturers Reports to NHTSA
    EPCA, as amended by EISA, in 49 U.S.C. 32907, requires 
manufacturers to submit projections reports to the Secretary of 
Transportation explaining how they will comply with the CAFE standards 
in advance of the model year for which the report is made; the actions 
a manufacturer has taken or intends to take to comply with the 
standard; and other information the Secretary requires by 
regulation.\1158\ A manufacturer must submit a report containing this 
information during the 30-day period before the beginning of each model 
year, and during the 30-day period beginning the 180th day of the model 
year.\1159\ When a manufacturer determines it is unlikely to comply 
with a CAFE standard, the manufacturer must report additional actions 
it intends to take to comply and include a statement about whether 
those actions are sufficient to ensure compliance.\1160\
---------------------------------------------------------------------------

    \1158\ 49 U.S.C. 32907(a).
    \1159\ Id.
    \1160\ Id.
---------------------------------------------------------------------------

    To implement these reporting requirements, NHTSA issued 49 CFR part 
537, ``Automotive Fuel Economy Reports,'' which specifies three types 
of CAFE reports that manufacturers must submit.\1161\ A manufacturer 
must first submit a pre-model year (PMY) report containing the 
manufacturer's projected compliance information for that upcoming model 
year. By regulation, the PMY report must be submitted in December of 
the calendar year prior to the corresponding model year.\1162\ 
Manufacturers must then submit a mid-model year (MMY) report containing 
updated information from manufacturers based upon actual and projected 
information known midway through the model year. By regulation, the MMY 
report must be submitted by the end of July for the applicable model 
year.\1163\ Finally, manufacturers must submit a supplementary report 
to supplement or correct previously submitted information, as specified 
in NHTSA's regulation.\1164\
---------------------------------------------------------------------------

    \1161\ See 47 FR 34986 (Aug. 12, 1982).
    \1162\ 49 CFR 537.5(b).
    \1163\ Id.
    \1164\ 49 CFR 537.8.
---------------------------------------------------------------------------

    If a manufacturer wishes to request confidential treatment for a 
CAFE report, it must submit both a confidential and redacted version of 
the report to NHTSA. CAFE reports submitted to NHTSA contain estimated 
sales production information, which may be protected as confidential 
until the termination of the production period for that model 
year.\1165\ NHTSA protects each manufacturer's competitive sales 
production strategies for 12 months, but does not permanently exclude 
sales production information from public disclosure. Sales production 
volumes are part of the information NHTSA routinely makes publicly 
available through the CAFE PIC.
---------------------------------------------------------------------------

    \1165\ 49 CFR part 512, appx. B(2).
---------------------------------------------------------------------------

    The manufacturer reports provide information on light-duty 
automobiles such as projected and actual fuel economy standards, fuel 
economy performance, and production volumes, as well as information on 
vehicle design features (e.g., engine displacement and transmission 
class) and other vehicle attribute characteristics (e.g., track width, 
wheelbase, and other off-road features for light trucks). Beginning 
with

[[Page 26034]]

MY 2017, to obtain credit for fuel economy improvement values 
attributable to additional technologies, manufacturers must also 
provide information regarding AC systems with improved efficiency, off-
cycle technologies (e.g., stop-start systems, high-efficiency lighting, 
active engine warm-up), and full-size pickup trucks with hybrid 
technologies or with fuel economy performance that is better than 
footprint-based targets by specified amounts. This includes identifying 
the makes and model types equipped with each technology, the compliance 
category those vehicles belong to, and the associated fuel economy 
improvement value for each technology.\1166\ In some cases, NHTSA may 
require manufacturers to provide supplementary information to justify 
or explain the benefits of these technologies and their impact on fuel 
consumption or to evaluate the safety implication of the technologies. 
These details are necessary to facilitate NHTSA's technical analyses 
and to ensure the agency can perform enforcement audits as appropriate.
---------------------------------------------------------------------------

    \1166\ NHTSA collects model type information based upon the EPA 
definition for ``model type'' in 40 CFR 600.002.
---------------------------------------------------------------------------

    NHTSA uses manufacturer submitted PMY, MMY, and supplementary 
reports to assist in auditing manufacturer compliance data and 
identifying potential compliance issues as early as possible. 
Additionally, as part of its footprint validation program, NHTSA 
conducts vehicle testing throughout the model year to confirm the 
accuracy of the track width and wheelbase measurements submitted in the 
reports.\1167\ These tests help the agency better understand how 
manufacturers may adjust vehicle characteristics to change a vehicle's 
footprint measurement, and ultimately its fuel economy target. NHTSA 
also includes a summary of manufacturers' PMY and MMY data in an annual 
fuel economy performance report made publicly available on its PIC.
---------------------------------------------------------------------------

    \1167\ U.S. Department of Transportation, NHTSA, Laboratory Test 
Procedure for 49 CFR part 537, Automobile Fuel Economy Attribute 
Measurements (Mar. 30, 2009), available at http://www.nhtsa.gov/DOT/NHTSA/Vehicle%20Safety/Test%20Procedures/Associated%20Files/TP-537-01.pdf (accessed: March 15, 2022).
---------------------------------------------------------------------------

    As mentioned, NHTSA uses EPA-verified final-model year (FMY) data 
to evaluate manufacturers' compliance with CAFE program requirements 
and draw conclusions about the performance of the industry as well as 
to conduct verification testing and audits. After manufacturers submit 
their FMY data, EPA verifies the information, accounting for NHTSA and 
EPA testing, and subsequently forwards the final verified data to 
NHTSA.
(b) New CAFE Reporting Templates
(1) CAFE Reporting Templates Adopted in 2020 Final Rule and Revised in 
the 2021 NPRM
    NHTSA adopted changes to its CAFE reporting requirements in the 
2020 final rule with the intent of streamlining data collection and 
reporting for manufacturers while helping the agency obtain the best 
available data to inform CAFE program decision-makers. We adopted two 
new standardized reporting templates for manufacturers. NHTSA's goal 
was to adopt standardized templates to assist manufacturers in 
providing the agency with all the necessary data to ensure they comply 
with CAFE regulations.
    The first template was designed to simplify reporting CAFE credit 
transactions. The template's purpose was to reduce the burden on credit 
account holders, encourage compliance, and facilitate quicker NHTSA 
credit transaction approval. Before the template, manufacturers would 
inconsistently submit information required by 49 CFR 536.8, creating 
difficulties in processing credit transactions. Using the template 
simplifies CAFE compliance aspects of the credit trading process and 
helps to ensure that trading parties follow the requirements for a 
credit transaction in 49 CFR 536.8(a).\1168\
---------------------------------------------------------------------------

    \1168\ Submitting a properly completed template and accompanying 
transaction letter will satisfy the trading requirements in 49 CFR 
part 536.
---------------------------------------------------------------------------

    The second template was designed to standardize reporting for CAFE 
PMY and MMY information, as specified in 49 CFR 537.7(b) and (c), as 
well as supplementary information required by 49 CFR 537.8. The 
template organizes the required data in a manner consistent with NHTSA 
and EPA regulations and simplifies the reporting process by 
incorporating standardized responses consistent with those provided to 
EPA. The template collects the relevant data, calculates intermediate 
and final values in accordance with EPA and NHTSA methodologies, and 
aggregates all the final values required by NHTSA regulations in a 
single summary worksheet.
    NHTSA believes that the projections reporting template benefits 
both the agency and manufacturers by helping to avoid reporting errors, 
such as data omissions and miscalculations, and will ultimately 
simplify and streamline reporting. The template also allows 
manufacturers to enter information to generate the required 
confidential versions of CAFE reports specified in 49 CFR part 537 and 
to automatically produce the required non-confidential versions by 
clicking a button within the template. In the 2020 final rule, NHTSA 
established that manufacturers are required to use the projections 
template for all PMY, MMY, and supplementary CAFE reports starting in 
MY 2023. NHTSA made both the credit transactions and projections 
templates available for download through the NHTSA PIC website and DOT 
docket for interested parties to evaluate prior to their mandatory 
dates.
    In the 2020 final rule, NHTSA also adopted provisions for 
manufacturers to report confidential information on the cost of credit 
trades and all the supporting trade documents. The agency established 
that manufacturers were to report this information starting January 1, 
2021. NHTSA intended for the information to be used to establish the 
true cost of compliance for all manufacturers which will be used by 
agency decisions makers in developing new rulemakings. Additionally, as 
a long-term goal, NHTSA hoped to use the information as a part of new 
reports to be release to the public.
    Since then, manufacturers have downloaded the templates and met 
with NHTSA to share recommendations for changes, such as allowing the 
PMY and MMY reporting templates to accommodate different types of 
alternative fueled vehicles and to clarify and correct the methods for 
calculating CAFE values. As a part of the 2021 NPRM,\1169\ NHTSA 
released several draft changes to the previous templates and added a 
new template for the monetary and non-monetary costs and terms 
associated with CAFE credit trades. The following sections will 
describe the comments received to the three templates and the final 
changes enacted by this final rule.
---------------------------------------------------------------------------

    \1169\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

(2) Changes to the CAFE Projections Reporting Template
    Along with the 2021 NPRM,\1170\ NHTSA released version 2.21 of the 
CAFE Projections Reporting Template. Version 2.21 included several 
general improvements made to simplify the use and the effectiveness for 
manufacturers. The changes included, but were not limited to; wording 
changes, corrections to calculations and codes, and auto-populating 
fields previously requiring manual entry. With this final rule we will 
be releasing version 2.25 of the CAFE Projections Reporting Template,

[[Page 26035]]

which addresses and fixes many of the concerns raised in the comments, 
below.
---------------------------------------------------------------------------

    \1170\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

    More specifically, NHTSA modified the CAFE Reporting Template in 
the proposal by adding filters and sorting functions to help 
manufacturers connect the data definitions to the location of each of 
the required data fields in the template. Additional information from 
other parts of the CAFE Reporting Template would be pulled forward to 
display on the summary tab. For the information required pursuant to 49 
CFR 537.7(b)(2), areas were also included for manufacturers to compare 
the values the template calculates to their own internally calculated 
CAFE values. Additionally, NHTSA expanded the CAFE Reporting Template 
to include more of the required information regarding vehicle 
classification, and eased manufacturers reporting burden by having them 
report only the data used for each vehicle's qualification pathway 
ignoring other possible light truck classification information.
    NHTSA also combined the footprint attribute information and model 
type subconfiguration data. NHTSA uses this information to match test 
data directly to fuel economy footprint values for the purposes of 
modeling fuel economy standards. Features were also added to auto-
populate redundant information from one worksheet to another. The data 
gathered and the formulas coded within the worksheets were also updated 
to correct fuel economy calculations based on 40 CFR 600.510-12. The 
changes allowed the data to more accurately represent the fuel economy 
of electric and other vehicles using alternative fuels. NHTSA considers 
this information critically important to forming a more complete 
picture of the performances of dual fuel and alternative fuel vehicles.
    We also made several corrections so that manufacturers would submit 
CAFE data at each of the different levels they test and combine the 
stages of CO2 and fuel economy test results. As mentioned, 
manufacturers test approximately 90-percent of their vehicles within 
each model type. Each subconfiguration variant within a model type may 
have a unique CO2 and CAFE value. Manufacturers combine at 
the configuration, base level and then finally at the model type level 
for determining CAFE performance. NHTSA determined that this level of 
data was needed to verify manufacturers reported CAFE values.
    Finally, NHTSA made corrections to the CAFE Reporting Template to 
better collect information on off-cycle technologies. The changes 
aligned the format of the data with the EPA off-cycle database system. 
For example, manufacturers report to EPA high efficiency lighting as 
combination packages, so NHTSA changed the template to reflect the same 
level of information.
    NHTSA will make version 2.25 of the template available on NHTSA's 
PIC site for download concurrent with the final rule being published.
    In response to the 2021 NPRM,\1171\ multiple manufacturers 
commented in support of the revised template. Mercedes Benz, Ford, 
Hyundai, Stellantis, and Lucid, support the use of a standardized 
template for CAFE reporting.\1172\ Ford appreciates NHTSA is aligning 
with some of the existing EPA reporting data elements but believes that 
additional improvements can be made, particularly regarding the format 
of data collected. NHTSA will continue to work with EPA to determine 
areas where reporting can be further aligned for future rulemakings.
---------------------------------------------------------------------------

    \1171\ 86 FR 49602 (Sept. 3, 2021).
    \1172\ Mercedes-Benz, NHTSA-2021-0053-0952-A1, at p3; Ford, 
NHTSA-2021-0053-1545-A1, at p4; Hyundai, NHTSA-2021-0053-1512-A1, at 
page 8.; Stellantis, NHTSA-2021-0053-1527, at page 30; Lucid, NHTSA-
2021-0053-1584, at 6.
---------------------------------------------------------------------------

    Nissan suggested streamlining the template by eliminating 
unnecessary details in the template.\1173\ They believe that the amount 
of detail requested in the CAFE Reporting Template is extensive and 
substantially increases the resources required in the data preparation 
process. Mercedes Benz shared a similar view and added that time 
periods for preparing PMY and MMY reports could be troublesome since 
some of the information requested is not yet available for submission, 
and can only be confirmed at the conclusion of the MY.\1174\ Ford 
recommends that less detailed data be required for the pre-model year 
reports compared to the mid-model year reports. It believes this is 
appropriate because higher level planning projections are used in the 
pre-model year reports, whereas substantial production data is normally 
used for the mid-model year report.\1175\ Auto Innovators requested 
that NHTSA align its data requirements more closely with the data that 
are available to manufacturers at the time pre- and mid-model year 
reports are prepared.\1176\ Auto Innovators stated that the pre-model 
year report is largely a projection due for each current model year 
during the month of December which makes it not valuable enough for 
modeling since attributes like paint colors or lighting packages, that 
are currently required information in the proposed reporting template 
(for off-cycle technologies) until after the end of the model year when 
manufacturers submit their final reports to the EPA.
---------------------------------------------------------------------------

    \1173\ Nissan, NHTSA-2021-0053-0022, at 9.
    \1174\ Mercedes-Benz, NHTSA-2021-0053-0952-A1 at p. 3.
    \1175\ Ford, NHTSA-2021-0053-0952-A1, at p. 4.
    \1176\ Auto Innovators, NHTSA-2021-0053-1492, at page 77.
---------------------------------------------------------------------------

    NHTSA understands manufacturers concerns with the early production 
limitations for vehicles and technologies which can prevent 
manufacturers from having data available for the PMY and MMY template. 
Consequently, NHTSA is changing the requirements for the CAFE 
projections template for the final rule; manufacturers will only be 
required to provide actual information on vehicles and technologies in 
production at the time the PMY and MMY model year reports are required. 
Manufacturers should attempt not to omit data, which should only be the 
case for products pending production and with unknown information at 
the time CAFE reports are prepared.
    Hyundai and Auto Innovators commented that they were concerned that 
the agency was going to publish confidential business data in its 
public forecast volume reports or to use the data in such a manner that 
could be reversed engineered.\1177\ NHTSA has further reduced this 
possibility by hiding the ``total credits'' columns in the public 
report to prevent any back calculation. The public report will be 
generated by pressing the `generate public report' button on the 
general info tab and will no longer contain enough information for back 
calculations to occur. NHTSA will not publish any PMY/MMY data, or any 
data that can be reversed engineered to reveal confidential business 
information. Confidential business data will only be used by NHTSA for 
internal modeling and analysis.
---------------------------------------------------------------------------

    \1177\ Hyundai, NHTSA-2021-0053-1512-A1, page 8; Auto 
Innovators, NHTSA-2021-0053-1492, at page 77.
---------------------------------------------------------------------------

    Mercedes Benz requested that NHTSA eliminate MMY reports to relieve 
the burden on manufacturers.\1178\ However, NHTSA is unable to 
eliminate the MMY report because these reports are mandated by Congress 
in EPCA.\1179\ In addition, there is information contained in the PMY 
and MMY reports that is not in the EPA reports such as vehicle 
classification information that is critical to NHTSA's compliance 
program. The MMY reports also provide a near final estimate of all the 
values. Most

[[Page 26036]]

manufacturers are close to completing production for the model year 
when MMY reports are required.
---------------------------------------------------------------------------

    \1178\ Mercedes-Benz, NHTSA-2021-0053-0952-A1, at p. 3.
    \1179\ 49 U.S.C. 32907(a)(2).
---------------------------------------------------------------------------

    Auto Innovators also requested several technical corrections to the 
reporting template to align with industry and EPA testing and data 
reporting uses. Summarized in the following paragraphs are those 
requests and NHTSA's responses and changes for the final rule.
     Clarification on which fields are mandatory and which are 
optional.\1180\ No changes were made to the template for the final rule 
in response to this request. Generally, the data fields colored in 
white are mandatory. Manufacturers should only consider a white data 
field optional if it does not produce vehicles requiring the 
information in that area. Manufacturers are responsible for determining 
if any vehicles in their fleet fit the requirements of the data field 
and must be reported. NHTSA will consider methods to further improve 
the template in future rulemakings if further guidance is needed.
---------------------------------------------------------------------------

    \1180\ Auto Innovators, NHTSA-2021-0053-1492, at pp. 77-81.
---------------------------------------------------------------------------

     Asked NHTSA to further harmonize reporting requirements 
with EPA. For example, Auto Innovators stated that NHTSA has seven 
values for Fuel System and EPA has eleven. Similarly, NHTSA has three 
values for Drive System/Mode and EPA has five values. Auto Innovators 
recommended that NHTSA modify their template to use EPA values as input 
values and if NHTSA needs alternate values for their internal analysis, 
then the template could provide that translation. Auto Innovators 
request that EPA and NHTSA align their reporting values before 
manufacturers have to redesign their information technology systems to 
accommodate the new NHTSA template.\1181\ NHTSA agrees with Auto 
Innovators' recommendations and has updated the drop-down menus in the 
template to reflect those provided by EPA for the final rule.
---------------------------------------------------------------------------

    \1181\ Id.
---------------------------------------------------------------------------

     Eliminate the reporting requirement for Basic Vehicle 
Frontal Area that has been replaced with GVWRs.\1182\ The agency 
recognizes this legacy reporting field is no longer applicable to the 
current fuel economy calculations and thus agrees with Auto Innovators. 
For the final rule, NHTSA has removed the field for Basic Vehicle 
Frontal Area from the reporting template.
---------------------------------------------------------------------------

    \1182\ Id.
---------------------------------------------------------------------------

     Identified a problem on the summary tab with the rollup 
alternative dual fuel equation.\1183\ For the final rule, NHTSA has 
fixed this error in the template. Alternative dual fuel will only be 
calculated on the summary tab if there is alternative dual fuel 
identified in the fleet.
---------------------------------------------------------------------------

    \1183\ Id.
---------------------------------------------------------------------------

     Identified an issue regarding Equivalent Test Weight. It 
stated that, in column ``AY'' and field ``ETW,'' it appears as if test 
weight is calculated automatically from curb weight.\1184\ NHTSA sees 
how base level can cross two ranges for the ETW based upon historic 
regulations. For the final rule, NHTSA has developed a user manual for 
the template to give guidance on how to handle a situation where two 
ranges are covered as well as providing clarifications on other data 
uses in the template. As defined in the manual, manufacturers will have 
to create two base levels one for each range covered. NHTSA have 
conferred with EPA, and they have informed us that this is how they 
currently handle this issue with ETW ranges.
---------------------------------------------------------------------------

    \1184\ Id.
---------------------------------------------------------------------------

     Raised concerns about how data were collected at the 
subconfiguration level. Auto Innovators is concerned that these data 
are being collected on the subconfiguration level that is not aligned 
with the EPA definition. The carline class is unique for each model 
type and so collecting this data on a subconfiguration level is very 
repetitive and inefficient. Auto Innovators believes it would be more 
efficient for NHTSA to collect this and other data in a manner better 
aligned with the definitions. It recommend that NHTSA update its 
template to collect model type level data on the model type 
worksheets.\1185\ For the final rule, NHTSA has updated the reporting 
template to collect carline class information on the Model Type level 
instead of the subconfiguration level.
---------------------------------------------------------------------------

    \1185\ Id.
---------------------------------------------------------------------------

     Requested that NHTSA change the name of cell AM16 in the 
Footprint and Subconfig tab from ``Auxiliary Emission Control Devices'' 
(AECD) to ``Emission Control Devices''. NHTSA agrees that this is a 
more appropriate term for this column and has changed the name in the 
reporting template for the final rule.
     Commented the Footprint and SubConfig tab in columns ``BU, 
BV, BW, BY, BZ, CA, CB, CE, CI'' under the Base and Alternative Fuel 
field that when conventional gasoline is selected under base fuel in 
column BI and no alternative fuel input is done. It recommends that the 
columns should not display any MPGe values when ``conventional 
gasoline'' is selected. This column is intended to calculate either the 
MPGe or MPG, depending on the input. For alternative fuel calculating 
the MPGe involves converting the fuel economy to MPGe, for conventional 
gasoline this simply involves multiplying the MPG by one to get MPGe. 
The MPGe is then used in calculating the combined fuel economy. NHTSA 
disagrees with Auto Innovators suggestions and for the final rule will 
keep this column as proposed since it accurately reflects the content 
of the data. NHTSA believes the current content of the data is 
appropriate and not complicated to understand its usage.
     Questioned why production volumes are user inputted, as 
opposed to automatically calculated for the Production Volume fields on 
the configuration, base level, and model type worksheet tabs. Explained 
that once production volume is entered for each carline on a 
subconfiguration level, the values should be carried over wherever 
carlines and their corresponding production volumes are present in each 
of the higher-level tabs such as configuration, base level, and model 
type. For the final rule, NHTSA will not make changes in response to 
this request. The spreadsheet is structured in such a way that 
automatic calculations would not be possible for these production 
volumes.
     Recommended that footprint data be required on the carline 
level, which is part of a model type definition, and aligned with the 
submission format required by EPA. It explained that the NHTSA template 
proposes to combine the footprint attribute information and model type 
subconfiguration data for the purposes of matching test data directly 
to fuel economy footprint values for modeling fuel economy standards. 
Auto Innovators believes that the subconfiguration and footprint data 
should not be combined. A subconfiguration can only have a single fuel 
economy value and yet may contain multiple footprints/wheelbases 
because subconfigurations are largely based on powertrain, weight, and 
road load attributes. In 49 CFR part 537, it requires footprint data 
for each unique model type and footprint combination and NHTSA has 
defined that the base (standard) tire is to be used for footprint data. 
However, footprint data on the template are required to be provided on 
a subconfiguration level. A manufacturer can have hundreds of 
subconfigurations in a single fleet. Auto Innovators contends it is not 
efficient nor beneficial to either keep repeating the same footprint 
data across a subconfiguration or to further subdivide a 
subconfiguration by the multiple

[[Page 26037]]

wheelbases in them. It will not help NHTSA to find the applicable 
footprint record for a physical vehicle that's been obtained as part of 
the footprint validation program to have repeating values in the 
template. NHTSA has considered Auto Innovators' concerns and decided 
for the final rule not to make any changes to this data collection. The 
agency's need to support our data analysis and modeling compels 
retaining the format as proposed and repeated values will have no 
impact on compliance testing.
     Clarify that NHTSA states each subconfiguration variant 
within a model type has a unique CO2 and CAFE value. 
Manufacturers combine other vehicles at the configuration, base level 
and then finally at the model type level for determining CAFE 
performance. Auto Innovators would like to clarify that each 
subconfiguration variant may or may not have a unique CO2 
and CAFE value as some subconfiguration variants are untested. NHTSA 
understands Auto Innovators' concerns and has added to the preamble 
text for the final rule that there may or may not be a unique 
CO2 and CAFE value represented.
     Clarify what is meant by ``other vehicles'' from different 
nameplates may be combined at the subconfiguration, configuration, and 
base level because these are defined by attributes like powertrain, 
weight, and total road load horsepower but not at the model type level. 
A model type is defined by carline and so ``other vehicles'' wouldn't 
apply in this context. NHTSA agrees with Auto Innovators' concerns and 
for the final rule has removed `model type' from the sentence in the 
preamble text.
     Auto Innovators requested several small changes to the 
language and rounding in the template. Under the ``Data Definitions'' 
tab, in row 66, it says, ``Type of Overdrive/Torque converter'', but in 
``Footprint & SubConfig'' tab, it is asking for ``Presence of over 
drive (Y/N). We respectfully request you change the data definition 
description from ``Type'' to ``Presence'' of Overdrive to match Col O 
in Footprint & Sub Conf tabs.'' Additionally, in the ``Data 
Definitions'' tab, cells F99, F100, F172, and F173, the total drive 
ratio min & max descriptions should have only 1 decimal place (##.#) to 
match input in Footprint and SubConfig tabs. NHTSA is adopting the 
changes requested by Auto Innovators for the final rule, but note that 
the information manufacturers will be required to submit will remain 
unchanged from the proposal. The changes requested by Auto Innovators 
were a combination of style and clarifications to the template.
     Auto Innovators requested changes under the ``Vehicle 
Classification'' worksheet tab, under columns ``AC'' and ``AD.'' Per 49 
CFR 537.7(c)(4)(xvi)(B)(2), only cargo volume is required to be 
reported, thus cargo bed width and length is not required. Auto 
Innovators requested that NHTSA remove ``Cargo bed width and length''--
as cargo volume is already requested. Auto Innovators believes this is 
an unnecessary extra burden that could result in conflicting data. 
However, NHTSA disagrees with Auto Innovators and our regulations 
specifically require the length of cargo beds to be reported for 
vehicle classification and is also used for verifying full size pickup 
trucks for the incentive NHTSA uses in 40 CFR 86.1870-12. Therefore, 
NHTSA will not be removing this requirement.
     Auto Innovators contended that the Fuel Economy Base Level 
Tab--In column AI, under 40 CFR 600.208-12(a)(4) and (5), the Combined 
(CMB) formula is incorrect and suggested that NHTSA use a harmonic 
average for the CMB formula. The current 55:45 ratio is used only for 
vehicle configuration calculation. Additionally, it prefers a direct 
user input, rather than automatic calculation. Additionally, Auto 
Innovators believes that the automatic calculation is not necessary. It 
requests that ``direct input'' is used, rather than an automatic 
calculation for the CMB. Because 45/55 is only found in the calculation 
for configuration level, when calculating at the base level you need to 
roll up the configuration level calculation. For the final rule, NHTSA 
will retain the proposed CMB formulas. The method used in the template 
was confirmed with the approach used by EPA for determining CAFE 
values.
     Requested additional columns be added to the Air 
Conditioning Efficiency tab to allow for additional approved 
technologies. In the Air Conditioning Efficiency tab, under column AC 
for the Advanced Technology Compressor, it requests that NHTSA allow 
additional input columns for both existing and approved technologies. 
This is to ensure that future technologies are accounted for as they 
come to market and are applicable under the credit program. NHTSA 
understands that these additional columns may be needed in a future 
version when additional technologies are approved. Therefore, for the 
final rule, NHTSA has added several additional columns to the template 
and will continue to add additional columns as needed. This template 
will continue to undergo other changes as needed by NHTSA and 
manufacturers, in the future, to accommodate, changes in technologies, 
vehicles and programmatic requirements.
    Finally, Ford and Auto Innovators requested that NHTSA update part 
537 to allow submission of confidential reporting of the template by 
email rather than requiring submissions on CD-ROM.\1186\ NHTSA agrees 
that submission sent by email are effective and resolves problems with 
delayed or lost CAFE reports. Therefore, for the final rule, NHTSA has 
updated its provisions in part 537 to accommodate electronic reporting.
---------------------------------------------------------------------------

    \1186\ Ford, NHTSA-2021-0053-0952-A1, at p. 4; Auto Innovators, 
pp. 77-81.
---------------------------------------------------------------------------

(3) Credit Transactions Reporting Template
    NHTSA released a new version of its CAFE credit transactions 
template, fixing several calculation errors as a part of the 2021 
NPRM,\1187\ and released the template for download on the NHTSA PIC. In 
the previous 2020 final rule, NHTSA had established using the credit 
template as the sole source for executing CAFE credit transactions 
starting January 1, 2022. However, as a result of these errors the 
effective date for the Credit Transaction Reporting Template will now 
be September 1, 2022.
---------------------------------------------------------------------------

    \1187\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

    In response to the NPRM, Stellantis commented that it supports the 
proposed transaction template and finds the joint trade instruction 
document it generates helpful.\1188\ Although in its views, Stellantis 
believes the current template is unworkable because it requires a 
manufacturer to share the planned use of credits which may not be known 
with precision. Stellantis stated that the transaction types are not 
defined in the data definitions, nor in 49 CFR 536.8 as referenced. 
NHTSA has updated the user guide with the data definitions for the 
final rule.
---------------------------------------------------------------------------

    \1188\ Stellantis, NHTSA-2021-0053-1527, at p. 30.
---------------------------------------------------------------------------

    A comment received from Auto Innovators also identified an error 
message that ASTM Rounding Module is not supported in older versions of 
Excel.\1189\ Due to the functions of VBA coding used in the templates, 
NHTSA cannot create a template that works with all older versions of 
Excel. As for those manufacturers who experienced an ASTM Rounding 
Module error, NHTSA recommends these manufacturers should update to a 
newer version of Microsoft Excel that will work with VBA coding. NHTSA 
notes that this should not impose any additional cost or burden on 
manufacturers because

[[Page 26038]]

those with access to Microsoft Excel are offered upgrades to versions 
with VBA at no additional cost.\1190\
---------------------------------------------------------------------------

    \1189\ Auto Innovators, NHTSA-2021-0053-1492, at p. 82.
    \1190\ For assistance with updating Excel, please reach out to 
Microsoft support.
---------------------------------------------------------------------------

    In addition, NHTSA is changing in this final rule the effective 
date for its credit transactions template from January 1, 2022, to 
September 1, 2022. This date provides manufacturers additional 
implementation time and coordinates the implementation start date of 
the credit template.
(4) Monetary and Non-Monetary Credit Trade Information
    Credit trading became permissible starting with MY 2011.\1191\ As 
discussed earlier, NHTSA maintains an online CAFE database with 
manufacturer and fleetwide compliance information that includes year-
by-year accounting of credit balances for each credit holder. While 
NHTSA maintains this database, the agency's regulations currently state 
that it will not publish information on individual transactions, and 
NHTSA has not previously required trading entities to submit 
information regarding the compensation (whether financial, or other 
terms of value) exchanged for credits.1192 1193
---------------------------------------------------------------------------

    \1191\ 49 CFR 536.6(c).
    \1192\ 49 CFR 536.5(e)(1).
    \1193\ NHTSA understands that not all credits are exchanged for 
monetary compensation. The proposal that NHTSA is adopting in this 
final rule requires entities to report compensation exchanged for 
credits and is not limited to reporting monetary compensation.
---------------------------------------------------------------------------

    In 2020 final rulemaking, NHTSA adopted requirements in 49 CFR 
536.5(c)(5) to submit all credit trade contracts, including cost and 
transactional information, to the agency starting January 2021. NHTSA 
also adopted requirements allowing manufacturers to submit the 
information confidentially, in accordance with 49 CFR part 512.\1194\ 
In the NPRM, we proposed adding a credit reporting template for 
monetary and non-monetary credit terms.
---------------------------------------------------------------------------

    \1194\ See also 49 U.S.C. 32910(c).
---------------------------------------------------------------------------

    Manufacturers continued to argue that disclosing trading terms may 
not be as simple as a spot purchase at a given price. As stated in the 
2020 final rule, manufacturers contended a number of transactions for 
both CAFE and CO2 credits involve a range of complexities 
due to numerous factors that are reflective of the marketplace, such as 
the volume of credits, compliance category, credit expiration date, a 
seller's compliance strategy, and even the CAFE penalty rate in effect 
at that time. In addition, automakers have a range of partnerships and 
cooperative agreements with their own competitors. Credit transactions 
can be an offshoot of these broader relationships, and difficult to 
price separately and independently.
    In an effort to assist manufacturers with understanding and 
complying with the requirements promulgated in the 2020 final rule, 
NHTSA identified a series of non-monetary factors that it believed to 
be important to the costs associated with credit trading in the CAFE 
program that manufacturers should be reporting.\1195\ NHTSA developed 
and proposed a new CAFE Credit Value Reporting Template (Form 1621) for 
capturing the monetary and non-monetary terms of credit trading 
contracts. NHTSA proposed that manufacturers start using the new 
template starting September 1, 2022. The draft template was made 
available for download from the NHTSA PIC site.
---------------------------------------------------------------------------

    \1195\ UCS, Detailed Comments, NHTSA-2018-0067-12039; Jason 
Schwartz, Detailed Comments, NHTSA-2018-0067-12162.
---------------------------------------------------------------------------

    Mercedes Benz, Stellantis, and Auto Innovators opposed reporting 
monetary and non-monetary terms associated with credit trades for 
various reason.\1196\ Volvo strongly supported more transparency so 
that buyers and sellers can achieve fair and reasonable deals.\1197\ 
Mercedes,\1198\ requested that NHTSA refrain from making its value 
template mandatory for submitting credit transactions. Mercedes 
commented that in the event such information is ever released to the 
public, it would have a deleterious effect upon OEMs. It stated that 
credit transactions arise from compliance strategies for manufacturers, 
which typically occur over multi-MY time frames. In the event such 
information was ever released to the public, Mercedes argued it would 
have a harmful effect on those OEMs whose strategy is released, in 
particular those OEMs who are dependent on credits in order to achieve 
compliance. Additionally, Mercedes believes releasing this information 
to the public may have an unintended, detrimental consequence to the 
future credit market, putting OEMs who use credits as part of their 
compliance strategy at a competitive disadvantage. Other opposing views 
from manufacturers also centered around the unintended consequences 
that might occur if confidential credit information were to be publicly 
shared. Both Stellantis \1199\ and Auto Innovators \1200\ opposed 
greater public transparency for these reasons. Stellantis stated that 
the release of public information would likely require manufacturers to 
disclose details from confidential negotiations and agreements, likely 
covered by non-disclosure agreements (NDAs). Auto Innovators raised 
similar concerns contending that confidentiality concerns exists 
whether NHTSA intends to disclose the data to the public. It stated 
that requiring highly sensitive confidential information is simply not 
necessary, and the risks of a breach in confidentiality outweighs what 
little value NHTSA may derive from such data. Stellantis offered a 
counterproposal for NHTSA to provide additional public credit trading 
information aligned with the EPA GHG program (i.e., credit vintage, 
credit amounts transferred, and fleet category).
---------------------------------------------------------------------------

    \1196\ Mercedes-Benz, NHTSA-2021-0053-0952-A1, at p. 4; 
Stellantis, NHTSA-2021-0053-1527, at p. 29; Auto Innovators, NHTSA-
2021-0053-1492, at pp. 72-77.
    \1197\ Volvo, NHTSA-2021-0053-1565, at p. 4.
    \1198\ Mercedes-Benz, at p. 4.
    \1199\ Stellantis, NHTSA-2021-0053-1527, at p. 29; Auto 
Innovators, NHTSA-2021-0053-1492, at pp. 72-77.
    \1200\ Mercedes Benz, at p. 4.
---------------------------------------------------------------------------

    Other comments offered by Stellantis and Auto Innovators focused on 
the lack of necessity or relevance for the information required by the 
credit value template.\1201\ Stellantis commented that providing the 
true value of a credit trade is unknown when credits are banked because 
the adjustment factor for preserving ``equivalent gallons'' is applied 
only at the time a credit is used to resolve a future shortfall.\1202\ 
They argued that only the cost per credit from the credit user's 
perspective would help NHTSA understand how market pricing compares to 
the civil penalty price ceiling. They argued that the delayed 
understanding of value, coupled with the additional reporting burden 
has questionable public benefit, and could violate the terms of NDAs. 
Auto Innovators stated that the credit value template fails to achieve 
its intended objectives, is unnecessary to the administration of the 
CAFE program, and is overly burdensome to manufacturers.\1203\ Auto 
Innovators argued that non-monetary considerations are likely not 
straightforward or clear, requiring significant research and numerous 
meetings with coworkers to derive an equivalent monetary value. 
Further, it believes the requirements exceed NHTSA's statutory 
authority. Auto Innovators contended that NHTSA has authority to 
require reports necessary

[[Page 26039]]

for it to carry out the CAFE, but the required template exceeds what is 
necessary to carry out the CAFE program. Auto Innovators also contended 
that for the purposes of future rulemaking, in determining maximum 
feasible standards, NHTSA is prohibited from considering the trading, 
transferring, or availability of credits.\1204\ Therefore, data in the 
Credit Value Reporting Template is not informative to the standard-
setting process. It further explained that requiring non-standardized 
data and unquantifiable contractual terms is clearly unnecessary for 
the determination of manufacturer compliance with the CAFE program, and 
their use in rulemaking is limited at best with other, better options, 
such as estimates, sensitivity analyses based on the CAFE civil penalty 
rate, or comparisons of model runs with manufacturers separated and 
aggregated, available.
---------------------------------------------------------------------------

    \1201\ Stellantis, NHTSA-2021-0053-1527, at p. 29.
    \1202\ The adjustment factor is defined in 49 CFR 536.4(c).
    \1203\ Auto Innovators, NHTSA-2021-0053-1492, at pp. 72-77.
    \1204\ Id.
---------------------------------------------------------------------------

    Auto Innovators stated that despite NHTSA's views, manufacturers 
have no need to make the cost of credit trade information publicly 
available to facilitate credit trading.\1205\ Automobile manufacturers 
wishing to engage in credit trading generally negotiate terms through 
direct contact. Auto Innovators stated that there is no mystery or 
confusion to be resolved through government intervention. Stellantis 
supports Auto Innovators' position and reiterated that NHTSA already 
knows the price ceiling is the CAFE civil penalties logically as no 
manufacturer would pay more for credits.
---------------------------------------------------------------------------

    \1205\ Id.
---------------------------------------------------------------------------

    Additional comments from Auto Innovators were also received on the 
adequacy of the credit value template for the public and for NHTSA and 
on its burden to manufacturers.\1206\ First, Auto Innovators believes 
the template would have little practical (or even academic) value to 
the public given that credit transactions likely have a wide range of 
values depending on market forces (relative supply and demand) at the 
time a trade is made and regulatory compliance considerations 
applicable to the specific traded credits, which can vary based on 
credit vintage, source, and anticipated future use of the credit for 
the purchasing party. Second, it believes that the template would not 
be helpful to NHTSA because non-monetary valuations are nearly 
impossible to quantify and use as a meaningful point of comparison 
underestimates the complicated commercial and manufacturing 
relationships manufacturers may have with other companies. There is no 
possible ``template'' that can adequately cover the entire range of 
possible monetary and non-monetary exchanges between manufacturers. 
Trying to categorize complex contracts, business relationships, 
production arrangements, and exchanges of technology into simple topics 
such as ``chassis technology'' or ``off-cycle technology'' is simply 
not possible and provides virtually no value to the administration of 
the CAFE program. This is especially true when credits may be generated 
by new market entrants, and value may be in the form of options, equity 
interest, royalties, real estate, or other assets.
---------------------------------------------------------------------------

    \1206\ Id.
---------------------------------------------------------------------------

    Auto Innovators closed its arguments stating that NHTSA's concerns 
for greater oversight are not served by the data requirements of the 
Credit Value Reporting Template.\1207\ NHTSA cited protection against 
fraud, manipulation, market power, and abuse. Auto Innovators believes 
NHTSA's views seem to be more hypothetical than real, and more 
importantly, that NHTSA fails to describe how the desired information 
will aid in preventing or addressing its intended goals.
---------------------------------------------------------------------------

    \1207\ Id.
---------------------------------------------------------------------------

    Volvo stated the credit value template provides more transparency 
so that buyers and sellers can achieve fair and reasonable deals 
especially considering the changing landscape of future regulations 
leading to greater electrification in the market.\1208\ Volvo believes 
adopting electrification in the vehicle fleet will impact the current 
trading market where technology exchange as part of a trade will be 
less likely to occur and therefore, the price of a credit in a trade 
will be more accurately reflected. Volvo also commented that one reason 
why some automobile manufacturers suggest that the proposed reporting 
associated with the credit value template under the NPRM is unnecessary 
is that the current trading market has been ``functioning properly'' 
but also in a now dated marketplace consisting primarily of traditional 
internal combustion engine regulations. Once the regulations are 
modified for electric vehicles the balance between monetary and non-
monetary trades may change. Therefore, Volvo Cars supports NHTSA's 
proposal to require use of the NHTSA ``Credit Value Reporting 
Template'' (Form 1621) when a credit trade is executed is to help 
ensure that the future electrified trading market also functions 
properly.
---------------------------------------------------------------------------

    \1208\ Volvo, NHTSA-2021-0053-1565, at p. 4.
---------------------------------------------------------------------------

    NHTSA has reviewed the comments received and offers several 
clarifications and responses. In regard to concerns about non-
disclosure agreements (NDAs), NDAs are not intended to be legal 
mechanisms to circumvent duly promulgated laws and regulations. NHTSA 
notes that many NDAs contain language exempting disclosures required by 
law to avoid creating an unenforceable promise. NHTSA has faith that 
manufacturers will be able to draft NDAs in a manner consistent with 
our regulations. We also note that existing NDAs should not be impacted 
by this change; 49 CFR 536.8(d) precludes manufacturers from entering 
into agreements for credits not currently possessed--we call this a 
restriction on forward sales--hence manufacturers cannot have already 
entered into long-term sales and NDA agreements for future credits.
    Manufacturers are also concerned the information in the templates, 
if released to the public or other manufacturers, could cause potential 
harm to multi-year compliance strategies by adversely placing certain 
companies at a competitive disadvantage. As stated in the 2020 final 
rule, NHTSA will attempt to limit the disclosure of confidential 
information--including aggregating data wherever possible--which 
manufacturers identified as harmful in their comments, and will attempt 
to work with manufacturers before publishing potentially sensitive 
information. The agency also notes that much of the data necessary to 
discern which manufacturers are buying and selling credits is already 
public domain, as credit balances and fuel economy data can be used to 
reverse engineer manufacturers credit transactions. However, NHTSA 
remains sensitive to manufacturers confidentiality concerns. In fact, 
49 CFR 536.5(e)(1) also already includes requirements which precludes 
NHTSA from publicly disclosing individual transactions and responding 
to individual requests for updated balances from any party other than 
the account holder. Consequently, NHTSA would likely find no reason to 
disclose the costing information involved in a manufacturer's 
individual credit transaction.
    As for manufacturers' contentions questioning the relevance or 
necessity for NHTSA receiving information on the value of credit 
trades, there is a fundamental misunderstanding of what the agency was 
proposing in this rulemaking. We were not proposing that manufacturers 
submit additional information. The templates were intended to clarify 
and streamline the information that manufacturers are already required 
to submit pursuant to 49 CFR 536.5. We believe that

[[Page 26040]]

templates--like the draft templates--can assist both manufacturers and 
the agency with identifying the key that need to be reported. Some 
manufacturers seemed to be under the impression that the templates 
would require credit trade disclosures and raised their concern that 
NHTSA might misuse the information from its Credit Value template for 
the purposes of influencing the maximum feasible standards for future 
CAFE rulemaking. We note that these comments were outside the scope of 
the rulemaking as manufacturers are already required to provide that 
information. Furthermore, collecting these data from manufacturers does 
not cause a material harm to manufacturers as the data do not impose 
stricter fuel economy standards. If commenters feel that we have used 
the data inappropriately in future rulemakings, they should comment to 
that effect.
    As mentioned previously, it is NHTSA mission to oversee the CAFE 
program and understand all the aspects involving how manufacturers 
comply. We view this as including the true value of banked credits 
applied to future credit shortfalls and the non-monetary terms 
associated with credit trades. Manufacturers labeled this information 
as burdensome and unnecessary to administer the CAFE program. NHTSA 
disagrees and it is for these types of unknown factors NHTSA now seeks 
to acquire the information in its new template. As NHTSA stated, these 
factors must be known to fully understand the true cost of compliance. 
Furthermore, NHTSA plans to release additional templates in the future 
to collect supplemental costing information on technologies used for 
complying with its off-cycle program to improve its derived costs for 
generating earned credits. NHTSA will attempt to discuss these plans 
with manufacturers prior to the next CAFE rulemaking.
    NHTSA agrees with manufacturers that non-monetary valuations will 
be difficult to quantify and that future changes may be needed to 
refine the template. For these reasons, NHTSA will delay requiring the 
new templates until a later date. However, we strongly encourage 
manufacturers to use the new revised draft templates. If the agency 
finds the new templates as satisfactory, we may be able to more 
narrowly tailor the reporting requirements of 49 CFR 536.5 to include 
only the information requested in the template.
3. What compliance flexibilities and incentives are currently available 
under the CAFE program and how do manufacturers use them?
    Generating, trading, transferring, and applying CAFE credits is 
governed by statute.\1209\ Program credits are generated when a vehicle 
manufacturer's fleet over-complies with its standard for a given model 
year, meaning its vehicle fleet achieved a higher corporate average 
fuel economy value than the amount required by the CAFE program for 
that fleet in that model year. Conversely, if the fleet average CAFE 
level does not meet the standard, the fleet incurs debits (also 
referred to as a shortfall or deficit). A manufacturer whose fleet 
generates a credit shortfall in a given model year can resolve its 
shortfall using any one or combination of several credit flexibilities, 
including credit carryback, credit carry-forward, credit transfers, and 
credit trades, and if all credit flexibilities have been exhausted, 
then the manufacturer must resolve its shortfall by making civil 
penalty payments.\1210\
---------------------------------------------------------------------------

    \1209\ 49 U.S.C. 32903.
    \1210\ Manufacturers may elect to pay civil penalties rather 
than utilizing credit flexibilities at their discretion. For 
purposes of the analysis, we assume that manufacturers will only pay 
penalties when all flexibilities have been exhausted.
---------------------------------------------------------------------------

    NHTSA has also promulgated compliance flexibilities and incentives 
consistent with EPCA's provisions regarding calculation of fuel economy 
levels for individual vehicles and for fleets.\1211\ These compliance 
flexibilities and incentives, which were first adopted in the 2012 rule 
for MYs 2017 and later, include AC efficiency improvement and off-cycle 
adjustments, and adjustments for advanced technologies in full-size 
pickup trucks, including adjustments for mild and strong hybrid 
electric full-size pickup trucks and performance-based incentives in 
full-size pickup trucks. The fuel consumption improvement benefits of 
these technologies measured by various testing methods can be used by 
manufacturers to increase the CAFE performance of their fleets.
---------------------------------------------------------------------------

    \1211\ 49 U.S.C. 32904.
---------------------------------------------------------------------------

(a) Available Credit Flexibilities
    Under NHTSA regulations, credit holders (including, but not limited 
to manufacturers) have credit accounts with NHTSA where they can, hold 
credits, and use them to achieve compliance with CAFE standards, by 
carrying forward, carrying back, or transferring credits across 
compliance categories, subject to several restrictions. Manufacturers 
with excess credits in their accounts can also trade credits to other 
manufacturers, who may use those credits to resolve a shortfall 
currently or in a future model year. A credit may also be cancelled 
before its expiration date if the credit holder so chooses. Traded and 
transferred credits are subject to an ``adjustment factor'' to ensure 
total oil savings are preserved.\1212\
---------------------------------------------------------------------------

    \1212\ See Section VII.B.3.(b) for details.
---------------------------------------------------------------------------

    Credit ``carryback'' means that manufacturers are able to use 
recently earned credits to offset a deficit that had accrued in a prior 
model year, while credit ``carry-forward'' means that manufacturers can 
bank credits and use them towards compliance in future model years. 
EPCA, as amended by EISA, allows manufacturers to carryback credits for 
up to three model years, and to carry-forward credits for up to five 
model years.\1213\ Credits expire the model year after which the 
credits may no longer be used to achieve compliance with fuel economy 
regulations.\1214\ Manufacturers seeking to use carryback credits must 
submit a carryback plan to NHTSA, for NHTSA's review and approval, 
demonstrating their ability to earn sufficient credits in future MYs 
that can be carried back to resolve the current MY's credit shortfall.
---------------------------------------------------------------------------

    \1213\ 49 U.S.C. 32903(a).
    \1214\ 49 CFR 536.3(b).
---------------------------------------------------------------------------

    Credit ``trading'' refers to the ability of manufacturers or 
persons to sell credits to, or purchase credits from, one another while 
credit ``transfer'' means the ability to transfer credit between a 
manufacturer's compliance fleets to resolve a credit shortfall. EISA 
gave NHTSA discretion to establish by regulation a CAFE credit trading 
program, to allow credits to be traded between vehicle manufacturers, 
now codified at 49 CFR part 536.\1215\ EISA prohibits manufacturers 
from using traded credits to meet the minimum domestic passenger car 
CAFE standard.\1216\
---------------------------------------------------------------------------

    \1215\ 49 U.S.C. 32903(f).
    \1216\ 49 U.S.C. 32903(f)(2).
---------------------------------------------------------------------------

(b) Fuel Savings Adjustment Factor
    Under NHTSA's credit trading regulations, a fuel savings adjustment 
factor is applied when trading occurs between manufacturers and those 
credits are used, or when a manufacturer transfers credits between its 
compliance fleets and those credits are used, but not when a 
manufacturer carries credits forward or backwards within the same 
fleet.\1217\
---------------------------------------------------------------------------

    \1217\ See Section VII.A.3.(a) for details about carry forward 
and back credits.

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

[[Page 26041]]

    NHTSA proposed in the 2021 NPRM to restore certain definitions that 
were a part of the adjustment factor equation that had been 
inadvertently deleted in the 2020 final rule. The 2020 final rule had 
intended to add a sentence to the adjustment factor term in 49 CFR 
536.4(c), simply to make clear that the figure should be rounded to 
four decimal places. While the 2020 final rule implemented this change, 
the amendatory instruction for doing so unintentionally deleted several 
other definitions from that paragraph. NHTSA had not intended to modify 
or delete those definitions, so NHTSA is now simply adding the language 
back into the paragraph for this final rule.
(c) VMT Estimates for Fuel Savings Adjustment Factor
    NHTSA uses VMT estimates as part of its fuel savings adjustment 
equation. Including VMT is important, as fuel consumption is directly 
related to vehicle use and, in order to ensure trading credits between 
fleets preserves oil savings, VMT must be considered.\1218\ For MYs 
2017 and later, NHTSA finalized VMT values of 195,264 miles for 
passenger car credits, and 225,865 miles for light truck credits.\1219\
---------------------------------------------------------------------------

    \1218\ See 49 CFR 536.4(c).
    \1219\ 77 FR 63130 (Oct. 15, 2012).
---------------------------------------------------------------------------

(d) Fuel Economy Calculations for Dual and Alternative Fueled Vehicles
    As discussed at length in prior rulemakings, EPCA, as amended by 
EISA, encouraged manufacturers to build alternative-fueled and dual- 
(or flexible-) fueled vehicles by providing special fuel economy 
calculations for ``dedicated'' (that is, 100 percent) alternative 
fueled vehicles and ``dual-fueled'' (that is, capable of running on 
either the alternative fuel or gasoline/diesel) vehicles.
    Dedicated alternative-fuel automobiles include electric, fuel cell, 
and compressed natural gas vehicles, among others. The statutory 
provisions for dedicated alternative fuel vehicles in 49 U.S.C. 
32905(a) state that the fuel economy of any dedicated automobile 
manufactured after MY 1992 shall be measured ``based on the fuel 
content of the alternative fuel used to operate the automobile. A 
gallon of liquid alternative fuel used to operate a dedicated 
automobile is deemed to contain 0.15 gallon of fuel.'' There are no 
limits or phase-out for this special fuel economy calculation within 
the statute.
    EPCA's statutory incentive for dual-fueled vehicles at 49 U.S.C. 
32906 and the measurement methodology for dual-fueled vehicles at 49 
U.S.C. 32905(b) and (d) expired after MY 2019. In the 2012 final rule, 
NHTSA and EPA concluded that it would be inappropriate and contrary to 
the intent of EPCA/EISA to measure duel-fueled vehicles' fuel economy 
like that of conventional gasoline vehicles with no recognition of 
their alternative fuel capability. The agencies determined that for MY 
2020 and later vehicles, the general statutory provisions authorizing 
EPA to establish testing and calculation procedures provide discretion 
to set the CAFE calculation procedures for those vehicles. The 
methodology for EPA's approach is outlined in the 2012 final rule for 
MYs 2017 and later at 77 FR 63128 (Oct. 15, 2012).
(e) Flexibilities for Air-Conditioning Efficiency, Off-Cycle 
Technologies, and Full-Size Pickup Trucks
(1) Incentives for Advanced Technologies in Full-Size Pickup Trucks
    Under its EPCA authority for CAFE and under its CAA authority for 
GHGs, in the 2021 Final Rule EPA and NHTSA established FCIVs for 
manufacturers that hybridize a significant quantity of their full-size 
pickup trucks, or that use other technologies that significantly reduce 
fuel consumption by these full-sized pickup trucks. More specifically, 
CAFE FCIVs were made available to manufacturers that produce full-size 
pickup trucks with Mild HEV or Strong HEV technology, provided the 
percentage of production with the technology is greater than specified 
percentages.\1220\ In addition, CAFE FCIVs were made available for 
manufacturers that produce full-size pickups with other technologies 
that enable full-size pickup trucks to exceed their CAFE targets based 
on footprints by specified amounts (i.e., electric vehicles and other 
electric components).\1221\ These performance-based incentives create a 
technology-neutral path (as opposed to the other technology-encouraging 
path) to achieve the CAFE FCIVs, which would encourage the development 
and application of new technological approaches.
---------------------------------------------------------------------------

    \1220\ 77 FR 62624, 62651 (Oct. 15, 2012).
    \1221\ Id.
---------------------------------------------------------------------------

    Large pickup trucks represent a significant portion of the overall 
light duty vehicle fleet and generally have higher levels of fuel 
consumption and GHG emissions than most other light duty vehicles. 
Improvements in the fuel economy and GHG emissions of these vehicles 
can have significant impact on the overall light-duty fleet fuel use 
and GHG emissions. NHTSA believes that offering incentives could 
encourage the deployment of technologies that can significantly improve 
the efficiency of these vehicles and that also will foster production 
of those technologies at levels that will help achieve economies of 
scale, would promote greater fuel savings overall and make these 
technologies more cost effective and available in the future model 
years to assist in compliance with CAFE standards.
    EPA and NHTSA also established limits on the eligibility for these 
pickup trucks to qualify for incentives. According to the 2012 final 
rule a truck was required to meet minimum criteria for bed size and 
towing or payload capacities and meet minimum production thresholds (in 
terms of a percentage of a manufacturer's full-size pickup truck fleet) 
in order to qualify for these incentives. Under the provisions, Mild 
HEVs are eligible for a per-vehicle CO2 credit of 10 g/mi 
(equivalent to 0.0011 gallon/mile for a gasoline-fueled truck) during 
MYs 2017-2021. To be eligible a manufacturer would have to show that 
the Mild HEV technology is utilized in a specified portion of its truck 
fleet beginning with at least 20 percent of a company's full-size 
pickup production in MY 2017 and ramping up to at least 80 percent in 
MY 2021. Strong HEV pickup trucks are eligible for a 20 g/mi credit 
(0.0023 gallon/mile) during MYs 2017-2021, if the technology is used on 
at least 10 percent of a company's full-size pickups in that model 
year. EPA and NHTSA also adopted specific definitions for Mild and 
Strong HEV pickup trucks, based on energy flow to the high-voltage 
battery during testing. In the NPRM, NHTSA proposed extending these 
incentives to 2026.
    Furthermore, to incentivize other technologies that can provide 
significant reductions in GHG emissions and fuel consumption for full-
size pickup trucks, EPA also adopted a performance-based FCIV for full-
size pickup trucks. Eligible pickup trucks certified as performing 15 
percent better than their applicable CO2 target receive a 10 
g/mi credit (0.0011 gallon/mile), and those certified as performing 20 
percent better than their target receive a 20 g/mi credit (0.0023 
gallon/mile). The 10 g/mi performance-based credit was available for 
MYs 2017 to 2021 and, once qualifying; a vehicle model would continue 
to receive the credit through MY 2021, provided its CO2 
emissions level does not increase. To be eligible a manufacturer would 
have to show that the technology is

[[Page 26042]]

utilized in a specified portion of its truck fleet beginning with at 
least 20 percent of a company's full-size pickup production in MY 2017 
and ramping up to at least 80 percent in MY 2021. The 20 g/mi 
performance-based credit was available for a vehicle model for a 
maximum of 5 years within the 2017 to 2021 model year period. In the 
2021 NPRM NHTSA proposed extending these incentives through MY 2026, 
provided its CO2 emissions level does not increase. To be 
eligible, the technology must be applied to at least 10 percent of a 
company's full-size pickups in for the model year.
    The agencies designed a definition for full-size pickup truck based 
on minimum bed size and hauling capability, as detailed in 40 CFR 
86.1866-12(e). This definition ensured that the larger pickup trucks, 
which provide significant utility with respect to bed access and 
payload and towing capacities, are captured by the definition, while 
smaller pickup trucks with more limited capacities are not covered. A 
full-size pickup truck is defined as meeting requirements (1) and (2) 
below, as well as either requirement (3) or (4) below.
    (1) Bed Width--The vehicle must have an open cargo box with a 
minimum width between the wheelhouses of 48 inches. And--
    (2) Bed Length--The length of the open cargo box must be at least 
60 inches. And--
    (3) Towing Capability--the gross combined weight rating (GCWR) 
minus the gross vehicle weight rating (GVWR) must be at least 5,000 
pounds. Or--
    (4) Payload Capability--the GVWR minus the curb weight (as defined 
in 40 CFR 86.1803) must be at least 1,700 pounds.
    Both agencies ended the incentives for full-size pickup trucks 
after the end of model year 2021 believing expanded incentives would 
likely not result in any further emissions benefits or fuel economy 
improvements since an increase in sales volume was not anticipated. At 
the time, no manufacturer had qualified to use the full-size pickup 
truck incentives since they went into effect in MY 2017. One vehicle 
manufacturer introduced a mild hybrid pickup truck in MY 2019 but was 
ineligible for the FCIV because it did not meet the minimum production 
threshold. Other manufacturers had announced potential collaborations 
or started designing future hybrid or electric models, but none were 
expected to meet production requirements within the time period of 
eligibility for these incentives.
    Since the 2020 final rule, many manufacturers have publicly 
announced several new model types of full-size electric pickup trucks 
starting in MY 2022. NHTSA notes that historically it has always 
encouraged manufacturers to equip emerging technologies that could lead 
to significant increases in the fleet's fuel efficiency. For this 
reason, even given the discontinuation in MY 2019 of AMFA incentives 
for dual fueled vehicles, NHTSA retained its benefits for alternative 
dedicated fueled vehicles given the growth of electric vehicles in the 
market. Therefore, after the careful consideration of this new 
information and the potential role incentives could play in increasing 
the production of these technologies, and the associated beneficial 
impacts on fuel consumption, the agency proposed in the 2021 NPRM to 
extend the full-size pickup truck incentive through MY 2026 for strong 
hybrids and for full-size pickup trucks performing 20-percent better 
than their target.\1222\ Also, understanding the importance of electric 
vehicles in the market, NHTSA proposed to allow manufacturers to 
combine both the incentives for alternative fueled vehicles and full-
size pickup trucks FCIVs when complying with the CAFE program.
---------------------------------------------------------------------------

    \1222\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

    NHTSA received various comments concerning its proposed changes to 
the full-sized pickup truck incentive. Many of the same commenters also 
submitted responses to EPA for consideration in its GHG final 
rule.\1223\ The ITB Group, Ltd. (ITB Group) submitted comments 
supporting reinstatement of the incentives for full-sized pickup strong 
hybrids with a 20 percent improvement in performance.\1224\ The ITB 
Group agrees with the justification for reinstating the full-size 
pickup truck credits since full-size pick-up truck technologies are 
``particularly challenging due to the need to preserve the towing and 
hauling capabilities of the vehicles.'' It commented that one 
improvement in the rule would be to provide a combined penetration 
requirement rather than an independent 10 percent requirements for 
multiple types of technologies. This would mean that any combination of 
strong hybrid and other 20 percent better performance technologies 
would fall under one cap. They suggest that this is an important 
technology-agnostic requirement, since it is not clear that the market 
will be receptive to a specific technology. As far as possible, the 
standards should be flexible and technology-agnostic to incentivize 
fuel consumption and CO2 emissions reductions.
---------------------------------------------------------------------------

    \1223\ See 86 FR 74434 (Dec. 30, 2021).
    \1224\ ITB Group, NHTSA-2021-0053-0019-A1, at page 6.
---------------------------------------------------------------------------

    The American Council for an Energy Efficient Economy (ACEEE) 
commented that it does not support the full-size pickup truck 
incentive.\1225\ ACEEE stated that this incentive is another example of 
awarding credit in excess of actual emission reductions, which reduces 
the stringency of the standards. It believes this specific incentive is 
also problematic because the incentive could encourage the production 
of full-sized pickup trucks at the expense of smaller vehicles. ACEEE 
estimates that this provision alone could reduce fuel savings by up to 
2 percent for the entire period of the rule, if all full-sized pick-up 
trucks qualify for the credit by MY 2026.
---------------------------------------------------------------------------

    \1225\ ACEEE, NHTSA-2021-0053-0074, at page 4.
---------------------------------------------------------------------------

    MECA supported NHTSA's proposal to reinstate the original 2012 
rule's full-size pick-up truck incentives for strong (full) hybrids or 
similar over performing technologies.\1226\ Pick-up trucks, which are 
the second most popular light-duty vehicle segment in the North 
American market, are often identified as a greater technical and 
consumer acceptance challenge to higher efficiency standards. The 
presence of electric, full hybrid and other advanced technology vehicle 
options in this segment is clearly beneficial to consumers, the 
environment and energy conservation goals.
---------------------------------------------------------------------------

    \1226\ MECA, NHTSA-2021-0053-1113, at page 3.
---------------------------------------------------------------------------

    MECA further stated that the FCIVs for full-size pickups with HEV 
or other over performing technologies should require the use of 
additional advanced technologies that over perform targets by 20 
percent. MECA feels the incentives are reasonable given that on 
average, pick-up trucks consume far greater amounts of fuel per year 
and are almost twice as likely to reach 200,000 miles compared to 
vehicles in other LDV segments. MECA further stated that given that 
large SUVs also commonly utilize the same chassis and powertrains as 
pick-up trucks, it believes that NHTSA should consider extending these 
advanced technology pick-up truck credits to similar large SUVs as 
well.
    BorgWarner commented that it ``supports NHTSA's [FCIVs] for full-
size pick-up strong hybrids or similar overperforming technologies and 
gave recognition to EPA's flexibilities. NHTSA's proposal is ambitious 
and will require flexibilities to encourage technology development and 
adoption.'' \1227\ BorgWarner suggested

[[Page 26043]]

that NHTSA should consider extending the advanced technology pick-up 
truck credits to similar large SUVs since large SUVs utilize the same 
chassis and propulsion systems as pick-up trucks. Hybrid trucks offer a 
significant opportunity for fuel consumption improvements due to their 
high sales volume and relative fuel consumption. The existing credits 
have not achieved their goal of significantly increasing hybridization 
of trucks. The conditions necessary to earn these credits are 
stringent. Eliminating the volume requirement and awarding credits 
based on a sliding scale that relates the fuel economy of a hybrid 
vehicle to the same non-hybrid vehicle would provide a better incentive 
for hybridization in proportion to the value of the technology.
---------------------------------------------------------------------------

    \1227\ BorgWarner, NHTSA-2021-0053-1473, at page 2.
---------------------------------------------------------------------------

    Tesla stated that, like EPA, NHTSA proposes to re-establish an 
additional credit incentive for full size pickups and underestimates 
the potential use of the credit.\1228\ Tesla explained that 
electrification technology has become widely available and represents 
the best-in-class efficiency and emission reduction technology. Just as 
NHTSA acknowledges recent manufacturer announcements on electrification 
in its proposal, the agency should recognize the increasing 
announcements around full electric pick-up trucks. While the original 
rationale for credits was to incentivize technology development for 
this class of vehicles, that has now been accomplished and that 
rationale no longer exists. In short, Tesla believes the technology is 
available to be deployed for MY 2024-2026 vehicles, including pickups--
and simply does not justify diluting the proposed standards' compliance 
stringency. Continuing multiplier incentive is unnecessary and after a 
decade of being an element in standards proposals now threatens to 
further institutionalize a compliance crutch for manufacturers to 
deliver a limited number of compliance vehicles to maximize credit 
accumulation with no incentive to deliver more wide-spread innovation 
and actual deployment and the accompanying emission benefits.
---------------------------------------------------------------------------

    \1228\ Tesla, NHTSA-2021-0053-1480-A1, at page 9.
---------------------------------------------------------------------------

    Volkswagen requested that NHTSA consider extending the 
applicability of high efficient vehicle FCIV factors to vehicles other 
than just full-size pick-up trucks.\1229\ Volkswagen recognizes that 
such an extension would require modification by EPA to part 600 
regulations, and that this effort would need to be conducted in 
coordination with EPA. The additional FCIV would help to incentive a 
broader suite of highly fuel efficient or electrified vehicles 
extending upon the basis of that used for full-size pick-ups.
---------------------------------------------------------------------------

    \1229\ Volkswagen, NHTSA-2021-0053-1548, at page 21.
---------------------------------------------------------------------------

    UCS recommended that NHTSA should eliminate flexibilities in the 
proposal that will undermine the effectiveness of the CAFE 
program.\1230\ These include reining in the off-cycle credit program, 
which has led to a significant over-crediting of fuel consumption 
reduction, and eliminating full-size pick-up incentives, which reward 
status quo compliance strategies.
---------------------------------------------------------------------------

    \1230\ UCS, NHTSA-2021-0053-1567, at page 3.
---------------------------------------------------------------------------

    EPA decided to finalize a more limited time period for its full-
size pickup incentives. The EPA incentive will only be effective for 
MYs 2023-2024. EPA decided not to finalize the proposed incentives for 
MYs 2022 or 2025 because it believed a shorter effective period 
balances the need for flexibility in the near-term with the overall 
emissions reduction goals of its program. EPA stated that this more 
targeted approach to full-size pickup truck credits is appropriate to 
further incentivize advanced technologies in this segment, which 
continues to be particularly challenging given the need to preserve the 
towing and hauling capabilities while addressing cost and consumer 
acceptance challenges. EPA also retained the production thresholds to 
ensure that manufacturers taking advantage of the flexibility must sell 
a significant number of qualifying vehicles to do so. While this 
flexibility is more narrowly focused, since not all manufacturers 
produce full-size pickups, it represents another avenue for credits 
that may help manufacturers meet the near-term standards, in addition 
to the other flexibilities included in EPA's GHG program.
    In the interest of maintaining harmonization with the EPA GHG 
program, NHTSA is adopting the same proposal as EPA and will be 
extending the CAFE full-size pickup truck incentives for MYs 2023 and 
2024. NHTSA believes that maintaining a single compliance approach for 
the industry is the most effective way to allow this joint incentive to 
be implemented and maintained by EPA and NHTSA. Further, NHTSA believes 
that there is merit to incentivizing the production of electric pickup 
trucks which have historically lagged behind other vehicle classes. We 
believe that extending the incentive for a short time frame strikes a 
balance between incentivizing innovation and quicker adoption of 
advance technology, without providing a windfall for technologies 
already saturating the marketplace. Also, given that the agencies are 
reducing the effective model years for the incentives to only be 
effective for MYs 2023-2024, NHTSA is finalizing its proposal to allow 
manufacturers to combine both the incentives for alternative fueled 
vehicles and full-size pickup trucks FCIVs when complying with the CAFE 
program for these model years.
(2) Flexibilities for Air Conditioning Efficiency
    AC systems are virtually standard automotive accessories, and more 
than 95 percent of new cars and light trucks sold in the U.S. are 
equipped with mobile AC systems. AC system usage places a load on an 
engine, which results in additional fuel consumption; the high 
penetration rate of AC systems throughout the light-duty vehicle fleet 
means that more efficient systems can significantly impact the total 
energy consumed. AC systems also have non-CO2 emissions 
associated with refrigerant leakage.\1231\ Manufacturers can improve 
the efficiency of AC systems though redesigned and refined AC system 
components and controls.\1232\ That said, such improvements are not 
measurable or recognized using 2-cycle test procedures since AC is 
turned off during 2-cycle testing. Any AC system efficiency 
improvements that reduce load on the engine and improve fuel economy is 
therefore not measurable on those tests.
---------------------------------------------------------------------------

    \1231\ Notably, manufacturers cannot claim CAFE-related benefits 
for reducing AC leakage or switching to an AC refrigerant with a 
lower global warming potential. While these improvements reduce GHG 
emissions consistent with the purpose of the CAA, they generally do 
not impact fuel economy and, thus, are not relevant to the CAFE 
program.
    \1232\ The approach for recognizing potential AC efficiency 
gains is to utilize, in most cases, existing vehicle technology/
componentry, but with improved energy efficiency of the technology 
designs and operation. For example, most of the additional AC-
related load on an engine is because of the compressor, which pumps 
the refrigerant around the system loop. The less the compressor 
operates, the less load the compressor places on the engine 
resulting in less fuel consumption. Thus, optimizing compressor 
operation with cabin demand using more sophisticated sensors, 
controls, and control strategies is one path to improving the 
efficiency of the AC system.
---------------------------------------------------------------------------

    The CAFE program includes flexibilities to account for the real-
world fuel economy improvements associated with improved AC systems and 
to include the improvements for compliance.\1233\ The total AC 
efficiency credits is calculated by summing the individual credit 
values for each efficiency improving technology used

[[Page 26044]]

on a vehicle, as specified in the AC credit menu. The total AC 
efficiency credit sum for each vehicle is capped at 5.0 grams/mile for 
cars and 7.2 grams/mile for trucks. Additionally, the off-cycle credit 
program contains credit earning opportunities for technologies that 
reduce the thermal loads on a vehicle from environmental conditions 
(solar loads or parked interior air temperature).\1234\ These 
technologies are listed on a thermal control menu that provides a 
predefined improvement value for each technology. If a vehicle has more 
than one thermal load improvement technology, the improvement values 
are added together, but subject to a cap of 3.0 grams/mile for cars and 
4.3 grams/mile for trucks. Under its EPCA authority for CAFE, EPA 
calculates equivalent FCIVs and applies them for the calculation of 
manufacturer's fleet CAFE values. Manufacturers seeking credits beyond 
the regulated caps must request the added benefit for AC technology 
under the off-cycle program discussed in the next section. The agency 
did not propose any changes its AC efficiency flexibility and therefore 
will retain its provisions in its current form.
---------------------------------------------------------------------------

    \1233\ See 40 CFR 86.1868-12.
    \1234\ See 40 CFR 86.1869-12(b).
---------------------------------------------------------------------------

(3) Flexibilities for Off-Cycle Technologies
    ``Off-cycle'' technologies are those that reduce vehicle fuel 
consumption in the real world, but for which the fuel consumption 
reduction benefits cannot be fully measured under the 2-cycle test 
procedures (city, highway or correspondingly FTP, HFET) used to 
determine compliance with the fleet average standards. The cycles are 
effective in measuring improvements in most fuel economy improving 
technologies; however, they are unable to measure or underrepresent 
certain fuel economy improving technologies because of limitations in 
the test cycles. For example, off-cycle technologies that improve 
emissions and fuel economy at idle (such as ``stop start'' systems) and 
those technologies that improve fuel economy to the greatest extent at 
highway speeds (such as active grille shutters which improve 
aerodynamics) receive less than their real-world benefits in the 2-
cycle compliance tests.
    In the CAFE rulemaking for MYs 2017-2025, EPA, in coordination with 
NHTSA, established regulations extending the off-cycle technology 
flexibility to the CAFE program starting with MY 2017. For the CAFE 
program, EPA calculates off-cycle FCIVs that are equivalent to the EPA 
CO2 credit values and applies them in the calculation of 
manufacturer's CAFE compliance values for each fleet instead of 
treating them as separate credits as for the EPA GHG program.
    For determining benefits, EPA created three compliance pathways for 
the off-cycle program. The first approach allows manufacturers to gain 
credits using a predetermined approach or ``menu'' of credit values for 
specific off-cycle technologies which became effective starting in MY 
2014 for EPA.1235 1236 This pathway allows manufacturers to 
use credit values established by EPA for a wide range of off-cycle 
technologies, with minimal or no data submittal or testing 
requirements.\1237\ Specifically, EPA established a menu with a number 
of technologies that have real-world fuel consumption benefits not 
measured, or not fully measured, by the two-cycle test procedures, and 
those benefits were reasonably quantified by the agencies at that time. 
For each of the pre-approved technologies on the menu, EPA established 
a menu value or approach that is available without testing 
verifications. Manufacturers must demonstrate that they are in fact 
using the menu technology, but not required to submit test results to 
EPA to quantify the technology's effects, unless they wish to receive a 
credit larger than the default value. The default values for these off-
cycle credits were largely determined from research, analysis, and 
simulations, rather than from full vehicle testing, which would have 
been both cost and time prohibitive. EPA generally used conservative 
predefined estimates to avoid any potential credit windfall.\1238\
---------------------------------------------------------------------------

    \1235\ See 40 CFR 86.1869-12(b). The first approach requires 
some technologies to derive their pre-determined credit values 
through EPA's established testing. For example, waste heat recovery 
technologies require manufacturers to use 5-cycle testing to 
determine the electrical load reduction of the waste heat recovery 
system.
    \1236\ EPA implemented its off-cycle GHG program starting in MY 
2012.
    \1237\ The Technical Support Document (TSD) for the 2012 final 
rule for MYs 2017 and beyond provides technology. examples and 
guidance with respect to the potential pathways to achieve the 
desired physical impact of a specific off-cycle technology from the 
menu and provides the foundation for the analysis justifying the 
credits provided by the menu. The expectation is that manufacturers 
will use the information in the TSD to design and implement off-
cycle technologies that meet or exceed those expectations in order 
to achieve the real-world benefits of off-cycle technologies from 
the menu.
    \1238\ While many of the assumptions made for the analysis were 
conservative, others were ``central.'' For example, in some cases, 
an average vehicle was selected on which the analysis was conducted. 
In that case, a smaller vehicle may presumably deserve fewer credits 
whereas a larger vehicle may deserve more. Where the estimates are 
central, it would be inappropriate for the agencies to grant greater 
credit for larger vehicles, since this value is already balanced by 
smaller vehicles in the fleet. The agencies take these matters into 
consideration when applications are submitted for credits beyond 
those provided on the menu.
---------------------------------------------------------------------------

    For off-cycle technologies not on the pre-defined technology list, 
EPA created a second pathway which allows manufacturers to use 5-cycle 
testing to demonstrate off-cycle improvements.\1239\ Starting in MY 
2008, EPA developed the ``five-cycle'' test methodology to measure fuel 
economy for the purpose of improving new car window stickers (labels) 
and giving consumers better information about the fuel economy they 
could expect under real-world driving conditions.\1240\ As learned 
through development of the ``five-cycle'' methodology and prior 
rulemakings, there are technologies that provide real-world fuel 
consumption improvements, but those improvements are not fully 
reflected on the ``two-cycle'' test. EPA established this alternative 
for a manufacturer to demonstrate the benefits of off-cycle 
technologies using 5-cycle testing. The additional emissions test 
allows emission benefits to be demonstrated over some elements of real-
world driving not captured by the two-cycle CO2 compliance 
tests including high speeds, rapid accelerations, hot temperatures, and 
cold temperatures. Under this pathway, manufacturers submit test data 
to EPA, and EPA determines whether there is sufficient technical basis 
to approve the off-cycle credits. No public comment period is required 
for manufacturers seeking credits using the EPA menu or using 5-cycle 
testing.
---------------------------------------------------------------------------

    \1239\ See 40 CFR 86.1869-12(c). EPA proposed a correction for 
the 5-cycle pathway in a separate technical amendments rulemaking. 
See 83 FR 49344 (Oct. 1, 2019). EPA is not approving credits based 
on the 5-cycle pathway pending the finalization of the technical 
amendments rule.
    \1240\ https://www.epa.gov/vehicle-and-fuel-emissions-testing/dynamometer-drive-schedules. (Accessed: March 15, 2022)
---------------------------------------------------------------------------

    The third pathway allows manufacturers to seek EPA review, through 
a notice and comment process, to use an alternative methodology other 
than the menu or 5-cycle methodology for determining the off-cycle 
technology CO2 credits.\1241\ Manufacturers must provide 
supporting data on a case-by-case basis demonstrating the benefits of 
the off-cycle technology on their vehicle models. Manufacturers may 
also use the third pathway to apply for credits and FCIVs for menu 
technologies where the manufacturer is able to demonstrate credits and 
FCIVs greater than those provided by the menu.
---------------------------------------------------------------------------

    \1241\ See 40 CFR 86.1869-12(d).

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[[Page 26045]]

(a) The Off-Cycle Approval/Denial Process
    In meetings with EPA and manufacturers, NHTSA examined the 
processes for bringing off-cycle technologies into market. Two distinct 
processes were identified: (1) The manufacturer's off-cycle pre-
production process, and; (2) the manufacturer's regulatory compliance 
process. During the pre-production process, the off-cycle program for 
most manufacturers begins as early as four to 6 years in advance of the 
given model year. Manufacturers' design teams or suppliers identify 
technologies to develop capable of qualifying for off-cycle credits 
after careful consideration of the possible benefits. Manufacturer then 
identify the opportunities for the technologies finding the most 
optimal condition for equipping the technology given the availability 
in the production cycle of either new or multiple platforms 
capitalizing on any commonalities to increase sales volumes and reduce 
costs. After establishing their new or series platform development 
plans, manufacturers have two processes for off-cycle technologies on 
the pre-defined menu list or using 5-cycle testing and for those for 
which benefits are sought using the alternative approval methodology. 
For those on the menu list or 5-cycle testing, technologies whose 
credit amounts are defined by EPA regulation, manufacturers confirm 
that: (1) New candidate technologies meet regulatory definitions; and 
(2) for qualifying technologies, there is real fuel economy (FE) 
benefit based on good engineering judgement and/or testing. For these 
technologies, manufacturers conduct research and testing independently 
without communicating with EPA or NHTSA. For non-menu technologies, 
those not defined by regulation, manufacturers pre-production processes 
include: (1) Determining the credit amounts based on the effectiveness 
of the technologies; (2) developing suitable test procedures; (3) 
identifying any necessary studies to support effectiveness; (4) and 
identifying the necessary equipment or vehicle testing using good 
engineer judgement to confirm the vehicle platform benefits of the 
technology.
    While for the regulatory compliance process, the first step for 
manufacturers begins by providing EPA with early notification in their 
pre-model year GHG reports (e.g., 2025MY Pre-GHG are due in 2023CY) of 
their intention to generate any off-cycle credits in accordance with 40 
CFR 600.514-12. Next, manufacturers present a brief overview of the 
technology concept and planned model types for their off-cycle 
technologies as a part of annual pre-certification meetings with EPA. 
Manufacturers typical hold their pre-certification meetings with EPA 
somewhere between September through November two years in advance of 
each model year. These meetings are designed to give EPA a holistic 
overview of manufacturers planned product offerings for the upcoming 
compliance model year and since 2012 information on the AC and off-
cycle programs. Thus, a manufacturer complying in the 2023 compliance 
model year would arrange its pre-certification meeting with EPA in 
September 2021 and would be required to share information on the AC and 
off-cycle technologies its plans to equip during the model year. After 
this, manufacturers report projected information on off-cycle 
technologies as a part of their CAFE reports to NHTSA in accordance 
with 49 CFR part 537 CAFE due by December 31st before the end of the 
model year.
    According to EPA and NHTSA regulations, eligibility to gain 
benefits for off-cycle technologies only require manufacturers to 
reporting information in advance of the model year notifying the 
agencies of a manufacturer's intent to claim credits. More 
specifically, manufacturers must notify EPA in their pre-model year 
reports, and in their applications for certification, of their 
intention to generate any AC and off-cycle credits before the model 
year, regardless of the methodology for generating credits. Similarly, 
for NHTSA, manufacturers are also required to provide data in their 
pre-model year reports required by 49 CFR part 537 including projected 
information on AC, off-cycle, and full-size pickup truck incentives. 
These regulations require manufacturers to report information on 
factors such as the approach for determining the benefit of the 
technology, projected production information and the planned model 
types for equipping the off-cycle technology.
    If a manufacturer is pursuing credits for a non-menu off-cycle 
technology, EPA also encourages manufacturers to seek early reviews for 
the eligibility of a technology, the test procedure, and the model 
types for testing in advance of the model year. EPA emphasizes the 
critical importance for manufacturers to seek these reviews prior to 
conducting testing or any analytical work. Yet, some manufacturers have 
decided not to seek EPA's early reviews which resulted in significant 
delays in the process as EPA has had to identify and correct multiple 
testing and analytical errors after the fact. Consequently, EPA's goal 
is to provide approvals for manufacturers as early as possible to 
ensure timely processing of their credit requests. NHTSA shares the 
same goals and views as EPA for manufacturers submissions but to-date 
neither agency has created any required deadlines for these reviews. 
For NHTSA, its only requirement is for manufacturers to submit copies 
of all information sent to EPA at the same time.
    The next step in the credit review process is for manufacturers to 
submit an analytical plan defining the required testing to derive the 
exact benefit of a non-menu off-cycle technology before the model year 
begins and then to start testing. It is noted that some manufacturers 
failed to seek EPA's early reviews which delayed finalizing their 
analytical plans and then the start of their testing. These delays had 
greater impacts depending upon the required testing for the technology. 
For example, some manufacturers were required to conduct a four-season 
testing methodology lasting almost a year to evaluate the performance 
of a technology during all environmental conditions.
    After completing testing, manufacturers are required to prepare an 
official application requesting a certain amount of off-cycle credits 
for the technology. In accordance with EPA regulations, the official 
application request must include final testing data, details on the 
methodology used to determine the off-cycle credit value, and the 
official benefit value requested. EPA anticipated that these 
submissions would be made prior to the end of the model year where the 
off-cycle technology was applied.
    Each manufacturers' application to EPA must then undergo a public 
notice and comment process if the manufacturer uses a methodology to 
derive the benefit of a technology not previously approved by EPA. Once 
a methodology for a specific off-cycle technology has gone through the 
public notice and comment process and is approved for one manufacturer, 
other manufacturers may follow the same methodology to collect data on 
which to base their off-cycle credits. Other manufacturers are only 
required to submit applications citing the approved methodology, but 
those manufacturers must provide their own necessary test data, 
modeling, and calculations of credit value specific to their vehicles, 
and any other vehicle-specific details pursuant to that methodology, to 
assess an appropriate credit value. This is similar to what occurred 
with the

[[Page 26046]]

advanced AC compressor, where one manufacturer applied for credits with 
data collected through bench testing and vehicle testing, and 
subsequent to the first manufacturer being approved, other 
manufacturers applied for credits following the same methodology by 
submitting test data specific for their vehicle models. Consequently, 
as long as the testing is conducted using the previously approved 
methodology, EPA will evaluate the credit application and issue a 
decision with no additional notice and comment, since the first 
application that established the methodology was subject to notice and 
comment. EPA issues a decision document regarding the manufacturer's 
official application upon resolution of any public comments to its 
Federal Register notice and after consultation with NHTSA. Finally, 
manufacturers submit information after the model year ends on off-cycle 
technologies and the equipped vehicles in their final CAFE reports due 
by March 30th and then in their final GHG AB&T reports due to EPA by 
April 30th.
    During the 2020 rulemaking, the agencies and manufacturers both 
agreed that responding to petitions before the end of a model year is 
beneficial to manufacturers and the government. It allows manufacturers 
to have a better idea of what credits they will earn, and for the 
government, a timely and less burdensome completion of manufacturers' 
end-of-the-year final compliance processes. EPA structured the AC and 
off-cycle programs to make it possible to complete the processes by the 
end of the model year so manufacturers could submit their final reports 
within the required deadline--90 days after the calendar year, when 
CAFE final reports are due from manufacturers.\1242\
---------------------------------------------------------------------------

    \1242\ 40 CFR 600.512-12.
---------------------------------------------------------------------------

    However, at the time of the previous rulemaking, manufacturers were 
submitting retroactive off-cycle petitions for review causing 
significant delays to review and approval of novel technologies and 
issuances of Federal Register notices seeking public comments, where 
applicable. As a result, the agencies set a one-time allowance that 
ended in May 2020 for manufacturers to ask for retroactive credits or 
FCIVs for off-cycle technologies equipped on previously manufactured 
vehicles after the model year had ended. After that time, the agencies 
denied manufacturers' late submissions requesting retroactive credits. 
However, manufacturers who properly submitted information ahead of time 
were allowed to make corrections to resolve inadvertent errors during 
or after the model year.
    Both EPA and NHTSA regulations fail to include specific deadlines 
for manufacturers to meet in finalizing their off-cycle analytical 
plans or the official applications to the agencies. The agencies 
believed that enforcing the existing submission requirements would be 
the most efficient approach to expedite approvals and set aside adding 
any new regulatory deadlines or additional requirements in the previous 
rulemaking. There were also concerns to provide manufacturers with 
maximum flexibility and due to the uncertainties existing with the non-
menu off-cycle process. However, the agencies anticipated that any 
timeliness problems would resolve themselves as the off-cycle program 
reached maturity and more manufacturers began requesting benefits for 
previously approved off-cycle technologies.
    Despite the agencies' expectations, the lack of deadlines for test 
results or the official application has significantly delayed approvals 
for non-menu off-cycle requests. In many cases, EPA has received off-
cycle non-menu application requests either late in the model year or 
after the model year. This falls outside the agencies planned strategy 
for the off-cycle non-menu review process whereas manufacturers would 
seek approval and submit their official application requests either in 
advance of the model year or early enough in the model year to allow 
the agency to approve a manufacturer's credits before the end of the 
model year.
(b) Changes to the NHTSA Off-Cycle Program
(i) Review Process
    The current review process for off-cycle technologies is causing 
significant challenges in finalizing end-of-the-year compliance 
processes for the agencies. The backlog of retro-active and pending 
late off-cycle requests have delayed EPA from recalculating NHTSA's MY 
2017 finals and from completing those for MYs 2018 and 2019. Fifty-four 
off-cycle non-menu requests have been submitted to EPA to date. 
Nineteen of the requests were submitted late and another seven apply 
retroactively to previous model years starting as early as model year 
2015. Since these requests represent potential credits or adjustments 
that will influence compliance figures, CAFE final results cannot be 
finalized until all off-cycle requests have been decided. These factors 
have so far delayed MY 2017 final CAFE compliance by 28 months, MY 2018 
by 15 months, and MY 2019 by 4 months.
    Until EPA verifies final compliance numbers, manufacturers are 
uncertain about either how many credits they have available to trade 
or, conversely, how many credits are necessary for them to cover any 
shortfalls. Therefore, these late reports amount to more than just a 
mere accounting nuisance for the agencies; they are actively chilling 
the credit market.
    For MY 2017, NHTSA will void manufacturers previous credit trades 
pending the revised final calculations. Second, until late requests are 
approved, credit sellers are unable to make trades with buyers having 
pending approvals or credits are sold whereas the final balance of 
credits is unknown. Because credit trades and transfers must be 
adjusted for fuel savings anytime a change occurs in a manufacturer's 
CAFE values, the resulting earned or purchased credits must be 
recalculated. These recalculations are significantly burdensome on the 
government to administer and places an undue risk on manufacturers 
involved in CAFE credit trade transactions.
    NHTSA met with EPA and manufacturers to better understand the 
process for reviewing off-cycle non-menu technologies. From these 
discussions, NHTSA identified several issues that may be influencing 
late submissions. First, non-menu requests are becoming more complex 
and are requiring unique reviews. Previously approved technologies are 
also becoming more complex and are requiring either new testing, test 
procedures or have evolved beyond the definitions which at one time 
previously qualified them. Next, manufacturers identified the lack of 
standardized test procedures approved by EPA or certainty from EPA on 
which model types need to be tested as major sources for delays in 
submitting their analytical plans. In addition, manufacturers claimed 
there is significant uncertainty surrounding the necessary data sources 
to substantiate the benefit of the technology. For example, the data 
sources necessary to substantiate the usage rates certain technologies 
in the market. Testing or extrapolating test results for variations in 
model types can also be difficult and a source of delay. Manufacturers 
are typically uncertain as to what configurations within a model type 
must be tested and believe further guidance may be needed by EPA. 
Manufacturers further claim that it is challenging to coordinate the 
required testing identified by EPA for off-cycle in coordination with 
other required certification and emissions testing. Several of these 
issues were addressed

[[Page 26047]]

in the 2020 final rule. In that rulemaking, the agencies stated that 
developing a standardized test procedure ``toolbox'' may not be 
possible due to the development of new and emerging technologies, and 
manufacturers' different approaches for evaluating the benefits of the 
technologies. However, the agencies committed to considering additional 
guidance, if feasible, as the programs further matures in the review 
process of technologies and, if possible, identify consistent 
methodologies that may help manufacturers analyze off-cycle 
technologies.
    Part of the issue is that the review process begins significantly 
later than the development of technology. Typically, EPA only learns 
about a new off-cycle technology during manufacturers' precertification 
meetings, months or even years after manufacturers started to develop 
the technology. In the proposal, NHTSA sought comments on whether 
opportunities exist during the initial development of off-cycle 
technologies for manufacturers to start discussions with the agencies 
to identify suitable test procedures or approval of the initial concept 
of a new technology. After certification meetings, NHTSA also 
identified that in many cases, manufacturers do not communicate with 
EPA seeking approvals for their test procedures, test vehicles or 
credit calculations until anywhere from 3-6 months after the initial 
development of the technology. Delays in approving a suitable test 
procedure extends the manufacturers ability to perform testing or to 
submit its formal request for benefits until after the model year has 
ended. As mentioned, testing can take up to 12 months after a suitable 
test procedure and identifying which subconfigurations must be tested.
    One manufacturer also stated that set submission deadlines are 
impossible, agency approvals are variable based on OEM need and reply 
timing is driven by the EPA. When questioned whether any deadlines 
could be imposed manufacturers responded believing that any deadlines 
would need to be negotiated between the manufacturer and the 
government. NHTSA asked manufacturers to comment on any drawbacks 
associated with negotiating and enforcing possible off-cycle process 
deadlines as a part of the proposal.
    NHTSA also proposed to modify the eligibility requirements for non-
menu off-cycle technologies in the CAFE program starting in model year 
2024. NHTSA proposed for manufacturers to finalize their analytical 
plans by December before the model years and their final official 
technology credit requests by September during the model year. It was 
also proposed for manufacturers to meet the proposed deadlines or be 
subject an enforcement action unless an extension was granted by NHTSA 
for good cause. Otherwise, a manufacturer would be precluded from 
claiming any off-menu items not timely submitted. Failure to request 
extensions or meet negotiated deadlines would be subject to enforcement 
action in compliance with 49 U.S.C. 32912(a).
    To further streamline the process of reviews, NHTSA also proposed 
to work with EPA to create a quicker process for adding off-cycle 
technologies to the predetermined menu list if widely approved for 
multiple manufacturers. For example, the agencies added high-efficiency 
alternators and advanced AC compressors to the menu allowing 
manufacturers to select the menu credit rather than continuing to seek 
credits through the public approval process. High-efficiency 
alternators were added to the off-cycle credits menu, and advanced AC 
compressors with a variable crankcase valve were added to the menu for 
AC efficiency credits. The credit levels are based on data previously 
submitted by multiple manufacturers through the off-cycle credits 
application process. The high efficiency alternator credit is scalable 
with efficiency, providing an increasing credit value of 0.16 grams/
mile CO2 per percent improvement as the efficiency of the 
alternator increases above a baseline level of 67 percent efficiency. 
The advanced AC compressor credit value is 1.1 grams/mile for both cars 
and light trucks.\1243\
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    \1243\ For additional details regarding the derivation of these 
credits, see EPA's Memorandum to Docket EPA-HQ-OAR-2018-0283 
(``Potential Off-cycle Menu Credit Levels and Definitions for High 
Efficiency Alternators and Advanced Air Conditioning Compressors'').
---------------------------------------------------------------------------

    Several comments were received in response to the NPRM. Commenters 
included several trade and environmental groups including Auto 
Innovators, ACEEE, the ITB Group and NADA as well as vehicle 
manufacturers including Ford, Hyundai and Stellantis.
    Auto Innovators commented that time is of the essence when a 
manufacturer submits an off-cycle credit application for review. 
Lengthy delays in processing applications and in reviews subsequent to 
the public notice and comment process introduce uncertainty into 
compliance planning and reporting for manufacturers. Delays also affect 
timely determinations of compliance and valuation of credit trades and 
transfers. They also discourage further investments in off-cycle 
technologies due to the uncertainty of when (or if) credit will ever be 
granted.
    Auto Innovators further explained that EPA is required to review an 
application for completeness and to notify the submitting manufacturer 
if additional information is required within 30 days. Subsequent to 
determining an application is complete, EPA is required to make the 
application available to the public for comment within 60 days. These 
two processes should collectively take a maximum of 90 days. Thus far 
in 2021, three applications that reached publication in the Federal 
Register took 111, 290, and 342 days. Other applications are still 
pending review or publication for public comment. Auto Innovators urged 
EPA to follow its regulations by providing an initial response on the 
completeness of credit applications within 30 days and to make complete 
applications available for public comment within 60 days. Auto 
Innovators commented that once the public comment period closes, the 
EPA decision process is also frequently lengthy. For example, Auto 
Innovators claimed EPA published off-cycle credit applications for 
public comment from Toyota in April 2020 and in October 2020, Nissan in 
February 2021, and from Stellantis in April 2021, and as of their 
comment submission, all three were still pending a decision.
    NHTSA is also proposing to impose new deadlines associated with 
off-cycle technology FCIVs applied for under the ``alternative method'' 
pathway. Although, Auto Innovators agrees that implementation of the 
alternative method pathway has been time-consuming and has not met the 
expectations of the agencies, automobile manufacturers, and suppliers, 
it is unclear if the imposition of additional deadlines will result in 
improvements, or simply add additional administrative burden to an 
already cumbersome process. Auto Innovators stated that the agencies 
already took steps to improve the timeliness of the process in the 2020 
SAFE rule and that NHTSA should allow these process improvements to 
play out before imposing additional, unilateral deadlines.
    American Council for an Energy Efficient Economy (ACEEE) commented 
it supports adding a firm time limit on automaker applications to the 
non-menu off-cycle credit program. They claim that this program has 
long been plagued by automaker applications for technologies 
implemented on old vehicle models. These retroactive requests have no 
bearing on current OEM technology decisions and cost a significant 
amount of time to process.

[[Page 26048]]

Lastly, they make setting future standards difficult, as actual 
contemporary compliance is not set in stone. Requiring automakers to 
submit their requests for off-cycle credits in a timely manner would 
improve the effectiveness of the off-cycle program. For these reasons 
ACEEE supports NHTSA in its proposed time limit on application for non-
menu off cycle credit applications.
    The ITB Group also supported NHTSA efforts for streamlining the 
off-cycle credit approval process. The ITB Group agreed with NHTSA that 
the off-cycle credit approval process can be improved. NHTSA proposed 
setting deadlines for OEM submissions, and the ITB Group suggests that 
there should also be deadlines for the agencies (EPA/NHTSA) to respond 
to off-cycle credit request submissions for the off-menu approval 
pathways. The ITB Group also recommends the development of a formal 
process for adding technologies to the menus and adjusting menu credits 
when necessary.
    The National Automobile Dealers Association (NADA) commented 
sharing the same concerns expressed by Auto Innovators regarding the 
changes proposed by NHTSA.
    Ford submitted comments supporting NHTSA's goal for more timely 
resolution of ``Demonstration'' off-cycle credit applications. Ford 
commented that EPA already codified requirements in 40 CFR 86.1869-12 
for manufacturers to submit a detailed analytical plan prior to the 
model year in which a manufacturer intends to seek these credits and 
for EPA to make the demonstration applications available for public 
review within 60 days of receiving a completed application. Ford 
believed that NHTSA can make the most meaningful impact to improve the 
process through internal review with EPA rather than imposing 
additional deadlines on manufacturers.
    Hyundai commented that the off-cycle alternative process involves 
testing and assessment of new and novel technologies which reduce fuel 
consumption. While this process remains complicated, Hyundai recognized 
that some improvements were made to the off-cycle credit approval 
process in the 2020 rulemaking to address procedural issues. And 
Hyundai appreciated that the agencies continue to pursue improvements, 
such as ``considering additional guidance'' and to, ``if possible, 
identify consistent methodologies that may help manufacturers analyze 
off-cycle technologies.''
    Hyundai is one of several auto manufacturers who have long-pending 
applications, some from 2020. Speedy reviews are critical to automakers 
to ensure that investments in technologies are implemented in a timely 
manner. Long application review and approval timelines for technologies 
using the alternative process cause uncertainty about the number of 
credits manufacturers earned for each model due to unresolved 
applications. Manufacturers may not know if they will be in a position 
to buy or to sell credits until all applications are resolved. 
Manufacturers may also need to resubmit final model year reports once 
extended approval processes are resolved. This is inefficient and 
creates additional work for both the agency and the automakers.
    In its comments to the EPA on their GHG NPRM, Hyundai called on 
both auto manufacturers and the agency to be held to timing 
requirements. Automakers should submit off-cycle applications in a 
timely manner. Similarly, the EPA should make applications available 
for a 30-day public comment period within 90 days of the manufacturers' 
submission and then establish a reasonable timeline to issue a decision 
on the applications. Hyundai recommends 60 days for the agency to 
review after the public comment period closes. This would result in a 
maximum review period of 180 days which would be timelier than the 
approval length for some current applications.
    Further Hyundai responded to NHTSA's request for comment on whether 
there are opportunities to engage earlier in the off-cycle technology 
development process with manufacturers. Hyundai stated it welcomes the 
opportunity to improve the approval process by discussing technology 
and test procedures with the agency earlier, however this is only 
possible once the development process has progressed to a point where 
the technology has reached a certain maturity, thus having these 
conversations earlier may not be possible in all cases.
    Furthermore, Hyundai stated that in some off-cycle technology 
testing NHTSA's new timing proposal includes a requirement that 
automakers deliver analytical plans to the agency by December before 
the model year and deliver the final official technology credit request 
by September during the model year may not be suitable. For some 
applications, the agency may need a full year (12 months) of fleet-
level data to support the technology credit request. This full year of 
data provides extensive on-road vehicle information under different 
weather conditions to prove-out an applied technology's real-world 
benefits. In some cases, the proposed September delivery target 
precludes a full year of data collection. For example, a 2022 model 
year vehicle could begin production in June 2022 and require data to be 
submitted in September 2022, just three months after production begins. 
In this example, it is not possible to provide a full 12 months of 
fleet level supporting data. Hyundai requests that the agency clarify 
how they would accommodate this type of situation and structure the 
process to allow auto manufacturers to fulfill all of the agencies' 
requirements within the newly proposed application deadline.
    Hyundai also responded to NHTSA's other comment request on 
drawbacks associated with enforcing strict deadlines for off-cycle 
applications. Hyundai stated while it recognizes and shares the 
agencies frustration that the off-cycle approval process can be 
protracted, we caution that strict enforcement will lead some 
automakers to reduce investment in off-cycle credit technologies. If 
manufacturers are uncertain that they will receive proper credit for 
the inclusion of these fuel saving technologies, they may decide they 
cannot justify the investment in research and development of new 
technologies resulting in lost real-world fuel efficiency improvements. 
Hyundai requested that NHTSA develop an extension process to facilitate 
the inherent flux of the development process for these advanced 
technologies.
    Stellantis commented that the agency is proposing to remove menu 
credit for technologies that impact OEMs as soon as MY2023. Recovering 
this lost credit outside of the menu is infeasible since the 
alternative methodology off-cycle application submission process can 
take a year or longer with uncertain outcome. There are a large number 
of off-cycle industry applications awaiting action by agency staff. 
While some of this is certainly due to COVID-19 challenges, the overall 
lack of movement is concerning. OEMs have yet to be asked technical 
questions on many applications, and, when responses have been requested 
and supplied, it is unclear of what happens next.
    Stellantis commented that one improvement that would certainly help 
would be to set up a system to make the alternative methodology 
application process more transparent. It would be useful if the 
agencies could report the non-confidential status of all off-cycle 
alternative methodology applications on a quarterly basis to industry.

[[Page 26049]]

    Stellantis also proposed that a notice of availability be published 
in the Federal Register for all off-cycle alternative methodology 
applications after 90 days if the agency has not yet completed the 
review of the application for completeness, and if applicable, notify 
the applicant of additional information being required. This review and 
communication back to the applicant is required to happen within 30 
days of submission. Automatically publishing the application after 90 
days (three times the length of the required review period) will allow 
the public comment period to begin and will help this process function 
as intended.
    Stellantis suggested that NHTSA work to align all off-cycle 
reporting processes with EPA and not introduce additional burdens on 
timing with different reporting timelines or new safety considerations 
upon the system that is already constrained.
    Stellantis is willing to solicit industry to partner with the 
agencies to help identify and implement process improvements to 
evaluate and decision applications more quickly.
    For industry awareness, NHTSA meets with EPA on a biweekly basis to 
consult on non-menu off-cycle requests from manufacturers. Based upon 
our interactions and knowledge of potential barriers learned to date, 
NHTSA has decided for its final rule to retain its deadlines and 
enforcement actions proposed in the NPRM and to add additional internal 
administrative processes to better facilitate the off-cycle program. 
More specifically, NHTSA plans to implement the same monitoring 
processes it uses for its safety enforcement programs. This involves 
creating a public case file, which is the official record of all 
communication and records between an entity and the government. NHTSA 
will use these case files for evaluating any extension requests from 
manufacturers and as the basis for any process changes to its off-cycle 
program in future rulemakings. We believe this administrative process 
will also help to identify any delays in complying with 40 CFR 86.1869-
12(e)(3)(i) and (iii), which Auto Innovators and Stellantis commented 
collectively should take a maximum of 90 days but to date have taken 
far longer. Although not officially documented, we are aware that 
notifying manufacturers for additional information within 30 days is a 
longer process because usually several requests are needed before all 
the required information is obtained by EPA to determine that an 
application is complete.
    At present, the agencies share an unofficial simplified spreadsheet 
for tracking off-cycle requests which is discussed during each joint 
biweekly meeting. Consequently, we do believe manufacturers concerns 
have some legitimacy concerning the timing in issuing Federal Register 
notices. However, it was for these reasons EPA adopted changes in their 
2020 SAFE rule allowing them to forgo issuing Federal Register notices 
for technologies that have been previously approved. In addition, we 
note that these delays exist, as noted by commenters, because the 
agencies allowed manufacturers to claim retroactive off-cycle credits 
until May 2020, which has created a backlog of requests drastically 
delaying processing other requests. As indicated by Auto Innovators, 
the agencies are allowing these retroactive requests to play out before 
imposing additional actions such as possible cut-off dates.
    In the future, NHTSA is considering adding additional requirements 
to help resolve delays in the requirement for EPA to notify 
manufacturers of its decision within 60 days of receiving a complete 
application as required in 40 CFR 86.1869-12(e)(4)(i). NHTSA has 
identified that some manufacturers have significant delays in 
responding back to EPA after requests for additional information have 
been made. Rarely does EPA receive all the information it needs to 
complete the manufacturers application and make its decision within 60 
days. In some instances, manufacturers have even failed to respond to 
EPA for over a month, cutting considerably into the 60-day response 
timeline. NHTSA is considered adding a deadline requirement in the 
future for responding back to the agencies which would serve as 
criteria for denying a manufacturer's request, although as requested by 
Stellantis, we believe more transparency and better official tracking 
between the government and manufacturers is a more feasible approach at 
this time.
    We will also attempt to develop a public report to track approved 
or disapproved off-cycle requests on the NHTSA PIC site and will host 
at least one compliance meeting annually with interested parties to 
share our case files and discuss other potential improvements to the 
off-cycle processes. NHTSA and EPA will also take steps to explore 
formal processes for adding technologies to the menus and adjusting 
menu credits when necessary. Finally, since some requests need a full 
year (12 months) of fleet-level data to support the technology credit 
request (such as extensive on-road vehicle information under different 
weather conditions), which may extend beyond NHTSA's September 
deadline, NHTSA requests automakers to consider submitting these off-
cycle applications ahead of time. NHTSA will track manufacturer 
submissions, and should the manufacturers fail to meet NHTSA's deadline 
requirements, manufacturers will need to provide sufficient 
documentation explaining their missed deadline in order to request an 
extension.
(ii) Safety Assessment
    In the 2016 heavy-duty fuel economy rule (81 FR 73478, Oct. 25, 
2016), NHTSA adopted provisions preventing manufacturers from receiving 
off-cycle credits for technologies that impair safety--whether due to a 
defect, negatively affecting a FMVSS, or other safety reasons.\1244\ 
Additionally, NHTSA clarified that technologies that do not provide 
fuel savings as intended will also be stripped of credits. To harmonize 
the light-duty and heavy-duty off-cycle programs, NHTSA proposed to 
adopt these provisions for the light-duty CAFE program as a part of its 
2021 NPRM.\1245\ While the agency encourages fuel economy innovations, 
safety remains NHTSA's primary mission and any technology applied for 
CAFE-purposes should not impair safety. Furthermore, adopting these 
requirements for the light-duty fleet will harmonize it with 
regulations for heavy-duty vehicles.
---------------------------------------------------------------------------

    \1244\ See 49 CFR 535.7(f)(2)(iii).
    \1245\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

    In response to the proposal, Auto Innovators commented opposing 
NHTSA's new processes for reviewing applications for off-cycle fuel 
economy improvement credits in order to assess the safety of the 
proposed technology and to remove credits if a safety defect is 
identified. Auto Innovators understands that NHTSA's primary mission is 
safety and applauds the agency's commitment to ensuring that technology 
intended to enhance fuel efficiency does not impair safety. However, it 
explained that NHTSA's proposal goes too far--a technology can be 
``defective'' for reasons unrelated to safety or fuel economy. NHTSA's 
criterion ``identified as a part of NHTSA's safety defects program'' is 
unclear, as is the context of ``performing as intended.'' The proposal 
to require manufacturers applying for off-cycle credits to state that 
each vehicle equipped with the off-cycle technology will comply with 
all applicable Federal Motor Vehicle Safety Standards (FMVSS) is 
unnecessary, and it is

[[Page 26050]]

unclear how the requirement to describe fail-safe provisions will work 
as a practical manner.
    The National Automobile Dealers Association (NADA) commented 
sharing its support for Auto Innovators' opposition to NHTSA's proposed 
safety provisions.
    Hyundai commented that NHTSA's provisions are not necessary because 
every vehicle sold in the United States is already designed with safety 
in mind and complies with all applicable FMVSS safety rules. Further, 
there are processes in place to address any component failures that may 
impact safety.
    Lucid commented stating that it supports NHTSA's proposal to 
rescind credits for off-cycle technologies that are found to be 
defective or otherwise impair vehicle safety, as is NHTSA's practice in 
the heavy-duty context. This proposal recognizes and puts into practice 
NHTSA's mission of preserving vehicle safety and ensures that 
manufacturers are not unduly rewarded for innovations that ultimately 
make their vehicles less safe.
    In response to Auto Innovators' and NADA's concerns, we note that 
the new requirement does not change the certification process or 
awarding of OC credits. As noted in the proposal, this new provision 
would only take effect after a safety defect was discovered. We also 
note that OC technologies are intended to improve fuel economy, and 
that awarding defective technology that does not improve off-cycle fuel 
efficiency undermines the program. NHTSA experience with its heavy-duty 
program has proven that manufacturers can comply with these provisions. 
Addressing safety is just as critical to manufacturers as it is to 
NHTSA and all manufacturers had fail-safe designs which they identified 
with their heavy-duty application requests. We plan to use our existing 
enforcement processes administered by the Office of Defects 
Investigations and the Office of Vehicle Safety Compliance to identify 
potentially or existing safety concerns with fuel efficiency 
technologies. For example, NHTSA will search through vehicle owner 
complaints, manufacturer's warranty claims, internet information and 
part 573 recalls submitted by manufacturers for safety related problems 
involving incentivized fuel efficiency technologies. Should a recall 
result or exist, it will be necessary for the manufacturer to remedying 
all the defective or non-compliant equipment in order to maintain its 
fuel efficiency credits for an off-cycle technology regardless of 
whether the safety problem has a direct bearing on fuel savings. 
Otherwise, the credits will be removed or adjusted to the number of 
remedied vehicles. NHTSA believes that that these provisions will 
ensure that emphasis remains on protecting the safety of vehicle 
occupants for both the Government and for motor vehicle manufacturers.
(iii) Menu Credit Cap
    In the NPRM, NHTSA proposed a temporary increase in the off-cycle 
menu credit cap from 10 to 15 g/mile from MY 2023 through 2026 to align 
with the EPA GHG program. Coinciding with the increased menu cap, NHTSA 
proposed adopting revised definitions for certain off-cycle menu 
technologies in order to better capture real-world GHG emission 
improvements of specific menu technologies.
    Due to the uncertainties associated with combining menu 
technologies and the fact that some uncertainty is introduced because 
off-cycle credits are provided based on a general assessment of off-
cycle performance, as opposed to testing on the individual vehicle 
models, NHTSA and EPA established caps that limit the amount of credits 
a manufacturer may generate using the off-cycle menu list. Historically 
EPA and NHTSA have capped off-cycle menu technologies at 10 grams/mile 
per year on a combined car and truck fleet-wide average basis. In its 
most recent rulemaking for MYs 2023-2026 GHG standards, EPA finalized 
the increase in the off-cycle menu cap from 10 grams CO2/
mile to 15 grams CO2/mile beginning with MY 2023. EPA also 
revised the definitions for passive cabin ventilation and active engine 
and transmission warm-up beginning in MY 2023, as discussed in the next 
following sections. EPA did not retroactively adopt these provisions 
for MY 2020-2022 as originally proposed in their GHG NPRM. NHTSA is 
aligning with the EPA GHG program and adopting the same provision to 
increase the off-cycle menu technology cap to 15 g/mile and adopting 
the new definitions of active transmission warm-up and passive cabin 
ventilation for MYs 2023-2026. Credits established under the 5-cycle 
and petitioning pathways do not count against the menu cap.
    The agency received comments in support and opposition to the 
increase of the menu credit cap to 15g/mile. Some manufacturers and 
suppliers supported the increase, while others expressed opposition. 
Toyota, Nissan, Stellantis, the ITB Group, Auto Innovators, MECA, and 
Borg Warner all agreed with the agency's direction to increase the cap, 
stating the credit cap should continue to increase as new technologies 
are added to the menu.\1246\ Stellantis contends that the increased 
credit cap will further incentivize the industry to adopt these 
technologies across fleets and that these technologies have a real 
benefit to fuel economy. ACEEE, Tesla, and Lucid oppose the increase to 
the menu credit cap.\1247\ Tesla stated that the off-cycle program 
creates an asymmetry in the regulations which favor internal combustion 
engines and effectually diverts R&D resources to the creation and 
improvement of legacy ICE technologies that are less efficient than 
electrified powertrains. Additionally, these organizations state that 
increasing the menu credit cap adds additional compliance flexibilities 
with questionable improvements to real world efficiency.
---------------------------------------------------------------------------

    \1246\ Toyota, NHTSA-2021-0053-1568, at page 20; Nissan, NHTSA-
2021-0053-0022-A1 at page 7; Stellantis, NHTSA-2021-0053-1527, at 
page 32; ITB Group, at NHTSA-2021-0053-0019-A1, at page 7; Auto 
Innovators, NHTSA-2021-0053-1492, at page 124.; MECA, NHTSA-2021-
0053-1113 at page 3; BorgWarner, at page 2.
    \1247\ ACEEE, NHTSA-2021-0053-0074, at page 6.; Tesla, NHTSA-
2021-0053-1480-A1, at page 10; Lucid, NHTSA-2021-0052-1584 at page 
6.
---------------------------------------------------------------------------

    NHTSA appreciates the feedback from the manufacturers and industry 
stakeholders. NHTSA disagrees that the off-cycle program provides an 
asymmetrical benefit to internal combustion manufacturers. Off-cycle 
credits are designed to reward real-world emissions reductions missed 
through 2-cycle testing and the agency has a duty to honor the most 
accurate fuel economy performances from each manufacturer in order to 
issue final compliance to Federal fuel economy standards. We believe 
that off-cycle is a viable route to achieving fuel economy 
improvements, and if there are any incongruities between awarded 
credits and technology efficacy, then the solution should be to address 
the source of the discrepancy rather than scrapping the program.
    NHTSA acknowledges that certain credits and flexibilities may be 
more beneficial to certain technologies but does not believe that this 
warrants the elimination of the off-cycle program at this time. NHTSA 
further notes that commenters who asked the agency to lower or 
eliminate off-cycle credits because it `favored' ICE simultaneously 
supported providing more incentives for electric pathways. The 
objective of CAFE is to reduce the Nation's dependency on oil, not to 
promote a particular technology pathway. Manufacturers are free to set 
their compliance pathways and can chose to invest in technologies other 
than off-

[[Page 26051]]

cycle technologies. ICE vehicles sold during the years covered by this 
final rule will remain on the road for decades to come and creating an 
incentive to have manufacturers making those vehicles more fuel 
efficient is beneficial to consumers--including those who may purchase 
the vehicle a decade or later after the vehicle was manufactured--and 
reduces the Nation's carbon emissions.
    For the final rule, NHTSA is adopting provisions that align with 
the EPA's program in terms of increasing the off-cycle menu cap to 15 
g/mile in MY 2023 and extending through MY 2026. Off-cycle technologies 
are often more cost effective than other available technologies that 
reduce vehicle GHG emissions over the 2-cycle tests and manufacturers 
use of the program continues to grow. Off-cycle credits reduce program 
costs and provide additional flexibility in terms of technology choices 
to manufacturers which has resulted in many manufacturers using the 
program. Multiple manufacturers were at or approaching the 10 g/mile 
credit cap in MY 2019.\1248\ Also, in the SAFE rule, EPA added menu 
credits for high efficiency alternators but did not increase the credit 
cap for the reasons noted above.\1249\ While adding the technology to 
the menu has the potential to reduce the burden associated with the 
credits for both manufacturers and the agencies, it further exacerbates 
the credit cap issue for some manufacturers. Increasing the cap 
provides an additional optional flexibility and also an opportunity for 
manufacturers to earn more menu credits by applying additional menu 
technologies that will improve fuel efficiency.
---------------------------------------------------------------------------

    \1248\ In MY 2019, Ford, FCA, and JLR reached the 10 g/mile cap 
and three other manufacturers were within 3 g/mile of the cap. See 
``The 2020 EPA Automotive Trends Report, Greenhouse Gas Emissions, 
Fuel Economy, and Technology since 1975,'' EPA-420-R-21-003 January 
2021.
    \1249\ 85 FR 25236 (Apr. 30, 2020).
---------------------------------------------------------------------------

(iv) Definitions
(a) Passive Cabin Ventilation
    In the NPRM, the agency proposed a revision to the passive cabin 
ventilation definition to make it consistent with the technology used 
to generate the credit value. The credits for passive cabin ventilation 
were originally determined based on an NREL study that strategically 
opened a sunroof where hot air collects to allow for the unrestricted 
flow of heated air to exit the interior of the vehicle while combined 
with additional floor openings to provide a minimally restricted entry 
for cooler ambient air to enter the cabin. The modifications that NREL 
performed on the vehicle reduced the flow restrictions for both heated 
cabin air to exit the vehicle and cooler ambient air to enter the 
vehicle, creating a convective airflow path through the vehicle cabin.
    As noted in the Joint TSD for the 2012 final rule:

    For passive ventilation technologies, such as opening of windows 
and/or sunroofs and use of floor vents to supply fresh air to the 
cabin (which enhances convective airflow), (1.7 g/mile for light-
duty vehicles and 2.3 g/mile for light-duty trucks) a cabin air 
temperature reduction of 5.7 [deg]C can be realized.\1250\
---------------------------------------------------------------------------

    \1250\ 2012 TSD at 584.

    The passive cabin ventilation credit values were based on achieving 
the 5.7 [deg]C cabin temperature reduction.
    Some manufacturers have claimed the passive cabin ventilation 
credits based on the addition of software logic to their HVAC system 
that sets the interior climate control outside air/recirculation vent 
to the open position when the power to vehicle is turned off at higher 
ambient temperatures. The manufacturers have claimed that the opening 
of the vent allows for the flow of ambient temperature air into the 
cabin. While opening the vent may ensure that the interior of the 
vehicle is open for flow into the cabin, no other action is taken to 
improve the flow of heated air out of the vehicle. This technology 
relies on the pressure in the cabin to reach a sufficient level for the 
heated air in the interior to flow out through body leaks or the body 
exhausters to open and vent heated air out of the cabin.
    Analytical studies performed by manufacturers evaluating the 
performance of the open dash vent demonstrate that while the dash vent 
may allow for additional airflow of ambient temperature air entering 
the cabin, it does not reduce the existing restrictions on heated cabin 
air exiting the vehicle, particularly in the target areas of the 
occupant's upper torso. That hotter air generally must escape through 
restrictive (by design to prevent water and exhaust fumes from entering 
the cabin) body leaks and occasional venting of the heated cabin air 
through the body exhausters. While this may provide some minimal 
reduction in cabin temperatures, this open dash vent technology is not 
as effective as the combination of vents used by the NREL researchers 
to allow additional ambient temperature air to enter the cabin and also 
to reduce the restriction of heated air exiting the cabin.
    In response to the agency's proposal to redefine passive cabin 
ventilation off-cycle menu technology, industry stake holders provided 
feedback in support and opposition to the proposed change. The ITB 
Group and the Union of Concerned Scientists both wrote in support of 
the change to the Passive Cabin Ventilation definition, stating that 
menu definitions should be supported by representative data.\1251\ 
Stellantis, Nissan, Auto Innovators, and JLR all argued against the 
agency's plan to change the passive cabin ventilation definition 
stating that the timing of this definition change would prevent 
manufacturers from gaining credits for technology already installed on 
vehicles.\1252\ Auto Innovators, Stellantis, Nissan, and Toyota all 
stated the lead-time for the adoption of the new passive cabin 
ventilation was a concern.\1253\ Commenters stated that to effectively 
meet the new definition, vehicles would need to be redesigned which 
would take years to implement, thus offsetting manufacturers' 
compliance strategies for several years to come. Several commenters, 
including JLR, stated that the agency should consider some off-cycle 
credit for those vehicles that meet the passive cabin ventilation as 
previously written, since technologies already installed on vehicles 
provide some level of real-world fuel efficiency benefits and should be 
considered for menu credit. The ITB Group identified a risk in adopting 
a new technology definition, as some manufacturers may decide to remove 
passive cabin ventilation technologies currently applied to fleets; 
technologies that provide some real-world benefits but do not meet the 
new technology definition, thus increasing fleet emissions.
---------------------------------------------------------------------------

    \1251\ ITB Group, at NHTSA-2021-0053-0019-A1, at p. 3; UCS, 
NHTSA-2021-0053-1567, at p. 14.
    \1252\ Stellantis, NHTSA-2021-0053-1527, at p. 32; Nissan, 
NHTSA-2021-0053-0022-A1, at p. 8; Auto Innovators, NHTSA-2021-0053-
1492, at p. 59; JLR, NHTSA-2021-0053-1505, at pp. 7-8.
    \1253\ Toyota, NHTSA-2021-0053-1568, at p. 22.
---------------------------------------------------------------------------

    The agency appreciates the comments provided by industry 
stakeholders and understands the strain this definition change will put 
on manufacturers who currently do not meet the standards of the new 
definition. NHTSA disagrees with comments that the agency should 
continue to allow the use of the unrevised definitions and menu credits 
for several model years into the future. Allowing manufacturers to 
claim fuel economy off cycle credit for a technology that does not 
produce real-world benefits at the level prescribed in the menu of off-
cycle technologies effectively reduces the stringency of the standard 
and inequitably benefits those

[[Page 26052]]

manufacturers who apply technology that does not meet the intent of the 
rule. For example, when establishing the passive cabin ventilation 
credit, EPA envisioned air flow consistent with windows and/or sunroof 
being open for a period of time to allow hot air to escape the cabin 
through convective air flow. Under the original definitions, 
manufacturers are generating a sizeable credit for simply opening the 
interior vents when the vehicle is keyed off. With respect to the 
comments received on the application timing of this definition, the 
agency has provided more than the statutorily mandated minimum of 18 
months lead time. The agency believes that 18 months is sufficient lead 
time for manufacturers to reconfigure their compliance plans.
    NHTSA is finalizing revisions to the passive cabin ventilation 
definition with clarifying edits to make it consistent with the 
technology used to generate the credit value. The agency continues to 
allow for innovation as the definition includes demonstrating 
equivalence to the methods described in the Joint TSD. As proposed, 
NHTSA is revising the definition of passive cabin ventilation to 
include only methods that create and maintain convective airflow 
through the body's cabin by opening windows or a sunroof, or equivalent 
means of creating and maintaining convective airflow, when the vehicle 
is parked outside in direct sunlight. Current systems claiming the 
passive ventilation credit by opening the dash vent do not meet the 
updated definition. Manufacturers seeking to claim credits for the open 
dash vent system will be eligible to petition the agency for credits 
for this technology using the alternative EPA approved method outlined 
in 40 CFR 86.1869-12(d).
(b) Active Engine and Transmission Warmup
    As proposed in 2021 NPRM, NHTSA is revising the menu credit 
definition of active engine and transmission warmup to no longer allow 
systems that capture heat from the coolant circulating in the engine 
block prior to the opening of the thermostat to qualify for the Active 
Engine and Active Transmission warm-up menu credits.
    In the NPRM for the 2012 final rule,\1254\ EPA proposed capturing 
waste heat from the exhaust and using that heat to actively warm up 
targeted parts of the engine and the transmission fluid. The exhaust 
waste heat from an internal combustion engine is heat that is not being 
used as it is exhausted to the atmosphere. In the 2012 final 
rule,\1255\ the agency revised the definitions for active engine and 
transmission warm-up by replacing exhaust waste heat with the waste 
heat from the vehicle. The agencies concluded that other methods, in 
addition to waste heat from the exhaust, that could provide similar 
performance--such as coolant loops or direct heating elements--may 
prove to be a more effective alternative to direct exhaust heat. 
Therefore, the agencies expanded the definition in the 2012 final rule.
---------------------------------------------------------------------------

    \1254\ See 2011 NPRM, 76 FR 74854 (Dec. 1, 2011).
    \1255\ 77 FR 62624 (Oct. 15, 2012).
---------------------------------------------------------------------------

    All agency analysis regarding active engine and transmission warm-
up through the 2012 final rule was performed assuming the waste heat 
utilized for these technologies would be obtained directly from the 
exhaust prior to being released into the atmosphere and not from any 
engine-coolant-related loops. At this time, many of the systems in use 
are engine-coolant-loop-based and are taking heat from the coolant to 
warm-up the engine oil and transmission fluid.
    We provided additional clarification on the use of waste heat from 
the engine coolant in preamble to SAFE rule.\1256\ We focused on 
systems using heat from the exhaust as a primary source of waste heat 
because that heat would be available quickly and also would be 
exhausted by the vehicle and otherwise unused.\1257\ Heat from the 
engine coolant already may be used by design to warm up the internal 
engine oil and components. That heat is traditionally not considered 
``waste heat'' until the engine reaches normal operating temperature 
and subsequently requires it to be cooled in the radiator or other heat 
exchanger.
---------------------------------------------------------------------------

    \1256\ 85 FR 24174 (Apr. 30, 2020).
    \1257\ 85 FR 25240 (Apr. 30, 2020).
---------------------------------------------------------------------------

    We allowed for the possible use of other sources of heat such as 
engine coolant circuits, as the basis for the credits as long as those 
methods would ``provide similar performance'' as extracting the heat 
directly from the exhaust system and would not compromise how the 
engine systems would heat up normally absent the added heat source. 
However, the SAFE rule also allowed us to require manufacturers to 
demonstrate that the system is based on ``waste heat'' or heat that is 
not being preferentially used by the engine or other systems to warm up 
other areas like engine oil or the interior cabin. Systems using waste 
heat from the coolant do not qualify for credits if their operation 
depends on, and is delayed by, engine oil temperature or interior cabin 
temperature. As the engine and transmission components are warming up, 
the engine coolant and transmission oil typically do not have any 
``waste'' heat available for warming up anything else on the vehicle 
since they are both absorbing any heat from combustion cylinder walls 
or from friction between moving parts in order to achieve normal 
operating temperatures. During engine and transmission warm-up, the 
only waste heat source in a vehicle with an internal combustion engine 
is the engine exhaust, as the transmission and coolant have not reached 
warmed-up operating temperature and therefore do not have any heat to 
share.\1258\
---------------------------------------------------------------------------

    \1258\ 85 FR 25240 (Apr. 30, 2020).
---------------------------------------------------------------------------

    In the NPRM, NHTSA proposed revising the menu definition to align 
with the EPA definition of active engine and transmission warm-up to no 
longer allow systems that capture heat from the coolant circulating in 
the engine block to qualify for the Active Engine and Active 
Transmission warm-up menu credits.
    In response to the NPRM, NHTSA received comments with respect to 
the proposed new definition. The Union of Concerned Scientists 
commented in support of updating the definition, stating the 
technologies,\1259\ as currently defined, allow manufacturers to claim 
undue credit for technologies that produce real-world fuel efficiency 
benefits less than the menu credit amount. Auto Innovators, Nissan, 
Stellantis, and JLR wrote in opposition to the proposed definition 
change, stating the lead time as one of the reasons to not adopt the 
change.\1260\ Commentors stated that this change leaves less than 1 
year to implement a design change to satisfy the new definition which 
is not reasonable. The ITB Group commented that the new definition 
should not be limited to only exhaust waste heat but include any 
technology that can rapidly warm an engine, including a zero-coolant 
flow program to result in rapid warm-up.\1261\ Nissan stated that 
redefining the menu technology will increase the number of alternative 
methodology off-cycle requests for lesser amounts of fuel economy 
credit. Nissan, JLR, the ITB Group, The Alliance, Stellantis, and 
Toyota \1262\ recommended the agency honor some lesser fuel economy 
credit

[[Page 26053]]

amount for technologies that meet the current definition.\1263\ Toyota 
recognized the agency's rationale for updating the technology 
definitions but requested that an application date for new definitions 
be delayed until the 2025 MY in order to implement new vehicle designs.
---------------------------------------------------------------------------

    \1259\ UCS, NHTSA-2021-0053-1567, at p. 14.
    \1260\ Auto Innovators, NHTSA-2021-0053-1492, at p. 59.; Nissan, 
NHTSA-2021-0053-0022-A1, at p. 8; Stellantis, NHTSA-2021-0053-1527, 
at p. 32; JLR, NHTSA-2021-0053-1505, at pp. 7-8.
    \1261\ ITB Group, at NHTSA-2021-0053-0019-A1, at p. 3.
    \1262\ Nissan; JLR; ITB Group; Auto Innovators; Stellantis; 
Toyota.
    \1263\ Nissan, NHTSA-2021-0053-0022-A1, at p. 8; JLR, NHTSA-
2021-0053-1505, at pp. 7-8; ITB Group, at NHTSA-2021-0053-0019-A1, 
at p. 3; Auto Innovators; Stellantis, NHTSA-2021-0053-1527, at p. 
32; Toyota, NHTSA-2021-0053-1568, at p. 22.
---------------------------------------------------------------------------

    NHTSA appreciates the feedback from the industry and stake holders. 
NHTSA disagrees with extending the definition to include technologies 
that do not rely on waste exhaust heat; the lack of specific text 
requiring exhaust heat recovery resulted in many manufacturers 
utilizing extended coolant pathways which did not result in real-world 
benefits commensurate with the intent of the technology or menu 
credits, real-world benefits which are lesser than recovering exhaust 
heat.
    As proposed in the NPRM, NHTSA is revising the menu definition to 
align with the EPA definition of active engine and transmission warm-up 
to no longer allow systems that capture heat from the coolant 
circulating in the engine block to qualify for the Active Engine and 
Active Transmission warm-up menu credits. NHTSA will allow credit for 
coolant systems that capture heat from a liquid-cooled exhaust manifold 
if the system is segregated from the coolant loop in the engine block 
until the engine has reached fully warmed-up operation. The agency will 
also allow system design that captures and routes waste heat from the 
exhaust to the engine or transmission, as this was the basis for these 
two credits as originally proposed in the proposal for the 2012 rule. 
The approach NHTSA and EPA have finalized will help ensure that the 
level of menu credits is consistent with the technology design 
envisioned by the agencies when it established the credit in the 2012 
rule. This revision to the technology definition will apply starting in 
MY 2023.
    Manufacturers seeking to utilize their existing systems that 
capture coolant heat before the engine is fully warmed-up and transfer 
this heat to the engine oil and transmission fluid would remain 
eligible to seek credits through the alternative method application 
process outlined in 40 CFR 86.1869-12(d). We expect that these 
technologies may provide some benefit, though not the level of credits 
included in the menu. But, as noted above, since these system designs 
remove heat that is needed to warm-up the engine the agency expects 
that these technologies will be less effective than those that capture 
and utilize exhaust waste heat.
(4) Other Credits Suggested by Commenters
    Securing America's Future Energy provided comments stating that it 
believes that connected and automated vehicles (CAVs) have tremendous 
potential to increase efficiencies and save fuel.\1264\ Securing 
America's Future Energy encouraged NHTSA and EPA to update the approach 
to off-cycle credits, while considering several potential improvements 
tailored to accommodate truly innovative technologies. Securing 
America's Future Energy commented most of savings of these CAVs are 
additive with other efficiency technologies and, together identify the 
potential to reduce fuel consumption by 18 to 25 percent if deployed 
throughout the fleet, according to its 2018 research report, ``Using 
Fuel Efficiency Regulations to Conserve Fuel and Save Lives by 
Accelerating Industry Investment in Autonomous and Connected 
Vehicles.'' In general, Securing America's Future Energy believes that 
CAVs can improve efficiency by lowering the amount of accidents, 
lowering congestion, and allowing for smarter navigation, amongst other 
benefits.
---------------------------------------------------------------------------

    \1264\ Securing America's Future Energy, NHTSA-2021-0053-1513, 
at pp. 12-17.
---------------------------------------------------------------------------

    In response to Securing America's Future Energy's suggestion, NHTSA 
reiterates as mentioned in the 2012 final rule that our policy is to 
consider any fuel efficiency benefits for autonomous vehicles and 
advanced driver assistance systems (ADAS) as part of the regulatory 
process for its safety programs. At present, a number of these 
technologies are included in several Congressional bills that may 
mandate the adoption of new safety requirements or regulations in these 
areas. NHTSA will consider how to address the fuel efficiency benefits 
of these technologies as a part of its subsequent Congressional 
rulemakings.

B. Vehicle Classification and Compliance Validation Testing

    Vehicle classification, for purposes of the light-duty CAFE 
program, refers to whether an automobile qualifies as a passenger 
automobile (car) or a non-passenger automobile (light truck). Passenger 
cars and light trucks are subject to different fuel economy standards 
as required by EPCA/EISA and consistent with their different 
capabilities.
    Vehicles are designated as either passenger automobiles or non-
passenger automobiles. Vehicles ``capable of off-highway operation'' 
are, by statute, non-passenger automobiles.\1265\ Determining ``off-
highway operation'' was left to NHTSA, and currently is a two-part 
inquiry: first, does the vehicle either have 4-wheel drive or over 
6,000 pounds gross vehicle weight rating (GVWR), and second, does the 
vehicle have a significant feature designed for off-highway 
operation.\1266\ NHTSA's regulation on vehicle classification contain 
requirements for vehicles to be classified as light trucks either on 
the basis of off-highway capability or on the basis of having ``truck-
like characteristics.'' \1267\ Over time, NHTSA has refined the light 
truck vehicle classification by revising its regulations and issuing 
legal interpretations. However, based on the increase in crossover SUVs 
and advancements in vehicle design trends, NHTSA became aware of 
vehicle designs that complicate classification determinations for the 
CAFE program. Throughout the past decade, NHTSA identified these 
changes in compliance testing, data analysis, and has discussed the 
trend in rulemakings, publications, and with stakeholders.
---------------------------------------------------------------------------

    \1265\ 49 U.S.C. 32901(a)(18).
    \1266\ 49 CFR 523.5(b).
    \1267\ 49 CFR 523.5(a).
---------------------------------------------------------------------------

    In the SAFE 1 and SAFE 2 rules, NHTSA stated it continues to 
believe that an objective procedure for classifying vehicles is 
paramount to the agency's continued oversight of the CAFE program. When 
there is uncertainty as to how vehicles should be classified, 
inconsistency in determining manufacturers' compliance obligations can 
result, which is detrimental to the predictability and fairness of the 
program. In the 2020 final rule, NHTSA attempted to resolve several 
classification issues and committed to continuing research to resolve 
others. NHTSA notified the public of its plans to develop a compliance 
test procedure for verifying manufacturers' submitted classification 
data. An objective standard would help avoid manufacturers having to 
reclassify their vehicles, improve consistency and fairness across the 
industry, and introduce areas within the criteria where uncertainties 
existed, and research could be conducted in the near future to resolve.
    In 2021 NPRM rulemaking,\1268\ NHTSA provided additional 
classification, guidance and sought comments on several unknown aspects

[[Page 26054]]

needed to develop its compliance test procedure. In this final rule, 
NHTSA is adding additional clarifications for testing production 
measurements for vehicles with adjustable suspensions and clarifying 
its intent to collect information from manufacturers for defining 
current axle and running clearance dimensions for light trucks. NHTSA 
is also clarifying a safety concern with its definition for classifying 
MPVs in 49 CFR 571.3 and its long-term plans to use requirements in its 
CAFE program to address the problem. In addition, NHTSA plans to 
release its draft test procedure later this year based upon the 
requirements finalized in this document. We note that we are not 
changing our current regulations on vehicle classification in this 
final rule.
---------------------------------------------------------------------------

    \1268\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

1. Clarifications for Classifications Based Upon ``Off-Road 
Capability''
    For a vehicle to qualify as off-highway (off-road) capable, in 
addition to either having 4WD or a GVWR more than 6,000 pounds. The 
vehicle must have four out of five characteristics indicative of off-
highway operation. These characteristics are:

 An approach angle of not less than 28 degrees
 A breakover angle of not less than 14 degrees
 A departure angle of not less than 20 degrees
 A running clearance of not less than 20 centimeters
 Front and rear axle clearances of not less than 18 centimeters 
each.
(a) Production Measurements
    NHTSA's regulations require manufacturers to measure vehicle 
characteristics when a vehicle is at its curb weight, on a level 
surface, with the front wheels parallel to the automobile's 
longitudinal centerline, and the tires inflated to the manufacturer's 
recommended cold inflation pressure.\1269\ NHTSA clarified in the 2020 
final rule that 49 CFR part 537 requires manufacturers to classify 
vehicles for CAFE based upon their physical production characteristics. 
The agency verifies reported values by measuring production vehicles. 
Manufacturers must also use physical vehicle measurements as the basis 
for values reported to the agency for purposes of vehicle 
classification. It may be possible for certain vehicles within a model 
type to qualify as light trucks while others would not because of their 
production differences. Since issuing the 2020 final rule, NHTSA has 
met with manufacturers to reinforce the use of production measurements 
and to reduce reporting burdens to NHTSA. For example, NHTSA clarified 
that manufacturers should only report classification information for 
those physical measurements used for qualification and can omit other 
measurements.
---------------------------------------------------------------------------

    \1269\ 49 CFR 523.5(b)(2).
---------------------------------------------------------------------------

    In the previous rulemaking, NHTSA also identified that certain 
vehicle designs incorporated rigid (i.e., inflexible) air dams, valance 
panels, exhaust pipes, and other components, equipped as manufacturers' 
standard or optional equipment (e.g., running boards and towing 
hitches), that likely violate a vehicles 20-centimeter running 
clearance. Despite these rigid features, some manufacturers were not 
taking these components into consideration when making classification 
decisions. Additionally, other manufacturers provided dimensions for 
their base vehicles without considering optional or various trim level 
components that may reduce the vehicle's ground clearance. Consistent 
with our approach to other measurements, NHTSA clarifies that ground 
clearance, as well as all the other off-highway criteria for a light 
truck determination, should use the measurements from vehicles with all 
standard and optional equipment installed, at the time vehicles are 
shipped to dealerships. These views were shared by manufacturers in 
response to the previous CAFE rulemaking.
    The agency reiterates that the characteristics listed in 49 CFR 
523.5(b)(2) are characteristics indicative of off-highway capability. A 
fixed feature--such as an air dam that does not flex and return to its 
original state or an exhaust that could detach--inherently interferes 
with the off-highway capability of these vehicles. If manufacturers 
seek to classify vehicles as light trucks under 49 CFR 523.5(b)(2) and 
the vehicles have a production feature that does not meet the four 
remaining characteristics to demonstrate off-highway capability, they 
must be classified as passenger cars. NHTSA also clarifies that 
vehicles that have adjustable ride height, such as air suspension, and 
permit variable on-road or off-road running clearances should be 
classified based upon the mode most commonly used or the off-road mode 
for those with this feature. NHTSA sought comments in the NPRM on how 
to define the mode most commonly used for any adjustable suspensions. 
NHTSA also asked, in developing its planned test procedure expected 
later in MY 2022, would it be more appropriate to allow manufacturers 
to define the mode setting for vehicles with adjustable suspensions.
    In response to the NPRM, NHTSA received several comments about 
defining the mode most commonly used for any adjustable suspensions 
and, for the test procedure, whether it is more appropriate to allow 
manufacturers to define the mode setting for vehicles with adjustable 
suspensions. Comments were received from Auto Innovators,\1270\ 
Stellantis,\1271\ JLR,\1272\ and Ford.\1273\ In general, comments 
stated that manufacturers believe they should be able to define the 
setting for vehicles with adjustable suspension based on the 
manufacturer recommended setting for off-road use.
---------------------------------------------------------------------------

    \1270\ Auto Innovators, NHTSA-2021-0053-1492, at page 66.
    \1271\ Stellantis, NHTSA-2021-0053-1527, at page 29
    \1272\ JLR, NHTSA-2021-0053-1505-A, at p. 5.
    \1273\ Ford, NHTSA-2021-0053-1545-A1, at p. 2.
---------------------------------------------------------------------------

    For example, Auto Innovators provided detailed comments explaining 
how that they believe manufacturers should be able to define the 
setting for vehicles with adjustable suspension based on the 
manufacturer recommended setting for off-road use.\1274\ However, they 
also found through subsequent research and submitted to NHTSA that the 
most commonly used mode is not necessarily suited to off-road use given 
the relatively low frequency of such use. Auto Innovators stated that 
given the multitude of settings that a modern vehicle has, it should 
generally be the selection that provides the greatest ground clearance. 
Such settings are design features intended to further enable off-road 
operation. For vehicles with driver-selectable suspension settings, 
Auto Innovators recommends that the classification of off-road 
capabilities be determined on the dimensional characteristics using the 
highest ride height setting recommended for off-road use.
---------------------------------------------------------------------------

    \1274\ Auto Innovators, NHTSA-2021-0053-1492, at page 66.
---------------------------------------------------------------------------

    JLR agrees with Auto Innovators that an off-road mode, if 
available, should be used assessing the vehicle compliance to the off-
road requirements.\1275\ Further, if more than one off-road mode is 
available, the mode that achieves the highest ride height as this would 
be optimized for rock-crawling where the greatest ground clearance is 
needed. JLR believes that manufacturers should always define the mode 
used for determination of classification because one mode will be most 
suited to off-road use, and this would be highlighted to the owner. JLR 
states the most

[[Page 26055]]

commonly used mode will not likely be the one to use for off-road, as 
most vehicles will be predominantly used on-road. It would be 
inappropriate to use a mode not intended for off-road use, simply 
because it was used most often. Stellantis agrees with Auto Innovators 
and JLR in relation to the suggestion that for the test procedure, it 
would be more appropriate to allow manufacturers to define the mode 
setting for vehicles with adjustable suspensions.
---------------------------------------------------------------------------

    \1275\ JLR, NHTSA-2021-0053-1505-A1, at p. 5.
---------------------------------------------------------------------------

    Ford supported NHTSA's proposal to conduct audits of vehicle 
measurements and vehicle classification.\1276\ They state it is 
critical that vehicles are properly categorized to maintain the 
integrity of the CAFE program and to ensure a level playing field for 
all automobile manufacturers. Ford supports convening a group of expert 
stakeholders, including NHTSA and automobile manufacturers, to develop 
vehicle measurement processes and procedures in a future rulemaking. 
Ford recommended that manufacturers have the option to use Computer 
Aided Design (CAD) data for dimensional reporting. They stated the use 
of CAD data supports the timing and logistical requirements and allows 
all buildable combinations of vehicles, including optional equipment, 
to be assessed. Ford stated automobile manufacturers are ultimately 
responsible for ensuring that their vehicles are built according to 
their specifications and that all vehicles are properly categorized.
---------------------------------------------------------------------------

    \1276\ Ford, NHTSA-2021-0053-1545-A1, at p. 2.
---------------------------------------------------------------------------

    NHTSA agrees that auditing manufacturers' classification criteria 
will be necessary to create uniformity among vehicles classified as 
light trucks. NHTSA plans to use its upcoming compliance test procedure 
to collect more information on vehicles with adjustable suspensions. 
The questions in the 2021 NPRM attempted to clarify the correct height 
adjustment settings for of vehicles with adjustable suspension to 
determine if they meet the criteria in 49 CFR part 523 to be classified 
as light trucks. The agency thanks the industry for their feedback and 
will take it under advisement in future rulemakings and test 
procedures. While we are not changing our classification regulations in 
this rule, we want to note that we are still weighing whether it is 
appropriate to allow manufacturers to choose the height used to 
determine CAFE compliance for vehicles with adjustable suspensions. The 
purpose for our previous flexibility was to afford maximum leniency for 
vehicles necessary for off-road work purposes. However, given the vast 
proliferation of SUVs and crossovers--the majority of which will never 
be used for off-road purposes--we believe that we will need to 
reevaluate what features are indicative of off-road purposes in the 
near future. Upon completion of NHTSA's CAFE vehicle classification 
testing program, the agency will send its annual compliance questions 
to manufacturers as a part of its normal compliance questionnaires to 
collect more information on all AWD/4WD vehicles with adjustable 
suspensions and to identify the available adjustable ride height 
settings of these vehicles. Furthermore, any vehicle tested will be 
required to specify all available off-road features as discussed above 
as information in response to NHTSA's testing specification request 
forms.\1277\
---------------------------------------------------------------------------

    \1277\ See https://www.nhtsa.gov/vehicle-manufacturers/test-specification-forms. (Accessed: March 15, 2022)
---------------------------------------------------------------------------

    The agency wants to remind manufacturers that a vehicle's CAFE 
classification is not dispositive of a vehicle's classification for our 
safety regulations. Vehicles classified as non-automobiles for CAFE may 
be considered passenger cars for our safety regulations.
    Furthermore, consistent with our approach to other measurements, 
NHTSA is reaffirming for its final rule that manufacturers must measure 
ground clearances, as well as all the other off-highway criteria for a 
light truck determination, using vehicles with all standard and 
optional equipment installed, at the time vehicles are shipped to 
dealerships. These views were shared by manufacturers in response to 
the previous CAFE rulemaking. By using measurements from vehicles with 
all standard and optional equipment installed, at the time vehicles are 
shipped to dealerships, NHTSA can ensure that vehicles are properly 
classified.
    Finally, NHTSA does not agree with Ford's recommendation that 
manufacturers should use Computer Aided Design (CAD) data for off-road 
dimensional reporting. CAD data have been shown in the past to be 
ineffective in providing accurate dimensions for production vehicles. 
Vehicles on dealer lots have shown high variance in terms of dimensions 
from region to region, across the country and in different markets. 
This is highly evident through numerous recalls under 49 CFR part 573 
filed with NHTSA which identify variance in production plant as a cause 
for non-compliances or defects. In the vast majority of recalls, it 
shows that the population of vehicles affected are highly dependent on 
manufacturing plant, equipment, and vehicle manufacturing processes. 
These variances mainly result from stack tolerances produced from a 
combination of manufacturing and production tolerances which are not 
fully accounted for in CAD drawings. Thus, CAD would not be a valid 
tool for representing vehicle production dimensions. However, NHTSA 
will continue to discuss the errors that may exist in using CAD for 
classifying vehicles with manufacturers for consideration in future 
rulemakings.
(b) Testing for Approach, Breakover, and Departure Angles
    Approach angle, breakover angle, and departure angle are relevant 
to determine off-highway capability. Large approach and departure 
angles ensure the front and rear bumpers and valance panels have 
sufficient clearance for obstacle avoidance while driving off-road. The 
breakover angle ensures sufficient body clearance from rocks and other 
objects located between the front and rear wheels while traversing 
rough terrain. Both the approach and departure angles are derived from 
a line tangent to the front (or rear) tire static loaded radius arc 
extending from the ground near the center of the tire patch to the 
lowest contact point on the front or rear of the vehicle. The term 
``static loaded radius arc'' is based upon the definitions in SAE J1100 
and J1544.\1278\ The term is defined as the distance from wheel axis of 
rotation to the supporting surface (ground) at a given load of the 
vehicle and stated inflation pressure of the tire (manufacturer's 
recommended cold inflation pressure).
---------------------------------------------------------------------------

    \1278\ See SAE J1100 published on May 26, 2012 and SAE J1544 
published on Oct 25, 2011.
---------------------------------------------------------------------------

    The static loaded radius arc is easy to measure for computer 
simulations, but the imaginary line tangent to the static loaded radius 
arc is difficult to ascertain in the field. The approach and departure 
angles are the angles between the line tangent to the static loaded 
radius arc and the level ground on which the test vehicle rests. For 
the compliance test procedure, a substitute measurement will be used. A 
measurement that provides a good approximation of the approach and 
departure angles involve using a line tangent to the outside diameter 
or perimeter of the tire and extends to the lowest contact point on the 
front or rear of the vehicle. This approach provides an angle slightly 
greater than the angle derived from the true static loaded radius arc. 
The approach also has the advantage to allow measurements to be made 
quickly for measuring angles in the field to

[[Page 26056]]

verify data submitted by the manufacturers used to determine light 
truck classification decisions. In order to comply, the vehicle 
measurement must be equal to or greater than the required measurements 
to be considered as compliant and if not, the reported value will 
require an investigation which could lead to the manufacturer's vehicle 
becoming reclassified as a passenger car.
    NHTSA plans to start developmental testing for its test vehicle 
classification test procedures. We agree with Ford that opening 
discussions with expert stakeholders, including NHTSA and automobile 
manufacturers, to develop vehicle measurement processes and procedures 
is a worthy goal especially during our fabrication of a device to 
measure approach, breakover and departure angles. We reiterate that 
manufacturers should determine their vehicle classifications using off-
road angles based on a line tangent to the front (or rear) tire static 
loaded radius arc. However, for developmental testing, NHTSA will 
evaluate the differences in angle measurements between those using its 
substitute approach (a line tangent to the outside diameter or 
perimeter of the tire and extends to the lowest contact point on the 
front or rear of the vehicle) and the true angle based on the static 
loaded radius arc. We will share the results with manufacturers to 
establish the variations in the measurements and to identify any 
complications. Depending upon the outcome of comparisons and 
developments for a suitable test device using the static loaded radius 
arc, a simple and repeatable apparatus, the agency may forgo 
establishing a device for its alternative angle measurement approach 
for compliance testing. NHTSA will start reaching out to interested 
parties in the next couple of months to start researching approaches 
for developing test devices.
(c) Running Clearance
    NHTSA regulations define ``running clearance'' as ``the distance 
from the surface on which an automobile is standing to the lowest point 
on the automobile, excluding unsprung weight.'' \1279\ Unsprung weight 
includes the components (e.g., suspension, wheels, axles, and other 
components directly connected to the wheels and axles) that are 
connected and translate with the wheels. Sprung weight, on the other 
hand, includes all components fixed underneath the vehicle that 
translate with the vehicle body (e.g., mufflers and subframes). To 
clarify these requirements, NHTSA previously issued a letter of 
interpretation stating that certain parts of a vehicle--such as tire 
aero deflectors that are made of flexible plastic, bend without 
breaking, and return to their original position--would not count 
against the 20-centimeter running clearance requirement.\1280\ The 
agency explained that this does not mean a vehicle with less than 20 
centimeters running clearance could be elevated by an upward force that 
bends the deflectors and still be considered compliant with the running 
clearance criterion, as it would be inconsistent with the conditions 
listed in the introductory paragraph of 49 CFR 523.5(b)(2). Further, 
NHTSA explained that without a flexible component installed, the 
vehicle must meet the 20-centimeter running clearance requirement along 
its entire underside. This 20-centimeter clearance is required for all 
sprung weight components. For its compliance test procedure, NHTSA will 
include a list of the all the components under the vehicle considered 
as unsprung components. NHTSA will update the list of unsprung 
components as the need arises.
---------------------------------------------------------------------------

    \1279\ 49 CFR 523.2.
    \1280\ See https://www.nhtsa.gov/interpretations/11-000612-medie-part-523 (accessed Mar. 29, 2022).
---------------------------------------------------------------------------

    NHTSA received several comments in relation to defining ``running 
clearance'' as per regulations. Comments were received from Stellantis 
\1281\ and Hyundai.\1282\ Stellantis provided comments stating they 
agree that the 20 cm clearance is for all sprung components. They also 
appreciate the agency re-affirming its interpretation that flexible 
components that return to their original position without breaking are 
not to be included in the assessment. Hyundai provided comments 
requesting NHTSA to clarify that vehicles classified for off-road use 
according to the physical production characteristic of ground clearance 
should meet a minimum value whereby higher values are acceptable. 
Hyundai stated NHTSA provides requirements for a variety of criteria 
where a minimum or maximum value is appropriate. They state, for 
example, ``NHTSA regulations state that front and rear axle clearances 
of not less than 18 centimeters are another criterion that can be used 
for designating a vehicle as off-highway capable''. Hyundai continued 
``NHTSA explained that without a flexible component installed, the 
vehicle must meet the 20-centimeter running clearance requirement along 
its entire underside''.
---------------------------------------------------------------------------

    \1281\ Stellantis, NHTSA-2021-0053-1527, at page 29.
    \1282\ Hyundai, NHTSA-2021-0053-1512-A1, at page 8.
---------------------------------------------------------------------------

    NHTSA agrees with Stellantis that the 20 cm clearance requirement 
is for sprung components as per NHTSA's regulations and prior 
interpretations.
    In response to Hyundai, NHTSA reiterates that the 20-centimeter 
clearance is required for all sprung weight components. This is not 
related to unsprung weight components such as axles. Unsprung weight 
includes the components (e.g., suspension, wheels, axles, and other 
components directly connected to the wheels and axles) that are 
connected and translate with the wheels. Sprung weight, on the other 
hand, includes all components fixed underneath the vehicle that 
translate with the vehicle body (e.g., mufflers and subframes). For its 
compliance test procedure, NHTSA will include a list of the all the 
components under the vehicle considered as unsprung components. NHTSA 
will update the list of unsprung components as the need arises.
(d) Front and Rear Axle Clearance
    NHTSA regulations state that front and rear axle clearances of not 
less than 18 centimeters are another criterion that can be used for 
designating a vehicle as off-highway capable.\1283\ The agency defines 
``axle clearance'' as the vertical distance from the level surface on 
which an automobile is standing to the lowest point on the axle 
differential of the automobile.
---------------------------------------------------------------------------

    \1283\ 49 CFR 523.5(b)(2).
---------------------------------------------------------------------------

    The agency believes this definition may be outdated because of 
vehicle design changes, including axle system components and 
independent front and rear suspension components which hang lower than 
the differential. In the past, traditional light trucks with 4WD 
systems had solid rear axles with center- mounted differential on the 
axle. For these trucks, the rear axle differential was closer to the 
ground than any other axle or suspension system components. This 
traditional axle design still exists today for some trucks with a solid 
chassis (also known as body-on-frame configuration). Today, however, 
many SUVs and CUVs that qualify as light trucks are constructed with a 
unibody frame and have unsprung (e.g., control arms, tie rods, ball 
joints, struts, shocks, etc.) and sprung components (e.g., the axle 
subframes) connected together as a part of the axle assembly. These 
unsprung and sprung components are located under the axles, making them 
lower to the ground than the axles and the differential, and were not 
contemplated when NHTSA established

[[Page 26057]]

the definition and the allowable clearance for axles. The definition 
also did not originally account for 2WD vehicles with GVWRs greater 
than 6,000 pounds that had one axle without a differential, such as the 
model year 2018 Ford Expedition. Vehicles with axle components that are 
low enough to interfere with the vehicle's ability to perform off-road 
would seem inconsistent with the regulation's intent of ensuring off-
highway capability.
    In light of these issues, for the compliance test procedure, in the 
2020 final rule, NHTSA stated it would request manufacturers to 
identify those axle components that are sprung or unsprung and provide 
sufficient justification as a part of the testing setup request forms 
sent to manufacturers in support of its compliance testing program. In 
addition, for vehicles without a differential, NHTSA would request the 
location each manufacturer used to establish its axle clearance 
qualification. NHTSA would validate the location specified by the 
manufacturer but would challenge any location on the vehicle's axle 
found to be located at a lower elevation to the ground than the 
designed location of its axle clearance measurement. NHTSA reiterated 
this approach in the 2021 NPRM and committed to adding the approach in 
its upcoming vehicle classification test procedure.\1284\
---------------------------------------------------------------------------

    \1284\ 86 FR 49602 (Sept. 3, 2021).
---------------------------------------------------------------------------

    In response to the NPRM, NHTSA received several comments in 
relation to defining ``Front and Rear Axle Clearance'' as per NHTSA 
regulations. Comments were received from Auto Innovators \1285\ and 
Stellantis.\1286\ Auto Innovators provided comments stating they 
believe the current definition is sufficient as the differential is the 
vulnerable component. They expressed that other suspension components 
closer to the tire are not likely to: (1) Hit the ground due to 
proximity to the tire, and (2) are much more likely to tolerate the 
occasional contact in a 4-low/off-road situation. Auto Innovators 
stated if NHTSA believes addressing suspension or axle components in 
independent suspension systems is necessary, it should engage with SAE 
International to develop a procedure for measuring the clearances of 
such components, determine typical clearances in vehicles classified as 
light trucks based on other off-road capability criteria, and seek 
input from automobile manufacturers and off-road user groups. Auto 
Innovators believed only then should NHTSA consider formally proposing 
appropriate additional off-road characteristics for 49 CFR 523.5(b)(2) 
to address such components. They stated if NHTSA modified the 
definition of ``axle clearance'' or changes its interpretation of the 
definition, through test procedures or otherwise, to include components 
or locations other than the bottom of the differential, it should not 
reclassify vehicles on the basis of such changes until MY 2027 at the 
earliest, and the footprint-based target curves should be reassessed.
---------------------------------------------------------------------------

    \1285\ Auto Innovators, NHTSA-2021-0053-1492, at page 69.
    \1286\ Stellantis, NHTSA-2021-0053-1527, at page 29.
---------------------------------------------------------------------------

    Additionally, Stellantis provided comments stating suspension 
components, both on a solid axle truck or independent suspension have 
the possibility of being closer to the ground, but this is generally 
closer to the tire where the ground clearance need is least as the tire 
will lift the vehicle and nearby suspension components over an 
obstacle, versus a differential that might make contact if a driver 
chooses to straddle an obstacle.\1287\ Further, they believe, 
suspension components are unlikely to be damaged by light or incidental 
contact and therefore don't need the same clearance protection as a 
differential. Lastly, they believe, the suspension components 
essentially prevent ground contact to half shafts so they are similarly 
not vulnerable to contact. Stellantis does not believe a change is 
needed to the axle clearance requirement. If a change is needed, 
Stellantis requested that the agency work with manufacturers to develop 
a new requirement. They stated regardless, any change to this 
requirement demands ample lead-time for manufacturers to incorporate 
into a redesign. They believe anything less would result in a de facto 
stringency change in the rule as some number of vehicles would 
presumably be reclassified as passenger cars. Stellantis stated this 
has not been considered and is not likely to be trivial. Stellantis 
believed if this change is adopted, then the agency should also work 
with industry to understand which vehicles would become part of the 
passenger car fleet, and then reassess the footprint stringency lines 
for both fleets.
---------------------------------------------------------------------------

    \1287\ Stellantis, NHTSA-2021-0053-1527, at page 29.
---------------------------------------------------------------------------

    We thank the industry for their input, and will take it into 
consideration as we consider CAFE vehicle classifications in the 
future. The comments raised further questions. Our regulations state 
that front and rear axle clearances of not less than 18 centimeters are 
another criterion that can be used for designating a vehicle as off-
highway capable. Vehicles with axle components that are low enough to 
interfere with the vehicle's ability to perform off-road would seem 
inconsistent with the regulation's intent of ensuring off-highway 
capability. Both Auto Innovators and Stellantis assume that suspension 
components closer to the tire are not likely to: (1) Hit the ground due 
to proximity to the tire, and (2) are much more likely to tolerate the 
occasional contact in an off-road situation. However, we are uncertain 
if commenters considered the possibility of debris or obstacles 
encountered off-road that could significantly damage these components. 
While differentials are significant components of an off-road vehicles 
ability to traverse off-road terrains so are other suspension 
components and any ridged components attached to the vehicle that are 
lower than the differential. There are a multitude of scenarios where 
these unsprung and sprung components could be damaged significantly 
decreasing the off-road ability of a vehicle. We need to assess these 
factors as the agency works with manufacturers to develop a new 
requirement as Auto Innovators and Stellantis suggested. NHTSA's 
current intent presently is not to modify the definition of ``axle 
clearance'' or adopt changes through its test procedure but rather to 
continue collecting information through communication with the industry 
and then in subsequent rulemaking consider changes to its definitions. 
NHTSA also agrees with Auto Innovators and Stellantis that the agency 
should also work with industry to understand which vehicles would 
become part of the passenger car fleet and reassess the footprint 
stringency lines for both fleets.
(e) 49 CFR 571.3 MPV Definition
    As discussed in the previous sections, NHTSA asked commenters to 
provide some feedback to assist in the creation of test procedures. 
While ``multi-purpose vehicles'' (MPVs) is not a vehicle classification 
for CAFE purposes, we took the opportunity to seek comment on our 
definition of MPV in the proposal as it touches upon many of the same 
issues discussed above. In the proposal, NHTSA questioned whether to 
link the definition of MPV in 49 CFR 571.3 (as it relates to special 
features for occasional off-road operation) to 49 CFR 523.5(b)(2). It 
also asked what drawbacks exist in linking both provisions. Another 
question raised was whether using the longstanding off-road features 
for fuel economy provides could clarify the means for certifying that a 
vehicle meets the definition for MPV in Sec.  571.3 when

[[Page 26058]]

manufacturers may otherwise be uncertain as to how to classify a 
vehicle.
    In response to the NPRM, NHTSA received several comments in 
relation to linking the definition of MPV in 49 CFR 571.3, as it 
relates to special features for occasional off-road operation, to the 
one in 49 CFR 523.5(b)(2). Comments were received from Auto 
Innovators,\1288\ Ford,\1289\ Hyundai,\1290\ and JLR.\1291\ In general, 
comments opposed linking the two standards, but failed to define other 
special features to qualify for occasional off-road operation. We will 
use the feedback from manufacturers in the future when we consider 
safety vehicle classification.
---------------------------------------------------------------------------

    \1288\ Auto Innovators, NHTSA-2021-0053-1492, at pp. 70-71.
    \1289\ Ford, NHTSA-2021-0053-1545-A1, at p. 2.
    \1290\ Hyundai, NHTSA-2021-0053-1512-A1, at p. 8.
    \1291\ JLR, NHTSA-2021-0053-1505-A, at p. 1.
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VIII. Regulatory Notices and Analyses

A. Executive Order 12866, Executive Order 13563

    Executive Order 12866, ``Regulatory Planning and Review'' (58 FR 
51735, Oct. 4, 1993), as amended by Executive Order 13563, ``Improving 
Regulation and Regulatory Review'' (76 FR 3821, Jan. 21, 2011), 
provides for making determinations whether a regulatory action is 
``significant'' and therefore subject to the Office of Management and 
Budget (OMB) review process and to the requirements of the Executive 
order. Under these Executive orders, this action is an ``economically 
significant regulatory action'' because it is likely to have an annual 
effect on the economy of $100 million or more. Accordingly, NHTSA 
submitted this action to OMB for review and any changes made in 
response to OMB recommendations have been documented in the docket for 
this action. The benefits and costs of this final rule are described 
above and in the FRIA, which is located in the docket and on NHTSA's 
website.

B. DOT Regulatory Policies and Procedures

    This final rule is also significant within the meaning of the 
Department of Transportation's Regulatory Policies and Procedures. The 
benefits and costs of the final rule are described above and in the 
FRIA, which is located in the docket and on NHTSA's website.

C. Executive Order 13990

    Executive Order 13990, ``Protecting Public Health and the 
Environment and Restoring Science to Tackle the Climate Crisis'' (86 FR 
7037, Jan. 25, 2021), directed the immediate review of ``The Safer 
Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-
2026 Passenger Cars and Light Trucks'' (the 2020 final rule) by July 
2021. The Executive order directed that ``[i]n considering whether to 
propose suspending, revising, or rescinding that rule, the agency 
[i.e., NHTSA] should consider the views of representatives from labor 
unions, States, and industry.''
    This final rule follows the review directed in this Executive 
order. Promulgated under NHTSA's statutory authorities, it finalizes 
new CAFE standards for the model years covered by the 2020 final rule 
for which there is still available lead time to change, and it accounts 
for the views provided by labor unions, States, and industry.

D. Environmental Considerations

1. National Environmental Policy Act (NEPA)
    Concurrently with this final rule, the agency is releasing a Final 
SEIS, pursuant to the National Environmental Policy Act, 42 U.S.C. 4321 
through 4347, and implementing regulations issued by the Council on 
Environmental Quality (CEQ), 40 CFR part 1500, and NHTSA, 49 CFR part 
520. The agency prepared the Final SEIS to analyze and disclose the 
potential environmental impacts of the proposed CAFE standards and a 
range of alternatives. The Final SEIS analyzes direct, indirect, and 
cumulative impacts and analyzes impacts in proportion to their 
significance. It describes potential environmental impacts to a variety 
of resources, including fuel and energy use, air quality, climate, land 
use and development, hazardous materials and regulated wastes, 
historical and cultural resources, noise, and environmental justice. 
The Final SEIS also describes how climate change resulting from global 
carbon dioxide emissions (including CO2 emissions attributable to the 
U.S. light duty transportation sector under the alternatives 
considered) could affect certain key natural and human resources. 
Resource areas are assessed qualitatively and quantitatively, as 
appropriate, in the Final SEIS.
    The agency has considered the information contained in the Final 
SEIS in making the final decision described in this final rule.\1292\ 
This preamble and final rule constitute the agency's Record of Decision 
(ROD) under 40 CFR 1505.2 for its promulgation of CAFE standards for 
MYs 2024-2026. The agency has authority to issue its Final SEIS and ROD 
simultaneously pursuant to 49 U.S.C. 304a(b) and U.S. Department of 
Transportation, Office of Transportation Policy, Guidance on the Use of 
Combined Final Environmental Impact Statements/Records of Decision and 
Errata Sheets in National Environmental Policy Act Reviews (April 25, 
2019).\1293\ NHTSA has determined that neither the statutory criteria 
nor practicability considerations preclude simultaneous issuance.
---------------------------------------------------------------------------

    \1292\ The Final SEIS is available for review in the public 
docket for this action and in Docket No. NHTSA-2021-0054.
    \1293\ The guidance is available at https://www.transportation.gov/sites/dot.gov/files/docs/mission/transportation-policy/permittingcenter/337371/feis-rod-guidance-final-04302019.pdf (accessed: February 10, 2022).
---------------------------------------------------------------------------

    As required by the CEQ regulations,\1294\ this final rule (as the 
ROD) sets forth the following in Sections IV, V, and VI above (1) the 
agency's decision (2) alternatives considered by NHTSA in reaching its 
decision, including the environmentally preferable alternative; (3) the 
factors balanced by NHTSA in making its decision, including essential 
considerations of national policy (Section VIII.B above); (4) how these 
factors and considerations entered into its decision; and (5) the 
agency's preferences among alternatives based on relevant factors, 
including economic and technical considerations and agency statutory 
missions. The following sections discuss comments received on the Draft 
SEIS, NHTSA's range of alternatives, and other factors used in the 
decision-making process. This section also briefly addresses mitigation 
\1295\ and whether all practicable means to avoid or minimize 
environmental harm from the alternative selected have been adopted.
---------------------------------------------------------------------------

    \1294\ 40 CFR 1505.2.
    \1295\ See 40 CFR 1508.1(s) (``Mitigation includes . . . 
[m]inimizing impacts by limiting the degree or magnitude of the 
action and its implementation.'').
---------------------------------------------------------------------------

    One commenter, the WDNR, stated that NHTSA should collaborate more 
with EPA, especially when it comes to addressing any collateral impacts 
on criteria pollutant emissions, since both agencies have rulemakings 
related to analyses of anticipated GHG and criteria pollutant emissions 
impacts. NHTSA believes that it properly coordinates with EPA and that 
differences in the respective rules are due to each agencies' 
authority. EPA is a Cooperating Agency on the Final SEIS, and as such, 
NHTSA coordinated with EPA to review and comment on the Draft and Final 
SEISs prior to publication. Separately, as discussed further below and 
in the Final SEIS, the agency's authority to promulgate fuel economy 
standards does not allow it to regulate criteria pollutants from 
vehicles

[[Page 26059]]

or refineries (nor can NHTSA regulate other factors affecting those 
emissions, such as driving habits); however, EPA still retains the 
ability to regulate NAAQS under the Clean Air Act.
    Some commenters agreed that that the range of alternatives 
presented in NHTSA's Proposal and accompanying Draft SEIS represented a 
reasonable range of final agency actions. However, some commenters 
advocated for the finalization of standards more stringent than 
Alternative 2 to better advance NHTSA's statutory purposes of 
maximizing fuel economy considering the environmental, heath, and 
security needs of the United States to conserve energy. Some commenters 
stated that NHTSA needs to implement more stringent standards in order 
to improve public health, to help mitigate some of the impacts of 
climate change, including poor air quality, to assist States in 
attaining and maintaining the National Ambient Air Quality Standards 
(NAAQS), and to meet environmental justice goals. NHTSA agrees that 
increasing the fuel economy of the passenger car and light[hyphen]truck 
fleet would result in public health and climate benefits, which are 
analyzed in the Final SEIS, the TSD, and the FRIA.
    As described in the Final SEIS, Chapter 1, Purpose and Need for the 
Action, NHTSA must consider the requirements of EPCA, which sets forth 
the four factors the agency must balance when determining ``maximum 
feasible'' standards. NHTSA's explanation for how it arrived at the 
range of alternatives under consideration is in Section IV and VI and 
incorporated by reference in the SEIS. NHTSA must consider all the 
statutory factors when considering which standards are maximum 
feasible, and cannot consider some to the exclusion of others, as 
described at length in Section VI of this preamble. NHTSA agrees with 
commenters that the range of alternatives under consideration in the 
SEIS is reasonable, in light of the factors it must balance. All of the 
action alternatives NHTSA evaluated for the SEIS would result in 
substantial fuel savings and associated GHG emissions reductions, as 
well as many of the other benefits highlighted by the commenters. NHTSA 
also believes that considering more aggressive standards beyond what 
the agency has modeled for the action alternatives would exceed maximum 
feasibility.
    In the Draft SEIS and in the Final SEIS, the agency identified a 
Preferred Alternative. In the Draft SEIS, the Preferred Alternative was 
identified as Alternative 2 (8.0 percent average annual increase for 
both passenger cars and light trucks for MYs 2024-2026), which were the 
standards the agency proposed in the NPRM. In the Final SEIS, the 
Preferred Alternative was identified as Alternative 2.5. As the Final 
SEIS notes, under the Preferred Alternative, on an mpg basis, the 
estimated annual increases in the average required fuel economy levels 
between MYs 2024 and 2025 is 8.0 percent for both passenger cars and 
light trucks and for MY 2026, annual increases in average require fuel 
economy levels is 10.0 percent for both passenger cars and light 
trucks.\1296\ After carefully reviewing and analyzing all of the 
information in the public record, comments submitted on the Draft SEIS, 
and the Final SEIS, NHTSA decided to finalize the Preferred Alternative 
described in the Final SEIS for the reasons described in this ROD.
---------------------------------------------------------------------------

    \1296\ Because the standards are attribute-based, average 
required fuel economy levels, and therefore rates of increase in 
those average mpg values, depend on the future composition of the 
fleet, which is uncertain and subject to change. When NHTSA 
describes a percent increase in stringency, we mean in terms of 
shifts in the footprint functions that form the basis for the actual 
CAFE standards (as in, on a gallon per mile basis, the CAFE 
standards change by a given percentage from one model year to the 
next).
---------------------------------------------------------------------------

    Some commenters agreed with the underlying CAFE Model assumptions 
that affected the environmental modeling in the SEIS, like including 
the California's ZEV standards in the baseline for this final rule. 
Other commenters disagreed with some assumptions, such as rebound rate 
and import share assumptions, and identified the impact of those 
assumptions on VMT. Another commenter noted that NHTSA used outdated 
CAFE Model input assumptions that inform the analyses presented in the 
SEIS and do not reflect the best available evidence. The agency 
addresses the comments regarding the CAFE Model above in Section III of 
the preamble. NHTSA has considered and accounted for California's ZEV 
standards in developing the baseline for this final rule and agrees 
that it is reasonable to include these standards in the baseline for 
this final rule as they are other legal requirements affecting 
automakers. To the extent that commenters are concerned about CAFE 
Model input assumptions that inform the analyses presented in the Draft 
and Final SEIS, as discussed further in preamble Section II.C, Changes 
in Light of Public Comments and New Information, NHTSA did update the 
analysis for the final rule. Some of these updates include updates to 
assumptions mentioned by the commenter, e.g., adjusting the measure of 
rebound driving from fifteen to ten percent. A full list of changes for 
the final rule analysis and the basis for those changes is discussed 
throughout the preamble and in the relevant portions of the TSD.
    NHTSA performed a national-scale photochemical air quality modeling 
and health benefit assessment for the Final SEIS; it is included as 
Appendix D. The purpose of this assessment was to use air quality 
modeling and health-related benefits analysis tools to examine the 
potential air quality-related consequences of the alternatives 
considered in the Draft SEIS. As provided for prior rulemakings and for 
the scoping notice for this EIS, NHTSA also announced that, due to the 
substantial lead time required, the analysis would be based on the 
modeling of the alternatives presented in the Draft SEIS, not of the 
alternatives as presented in the Final SEIS. Furthermore, while 
photochemical modeling provides spatial and temporal detail for 
estimating changes in ambient levels of air pollutants and their 
associated impacts on human health and welfare for the alternatives 
considered, the analysis affirms the estimates that appear in the SEIS 
and does not provide significant new information for the decisionmaker 
or the public.
    The Sierra Club stated that NHTSA's Draft SEIS presents ``an 
erroneous picture of the GHG emissions impacts of battery electric 
vehicles (EVs)'' and relies on ``stale data.'' \1297\ The commenter 
stated that ``when more current data are used, the results are 
dramatically different and show that EVs are already superior to 
internal combustion engine (ICE) vehicles from a GHG emissions 
perspective across almost the entire country, and trends in power 
generation will cause EVs to further outpace ICE vehicles on emission 
reductions in the coming years.'' NHTSA has updated the Final SEIS 
Section 6.2.3.1, Charging Locations, to use more appropriate and 
current emission factors to assess the CO2 impacts from electric 
vehicle (EV) charging locations and behaviors, and NHTSA updated 
Section 6.2.1, Diesel and Gasoline, in the Final SEIS to discuss 
transporting oil sands crude by pipeline and rail.
---------------------------------------------------------------------------

    \1297\ NHTSA acknowledged but did not address this limitation in 
the Draft SEIS. Draft SEIS at 6-16 (``The U.S. grid mix has changed 
significantly over the past decade, and this means that older [life-
cycle assessments] based on different grid mix assumptions might not 
be comparable with findings in Chapters 4 and 5, which are based on 
more recent grid mix forecasts.'').
---------------------------------------------------------------------------

    NHTSA considered environmental considerations as part of its 
balancing of

[[Page 26060]]

the statutory factors to set maximum feasible fuel economy standards. 
As a result, the agency has limited the degree or magnitude of the 
action as appropriate in light of its statutory responsibilities. The 
agency's authority to promulgate fuel economy standards does not allow 
it to regulate criteria pollutants from vehicles or refineries, nor can 
NHTSA regulate other factors affecting those emissions, such as driving 
habits. Consequently, NHTSA must set CAFE standards but is unable to 
take further steps to mitigate the impacts of these standards. Chapter 
9 of the Final SEIS provides a further discussion of mitigation 
measures in the context of NEPA.
2. Clean Air Act (CAA) as Applied to NHTSA's Final Rule
    The CAA (42 U.S.C.[thinsp]7401 et seq.) is the primary Federal 
legislation that addresses air quality. Under the authority of the CAA 
and subsequent amendments, EPA has established National Ambient Air 
Quality Standards (NAAQS) for six criteria pollutants, which are 
relatively commonplace pollutants that can accumulate in the atmosphere 
as a result of human activity. EPA is required to review each NAAQS 
every five years and to revise those standards as may be appropriate 
considering new scientific information.
    The air quality of a geographic region is usually assessed by 
comparing the levels of criteria air pollutants found in the ambient 
air to the levels established by the NAAQS (taking into account, as 
well, the other elements of a NAAQS: Averaging time, form, and 
indicator). Concentrations of criteria pollutants within the air mass 
of a region are measured in parts of a pollutant per million parts 
(ppm) of air or in micrograms of a pollutant per cubic meter ([mu]g/m3) 
of air present in repeated air samples taken at designated monitoring 
locations using specified types of monitors. These ambient 
concentrations of each criteria pollutant are compared to the levels, 
averaging time, and form specified by the NAAQS in order to assess 
whether the region's air quality is in attainment with the NAAQS.
    When the measured concentrations of a criteria pollutant within a 
geographic region are below those permitted by the NAAQS, EPA 
designates the region as an attainment area for that pollutant, while 
regions where concentrations of criteria pollutants exceed Federal 
standards are called nonattainment areas. Former nonattainment areas 
that are now in compliance with the NAAQS are designated as maintenance 
areas. Each State with a nonattainment area is required to develop and 
implement a State Implementation Plan (SIP) documenting how the region 
will reach attainment levels within time periods specified in the CAA. 
For maintenance areas, the SIP must document how the State intends to 
maintain compliance with the NAAQS. When EPA revises a NAAQS, each 
State must revise its SIP to address how it plans to attain the new 
standard.
    No Federal agency may ``engage in, support in any way or provide 
financial assistance for, license or permit, or approve'' any activity 
that does not ``conform'' to a SIP or Federal Implementation Plan after 
EPA has approved or promulgated it.\1298\ Further, no Federal agency 
may ``approve, accept, or fund'' any transportation plan, program, or 
project developed pursuant to title 23 or chapter 53 of title 49, 
U.S.C., unless the plan, program, or project has been found to 
``conform'' to any applicable implementation plan in effect.\1299\ The 
purpose of these conformity requirements is to ensure that Federally 
sponsored or conducted activities do not interfere with meeting the 
emissions targets in SIPs, do not cause or contribute to new violations 
of the NAAQS, and do not impede the ability of a State to attain or 
maintain the NAAQS or delay any interim milestones. EPA has issued two 
sets of regulations to implement the conformity requirements:
---------------------------------------------------------------------------

    \1298\ 42 U.S.C. 7506(c)(1).
    \1299\ 42 U.S.C. 7506(c)(2).
---------------------------------------------------------------------------

    (1) The Transportation Conformity Rule \1300\ applies to 
transportation plans, programs, and projects that are developed, 
funded, or approved under title 23 or chapter 53 of title 49, U.S.C.
---------------------------------------------------------------------------

    \1300\ 40 CFR part 51, subpart T, and part 93, subpart A.
---------------------------------------------------------------------------

    (2) The General Conformity Rule \1301\ applies to all other Federal 
actions not covered under transportation conformity. The General 
Conformity Rule establishes emissions thresholds, or de minimis levels, 
for use in evaluating the conformity of an action that results in 
emissions increases.\1302\ If the net increases of direct and indirect 
emissions exceed any of these thresholds, and the action is not 
otherwise exempt, then a conformity determination is required. The 
conformity determination can entail air quality modeling studies, 
consultation with EPA and state air quality agencies, and commitments 
to revise the SIP or to implement measures to mitigate air quality 
impacts.
---------------------------------------------------------------------------

    \1301\ 40 CFR part 51, subpart W, and part 93, subpart B.
    \1302\ 40 CFR 93.153(b).
---------------------------------------------------------------------------

    The CAFE standards and associated program activities are not 
developed, funded, or approved under title 23 or chapter 53 of title 
49, United States Code. Accordingly, this action and associated program 
activities are not subject to transportation conformity. Under the 
General Conformity Rule, a conformity determination is required where a 
Federal action would result in total direct and indirect emissions of a 
criteria pollutant or precursor originating in nonattainment or 
maintenance areas equaling or exceeding the rates specified in 40 CFR 
93.153(b)(1) and (2). As explained below, the agency's action results 
in neither direct nor indirect emissions as defined in 40 CFR 93.152.
    The General Conformity Rule defines direct emissions as ``those 
emissions of a criteria pollutant or its precursors that are caused or 
initiated by the Federal action and originate in a nonattainment or 
maintenance area and occur at the same time and place as the action and 
are reasonably foreseeable.'' \1303\ The agency's action would set fuel 
economy standards for light duty vehicles. It therefore would not cause 
or initiate direct emissions consistent with the meaning of the General 
Conformity Rule.\1304\ Indeed, the agency's action in aggregate reduces 
emissions, and to the degree the model predicts small (and time-
limited) increases, these increases are based on a theoretical response 
by individuals to fuel economy prices and savings, which are at best 
indirect. Indirect emissions under the General Conformity Rule are 
those emissions of a criteria pollutant or its precursors (1) that are 
caused or initiated by the Federal action and originate in the same 
nonattainment or maintenance area but occur at a different time or 
place as the action; (2) that are reasonably foreseeable; (3) that the 
agency can practically control; and (4) for which the agency has 
continuing program responsibility.\1305\ Each element of the definition 
must be met to qualify as indirect emissions. NHTSA has determined 
that, for purposes of general conformity, emissions (if any) that may 
result from its final fuel economy standards would not be caused by the 
agency's action, but rather would occur because of subsequent 
activities the

[[Page 26061]]

agency cannot practically control. ``[E]ven if a Federal licensing, 
rulemaking or other approving action is a required initial step for a 
subsequent activity that causes emissions, such initial steps do not 
mean that a Federal agency can practically control any resulting 
emissions.'' \1306\
---------------------------------------------------------------------------

    \1303\ 40 CFR 93.152.
    \1304\ Dep't of Transp. v. Pub. Citizen, 541 U.S. at 772 
(``[T]he emissions from the Mexican trucks are not `direct' because 
they will not occur at the same time or at the same place as the 
promulgation of the regulations.''). NHTSA's action is to establish 
fuel economy standards for MY 2021-2026 passenger car and light 
trucks; any emissions increases would occur in a different place and 
well after promulgation of the final rule.
    \1305\ 40 CFR 93.152.
    \1306\ 40 CFR 93.152.
---------------------------------------------------------------------------

    As the CAFE program uses performance-based standards, NHTSA cannot 
control the technologies vehicle manufacturers use to improve the fuel 
economy of passenger cars and light trucks. Furthermore, NHTSA cannot 
control consumer purchasing (which affects average achieved fleetwide 
fuel economy) and driving behavior (i.e., operation of motor vehicles, 
as measured by VMT). It is the combination of fuel economy 
technologies, consumer purchasing, and driving behavior that results in 
criteria pollutant or precursor emissions. For purposes of analyzing 
the environmental impacts of the alternatives considered under NEPA, 
NHTSA has made assumptions regarding all of these factors. The agency's 
Final SEIS projects that increases in air toxic and criteria pollutants 
would occur in some nonattainment areas under certain alternatives in 
the near term, although over the longer term, all action alternatives 
see improvements. However, the standards and alternatives do not 
mandate specific manufacturer decisions, consumer purchasing, or driver 
behavior, and NHTSA cannot practically control any of them.\1307\
---------------------------------------------------------------------------

    \1307\ See, e.g., Dep't of Transp. v. Pub. Citizen, 541 U.S. 
752, 772-73 (2004); S. Coast Air Quality Mgmt. Dist. v. Fed. Energy 
Regulatory Comm'n, 621 F.3d 1085, 1101 (9th Cir. 2010).
---------------------------------------------------------------------------

    One commenter, the WDNR, stated that ``NHTSA should work with EPA 
to offset any short-term increases in NOX and VOC emissions 
associated with the rule'' and suggested that NHTSA is ``largely 
plac[ing] the burden of implementing any measures on state and local 
agencies'' by not taking certain actions to offset criteria pollutant 
increases. NHTSA disagrees, as it is not within NHTSA's jurisdiction to 
implement such measures and lacks the expertise to conduct a full-scale 
analysis of their efficacy.
    In addition, NHTSA does not have the statutory authority to control 
the actual VMT by drivers. As the extent of emissions is directly 
dependent on the operation of motor vehicles, changes in any emissions 
that result from the agency's CAFE standards are not changes the agency 
can practically control or for which the agency has continuing program 
responsibility. Therefore, the final CAFE standards and alternative 
standards considered by NHTSA would not cause indirect emissions under 
the General Conformity Rule, and a general conformity determination is 
not required.
3. National Historic Preservation Act (NHPA)
    The NHPA (54 U.S.C. 300101 et seq.) sets forth Government policy 
and procedures regarding ``historic properties''--that is, districts, 
sites, buildings, structures, and objects included on or eligible for 
the National Register of Historic Places. Section 106 of the NHPA 
requires Federal agencies to ``take into account'' the effects of their 
actions on historic properties.\1308\ The agency concludes that the 
NHPA is not applicable to this rulemaking because the promulgation of 
CAFE standards for light duty vehicles is not the type of activity that 
has the potential to cause effects on historic properties. However, 
NHTSA includes a brief, qualitative discussion of the impacts of the 
alternatives on historical and cultural resources in the Final SEIS.
---------------------------------------------------------------------------

    \1308\ Section 106 is now codified at 54 U.S.C. 306108. 
Implementing regulations for the Section 106 process are located at 
36 CFR part 800.
---------------------------------------------------------------------------

4. Fish and Wildlife Conservation Act (FWCA)
    The FWCA (16 U.S.C. 2901 et seq.) provides financial and technical 
assistance to States for the development, revision, and implementation 
of conservation plans and programs for nongame fish and wildlife. In 
addition, the Act encourages all Federal departments and agencies to 
utilize their statutory and administrative authorities to conserve and 
to promote conservation of nongame fish and wildlife and their 
habitats. The agency concludes that the FWCA does not apply to this 
final rule because it does not involve the conservation of nongame fish 
and wildlife and their habitats. However, NHTSA conducted a qualitative 
review in its Final SEIS of the related direct, indirect, and 
cumulative impacts, positive or negative, of the alternatives on 
potentially affected resources, including nongame fish and wildlife and 
their habitats.
5. Coastal Zone Management Act (CZMA)
    The Coastal Zone Management Act (16 U.S.C. 1451 et seq.) provides 
for the preservation, protection, development, and (where possible) 
restoration and enhancement of the Nation's coastal zone resources. 
Under the statute, States are provided with funds and technical 
assistance in developing coastal zone management programs. Each 
participating State must submit its program to the Secretary of 
Commerce for approval. Once the program has been approved, any activity 
of a Federal agency, either within or outside of the coastal zone, that 
affects any land or water use or natural resource of the coastal zone 
must be carried out in a manner that is consistent, to the maximum 
extent practicable, with the enforceable policies of the State's 
program.\1309\
---------------------------------------------------------------------------

    \1309\ 16 U.S.C. 1456(c)(1)(A).
---------------------------------------------------------------------------

    NHTSA concludes that the CZMA does not apply to this rulemaking 
because it does not involve an activity within, or outside of, the 
Nation's coastal zones that affects any land or water use or natural 
resource of the coastal zone.
    The Center for Biological Diversity (CBD) commented that sea-level 
rise driven by climate change is accelerating and threatening many 
coastal species, including citing research results ``that sea level 
rise resulting from climate change, and the inadequacy of existing 
regulatory mechanisms to address climate change, are primary threats 
endangering these species,'' including the loggerhead turtle, and that 
``sea level rise will be much more extreme without strong action to 
reduce greenhouse gas pollution.'' Therefore, CBD claimed that 
``finalizing the Rule is likely to result in a significant increase of 
CO2 emissions and worsen sea-level rise'' and ``triggers 
NHTSA's legal duty under the ESA to consult on how continued habitat 
loss due to sea-level rise will adversely affect the loggerhead sea 
turtle and other listed species threatened by sea-level rise.'' In the 
Final SEIS, NHTSA estimates that the sea-level rise in 2100 associated 
with Preferred Alternative would be 0.05 centimeter. Such a level is 
too small to have any meaningful impact on land or water use or a 
natural resource of the coastal zone. Furthermore, as this final rule 
amends CAFE standards that increase each year for MYs 2024-2026, this 
action will result in reductions in sea-level rise resulting from 
climate change compared to the sea-level rise that would result from 
the 2020 final rule standards. NHTSA continues to conclude that the 
CZMA is not applicable to this rulemaking.
    NHTSA has, however, conducted a qualitative review in the Final 
SEIS of the related direct, indirect, and cumulative impacts, positive 
or negative, of the alternatives on

[[Page 26062]]

potentially affected resources, including coastal zones.
6. Endangered Species Act (ESA)
    Under Section 7(a)(2) of the Endangered Species Act (ESA), Federal 
agencies must ensure that actions they authorize, fund, or carry out 
are ``not likely to jeopardize the continued existence'' of any 
federally listed threatened or endangered species (collectively, 
``listed species'') or result in the destruction or adverse 
modification of the designated critical habitat of these species.\1310\ 
If a Federal agency determines that an agency action may affect a 
listed species or designated critical habitat, it must initiate 
consultation with the appropriate Service--the U.S. Fish and Wildlife 
Service (FWS) of the Department of the Interior (DOI) or the National 
Oceanic and Atmospheric Administration's National Marine Fisheries 
Service of the Department of Commerce (together, ``the Services'') or 
both, depending on the species involved--in order to ensure that the 
action is not likely to jeopardize the species or destroy or adversely 
modify designated critical habitat.\1311\ Under this standard, the 
Federal agency taking action evaluates the possible effects of its 
action and determines whether to initiate consultation.\1312\
---------------------------------------------------------------------------

    \1310\ 16 U.S.C. 1536(a)(2).
    \1311\ See 50 CFR 402.14.
    \1312\ See 50 CFR 402.14(a) (``Each Federal agency shall review 
its actions at the earliest possible time to determine whether any 
action may affect listed species or critical habitat.'').
---------------------------------------------------------------------------

    The Section 7(a)(2) implementing regulations require consultation 
if a Federal agency determines its action ``may affect'' listed species 
or critical habitat.\1313\ The regulations define ``effects of the 
action'' as ``all consequences to listed species or critical habitat 
that are caused by the proposed action, including the consequences of 
other activities that are caused by the proposed action. A consequence 
is caused by the proposed action if it would not occur but for the 
proposed action and it is reasonably certain to occur.'' \1314\ The 
definition makes explicit a ``but for'' test and the concept of 
``reasonably certain to occur'' for all effects.\1315\ The Services 
have defined ``but for'' causation to mean ``that the consequence in 
question would not occur if the proposed action did not go forward. . . 
. In other words, if the agency fails to take the proposed action and 
the activity would still occur, there is no `but for' causation. In 
that event, the activity would not be considered an effect of the 
action under consultation.'' \1316\
---------------------------------------------------------------------------

    \1313\ 50 CFR 402.14(a). The recently issued final rule revising 
the regulations governing the ESA Section 7 consultation process. 84 
FR 44976 (Aug. 27, 2019). The effective date of the new regulations 
was subsequently delayed to October 28, 2019. 84 FR 50333 (Sept. 25, 
2019). As discussed in the text that follows, NHTSA believes that 
the conclusion would be the same under both the current and prior 
regulations.
    \1314\ 50 CFR 402.02 (emphasis added), as amended by 84 FR 
44976, 45016 (Aug. 27, 2019).
    \1315\ The Services' prior regulations defined ``effects of the 
action'' in relevant part as ``the direct and indirect effects of an 
action on the species or critical habitat, together with the effects 
of other activities that are interrelated or interdependent with 
that action, that will be added to the environmental baseline.'' 50 
CFR 402.02 (as in effect prior to Oct. 28, 2019). Indirect effects 
were defined as ``those that are caused by the proposed action and 
are later in time, but still are reasonably certain to occur.'' Id.
    \1316\ 84 FR 44977 (Aug. 27, 2019) (``As discussed in the 
proposed rule, the Services have applied the `but for' test to 
determine causation for decades. That is, we have looked at the 
consequences of an action and used the causation standard of `but 
for' plus an element of foreseeability (i.e., reasonably certain to 
occur) to determine whether the consequence was caused by the action 
under consultation.''). We note that as the Services do not consider 
this to be a change in their longstanding application of the ESA, 
this interpretation applies equally under the prior regulations 
(which were effective through October 28, 2019), and the current 
regulations.
---------------------------------------------------------------------------

    The ESA regulations also provide a framework for determining 
whether consequences are caused by a proposed action and are therefore 
``effects'' that may trigger consultation. The regulations provide in 
part:
    To be considered an effect of a proposed action, a consequence must 
be caused by the proposed action (i.e., the consequence would not occur 
but for the proposed action and is reasonably certain to occur). A 
conclusion of reasonably certain to occur must be based on clear and 
substantial information, using the best scientific and commercial data 
available. Considerations for determining that a consequence to the 
species or critical habitat is not caused by the proposed action 
include, but are not limited to:
    (1) The consequence is so remote in time from the action under 
consultation that it is not reasonably certain to occur; or
    (2) The consequence is so geographically remote from the immediate 
area involved in the action that it is not reasonably certain to occur; 
or
    (3) The consequence is only reached through a lengthy causal chain 
that involves so many steps as to make the consequence not reasonably 
certain to occur.\1317\
---------------------------------------------------------------------------

    \1317\ 50 CFR 402.17(b).
---------------------------------------------------------------------------

    The regulations go on to make clear that the action agency must 
factor these considerations into its assessments of potential 
effects.\1318\
---------------------------------------------------------------------------

    \1318\ 50 CFR 402.17(c) (``The provisions in paragraphs (a) and 
(b) of this section must be considered by the action agency and the 
Services.'').
---------------------------------------------------------------------------

    The Services have previously provided legal and technical guidance 
about whether CO2 emissions associated with a specific 
proposed Federal action trigger ESA Section 7(a)(2) consultation. NHTSA 
analyzed the Services' history of actions, analysis, and guidance in 
Appendix G of the MY 2012-2016 CAFE standards EIS and now incorporate 
by reference that appendix in this preamble.\1319\ In that appendix, 
NHTSA looked at the history of the Polar Bear Special Rule (73 FR 
76249, Dec. 16, 2008) and several guidance memoranda provided by FWS 
and the U.S. Geological Survey. Ultimately, DOI concluded that a causal 
link could not be made between CO2 emissions associated with 
a proposed Federal action and specific effects on listed species; 
therefore, no Section 7(a)(2) consultation would be required.
---------------------------------------------------------------------------

    \1319\ Available on NHTSA's Corporate Average Fuel Economy 
website at https://one.nhtsa.gov/Laws-&-Regulations/CAFE-%E2%80%93-Fuel-Economy/Final-EIS-for-CAFE-Passenger-Cars-and-Light-Trucks,-Model-Years-2012%E2%80%932016.
---------------------------------------------------------------------------

    Subsequent to the publication of that appendix, a court vacated the 
Polar Bear Special Rule on NEPA grounds, though it upheld the ESA 
analysis as having a rational basis.\1320\ FWS then issued a revised 
final special rule for the Polar Bear.\1321\ In that final rule, FWS 
provided that for ESA Section 7, the determination of whether 
consultation is triggered is narrow and focused on the discrete effect 
of the proposed agency action. FWS wrote, ``[T]he consultation 
requirement is triggered only if there is a causal connection between 
the proposed action and a discernible effect to the species or critical 
habitat that is reasonably certain to occur. One must be able to 
`connect the dots' between an effect of a proposed action and an impact 
to the species and there must be a reasonable certainty that the effect 
will occur.'' \1322\ The statement in the revised final special rule is 
consistent with the prior guidance published by FWS and remains valid 
today.\1323\ Likewise, the current regulations identify remoteness in 
time, geography, and the causal chain as factors to be considered in 
assessing

[[Page 26063]]

whether a consequence is ``reasonably certain to occur.'' If the 
consequence is not reasonably certain to occur, it is not an ``effect 
of a proposed action'' and does not trigger the consultation 
requirement.
---------------------------------------------------------------------------

    \1320\ In re: Polar Bear Endangered Species Act Listing and 
Section 4(D) Rule Litigation, 818 F.Supp.2d 214 (D.D.C. Oct. 17, 
2011).
    \1321\ 78 FR 11766 (Feb. 20, 2013).
    \1322\ 78 FR 11784-11785 (Feb. 20, 2013).
    \1323\ See DOI Solicitor's Opinion No. M-37017, ``Guidance on 
the Applicability of the Endangered Species Act Consultation 
Requirements to Proposed Actions Involving the Emissions of 
Greenhouse Gases'' (Oct. 3, 2008).
---------------------------------------------------------------------------

    In the NPRM for this action, NHTSA stated that pursuant to Section 
7(a)(2) of the ESA, the agency considered the effects of the proposed 
standards and reviewed applicable ESA regulations, case law, and 
guidance to determine what, if any, impact there might be to listed 
species or designated critical habitat. NHTSA considered issues related 
to emissions of CO2 and other GHGs, and issues related to 
non-GHG emissions. NHTSA stated that based on this assessment, the 
agency determined that the action of setting CAFE standards does not 
require consultation under Section 7(a)(2) of the ESA. NHTSA received 
one comment on its analysis of obligations under the ESA, which is 
summarized below.
    The Center for Biological Diversity (CBD) provided two reasons why 
they believe the rule ``triggers NHTSA's procedural duty to undergo 
Section 7 consultation.'' \1324\ First, CBD stated that NHTSA's 
adoption of the proposed alternative is discretionary and if ``an 
agency has any statutory discretion over the action in question, that 
agency has the authority, and thus the responsibility, to comply with 
the ESA.'' \1325\ CBD argued that NHTSA, in its discretion to adopt 
less stringent standards than the strongest alternative analyzed, or 
even a stronger alternative than the most stringent alternative 
analyzed, directly ties NHTSA's action to harm to listed species and 
critical habitat. CBD stated that although the rule would reduce the 
total amount of greenhouse gas and other emissions compared to the 
baseline (i.e., the 2020 final rule), NHTSA's decision to finalize this 
rule would nonetheless allow cars and light trucks to emit millions of 
metric tons of greenhouse gases and tens of thousands of tons of 
criteria pollutants. CBD stated that the increases in greenhouse gas 
emissions between alternatives, specifically between the proposal's 
alternative 2 and alternative 3, are not insignificant, and they can be 
directly tied to harm to species or critical habitat, such as to 
precise losses of sea ice and sea ice days in the Arctic. CBD also 
stated that NHTSA is ``making the discretionary decision to include a 
number of different regulatory flexibilities and credits, which allow 
manufacturers to avoid or delay producing vehicles that would reduce 
their emissions.'' CBD concluded that by undergoing consultation under 
the ESA, NHTSA could make discretionary decisions, such as regarding 
stringency levels and uses of credits and other flexibilities, that 
mitigate these effects.
---------------------------------------------------------------------------

    \1324\ Docket No. NHTSA-2021-0053-1549.
    \1325\ NHTSA-2021-0053-1549, at 4 (citing Am. Rivers v. United 
States Army Corps of Eng'rs, 271 F.Supp.2d 230, 251 (D.D.C. 2003)).
---------------------------------------------------------------------------

    Second, CBD stated that NHTSA's adoption of the rule is an 
``action'' under the ESA, that ``may affect'' endangered species or 
their habitat. CBD stated that the ``may affect'' standard includes 
``[a]ny possible effect, whether beneficial, benign, adverse or of an 
undetermined character'', citing the 1986 final rule on interagency 
cooperation under the ESA. CBD stated that ``the increases in 
greenhouse gas and criteria emissions--associated with the agency 
decisions described above--may impact the hundreds of federally 
protected species and their critical habitats that are imperiled due 
specifically to exacerbated climate change, nitrogen deposition, and 
greater levels of particular air pollutants from vehicle emissions.''
    NHTSA has again reviewed applicable ESA regulations, case law, 
guidance, and rulings in assessing the potential for impacts on 
threatened and endangered species from the final CAFE standards. NHTSA 
disagrees that the agency's discretion to select an alternative under 
EPCA/EISA means that the agency is required to undertake ESA 
consultation. That a statute gives an agency discretion does not by 
itself bring an agency action under the ESA's consultation 
requirements; again, Section 7 imposes a duty to consult with the 
Services ``before engaging in any discretionary action that may affect 
a listed species or critical habitat.'' \1326\ First, ``to trigger the 
ESA consultation requirement, the discretionary control retained by the 
federal agency also must have the capacity to inure to the benefit of a 
protected species.'' 1327 1328 And second, as discussed 
above, the determination of whether an action will have an effect is 
subject to longstanding interpretation of the Services' regulations, 
including a ``but-for'' test. Again, the Services have defined ``but 
for'' causation to mean ``that the consequence in question would not 
occur if the proposed action did not go forward. . . . In other words, 
if the agency fails to take the proposed action and the activity would 
still occur, there is no `but for' causation. In that event, the 
activity would not be considered an effect of the action under 
consultation.'' \1329\
---------------------------------------------------------------------------

    \1326\ Karuk Tribe of California v. U.S. Forest Serv., 681 F.3d 
1006, 1020 (9th Cir. 2012).
    \1327\ Id. See also Sierra Club v. Babbitt, 65 F.3d 1502, 1509 
(9th Cir. 1995).
    \1328\ CBD cites the D.C. Circuit for the proposition that if 
``an agency has any statutory discretion over the action in 
question, that agency has the authority, and thus the 
responsibility, to comply with the ESA.'' However, the D.C. 
Circuit's summary of an agency's obligation under the ESA is not so 
pointed; rather ``Under the ESA, government agencies are obligated 
to protect endangered and threatened species to the extent that 
their governing statutes provide them the discretion to do so.'' See 
Am. Rivers v. U.S. Army Corps of Engineers, 271 F. Supp. 2d 230, 251 
(D.D.C. 2003) (citing Platte River Whooping Crane Critical Habitat 
Maintenance Trust v. Federal Energy Regulatory Comm'n, 962 F.2d 27, 
34 (D.C. Cir. 1992) (The ESA ``directs agencies to `utilize their 
authorities' to carry out the ESA's objectives; it does not expand 
the powers conferred on an agency by its enabling act.'') (emphasis 
in original) (internal citation and quotations omitted); American 
Forest & Paper Ass'n v. EPA, 137 F.3d 291, 299 (5th Cir. 1998): (The 
ESA ``serves not as a font of new authority, but as something far 
more modest: A directive to agencies to channel their existing 
authority in a particular direction.'')).
    \1329\ 84 FR 44977 (Aug. 27, 2019) (``As discussed in the 
proposed rule, the Services have applied the `but for' test to 
determine causation for decades. That is, we have looked at the 
consequences of an action and used the causation standard of `but 
for' plus an element of foreseeability (i.e., reasonably certain to 
occur) to determine whether the consequence was caused by the action 
under consultation.''). We note that as the Services do not consider 
this to be a change in their longstanding application of the ESA, 
this interpretation applies equally under the prior regulations 
(which were effective through October 28, 2019), and the current 
regulations.
---------------------------------------------------------------------------

    NHTSA is not able to make a causal link for purposes of Section 
7(a)(2) that would ``connect the dots'' between this action, vehicle 
emissions from motor vehicles affected by this action, climate change 
and criteria pollutant emissions, and particular impacts to listed 
species or critical habitats. The purpose of Section 7(a)(2) 
consultation is to ensure that Federal agencies are not undertaking, 
funding, permitting, or authorizing actions that are likely to 
jeopardize the continued existence of listed species or destroy or 
adversely modify designated critical habitat.\1330\ With this final 
rule, NHTSA is not requiring, authorizing, funding, or carrying out the 
production or refining of fuel (i.e., a proximate cause of upstream 
emissions),\1331\ the operation of motor vehicles, both in regards to 
vehicle miles traveled and driving location (i.e., the proximate cause 
of

[[Page 26064]]

downstream emissions), the use of land that is critical habitat for any 
purpose, or the taking of any listed species or other activity that may 
affect any listed species. There is a complex and lengthy chain of 
causality between NHTSA's action of setting standards and the listed 
actions, which is highly dependent on (1) both manufacturer's and 
consumer's behavior, and (2) the nature of climate change and criteria 
pollutant emissions, which makes any impacts of this action uncertain. 
Regardless of the level of stringency at which NHTSA sets CAFE 
standards, criteria pollutant and CO2 emissions from these 
upstream and downstream emissions sources will change to a greater or 
lesser degree because of several independent factors, including those 
which are explicitly authorized by EPCA/EISA.
---------------------------------------------------------------------------

    \1330\ 16 U.S.C. 1536.
    \1331\ NHTSA notes that upstream emissions sources, such as oil 
extraction sites and fuel refineries, remain subject to the ESA. As 
future non-Federal activities become reasonably certain, Section 7 
and/or other sections of the ESA may provide protection for listed 
species and designated critical habitats. For example, new oil 
exploration or extraction activity may result in permitting or 
construction activities that would trigger consultation or other 
activities for the protection of listed species or designated 
critical habitat, as impacts may be more direct and more certain to 
occur.
---------------------------------------------------------------------------

    This leads NHTSA to the same conclusion as the proposal: The 
resulting impacts of this action to listed species or critical habitat 
does not satisfy the ``but for'' test and impacts are not ``reasonably 
certain to occur.'' Because NHTSA concludes there are ``no effects,'' 
Section 7(a)(2) consultation is not required.
(a) NHTSA's Action Does Not Give the Agency Discretionary Control Over 
Emissions, Nor Does It Satisfy the Services' ``But-for'' Test for 
Effects Under the ESA
    NHTSA is statutorily obligated to set attribute-based CAFE 
standards for each model year at the levels it determines are ``maximum 
feasible.'' \1332\ ``Maximum feasible'' involves the balancing of four 
factors--technological feasibility, economic practicability, the effect 
of other motor vehicle standards of the government on fuel economy, and 
the need of the United States to conserve energy--while also 
considering EPCA's primary purpose: Energy conservation. NHTSA selects 
a range of alternatives to consider when setting standards in each 
regulatory action, and that range encompasses a spectrum of possible 
standards NHTSA could determine is maximum feasible based on the 
different ways the agency could weigh EPCA's four statutory factors.
---------------------------------------------------------------------------

    \1332\ See 49 U.S.C. 32902(a) (``At least 18 months before the 
beginning of each model year, the Secretary of Transportation shall 
prescribe by regulation average fuel economy standards for 
automobiles manufactured by a manufacturer in that model year. Each 
standard shall be the maximum feasible average fuel economy level 
that the Secretary decides the manufacturers can achieve in that 
model year.'').
---------------------------------------------------------------------------

    First, NHTSA disagrees with CBD that simply because EPCA/EISA gives 
the agency discretion to set standards then NHTSA is required to 
undertake Section 7(a)(2) consultation. Again, ``to trigger the ESA 
consultation requirement, the discretionary control retained by the 
federal agency also must have the capacity to inure to the benefit of a 
protected species.'' \1333\ If NHTSA does not set standards, vehicle-
related upstream and downstream emissions will still occur; if NHTSA 
sets more or less stringent standards than those finalized in this 
action, emissions will still occur. Moreover, NHTSA disagrees that the 
differences in emissions between Alternative 2 and Alternative 3 can be 
directly tied to harm to species or critical habitat. There is no way 
to meaningfully differentiate between the alternatives (or an 
unanalyzed alternative more stringent than Alternative 3) in terms of 
outcomes for listed species and designated critical habitat. At most, 
NHTSA can only posit that more stringent standards hypothetically could 
lead to better outcomes. But where to draw the line in terms of impacts 
to species and habitats is an impossible exercise.
---------------------------------------------------------------------------

    \1333\ Id. See also Sierra Club v. Babbitt, 65 F.3d 1502, 1509 
(9th Cir. 1995).
---------------------------------------------------------------------------

    In addition, as outlined below, the causal chain between NHTSA's 
action of setting standards and vehicle emissions is broken by actions 
from third parties at several steps, and similarly with the chain 
between vehicle emissions and impacts to listed species or threatened 
habitats. This means that NHTSA's action does not meet the Services' 
tests for ``but for'' causation.
    First, NHTSA's action here is to codify for each model year 
coefficients that manufacturers input to a mathematical formula to 
determine their corporate average fuel economy standard based on their 
vehicles' footprints and sales volumes. The footprint-based standards 
approach, dictated by EPCA/EISA, gives manufacturers significant 
discretion to design, produce, and sell motor vehicles to meet 
different objectives. Because manufacturers could choose to produce 
more vehicles with larger footprints (and therefore less stringent 
standards), fleet-average CO2 emissions could increase to 
some extent year-over-year independently of where NHTSA sets standards. 
Or the opposite may be true, and a shift in consumer preferences could 
lead to increased production of vehicles with smaller footprints (and 
therefore more stringent standards), resulting in overall declines in 
CO2 emissions in the future compared to what NHTSA is 
forecasting.
    In addition, Congress provided several flexibilities in EPCA/EISA 
that influence how manufacturers produce vehicles for sale in a model 
year. Manufacturers can trade and apply credits that have been earned 
from over-compliance in lieu of meeting the applicable standards for a 
particular model year, and in fact manufacturers have planned to rely 
on credits to comply with the standards for the model years regulated 
by this action. Furthermore, the program allows manufacturers to pay 
civil penalties to cover any shortfall in compliance, further 
offsetting potential improvements in fuel economy (and, therefore, 
changes in air pollutant and CO2 emissions). Importantly, 
NHTSA does not have discretion to limit either of these program 
flexibilities, contrary to CBD's comment, as they both are prescribed 
by Congress. Both flexibilities could offset any changes in emissions 
that would result from the final decision.
    Consumers also play a role in which vehicles are sold and how those 
vehicles are driven. Vehicle manufacturers can choose to apply 
different fuel-economy-improving technologies to their vehicles that 
result in different fuel economy and CO2 and criteria 
pollutant emissions, and they do in part based on consumer demand. 
NHTSA carries forward sales projections for each vehicle in the 
analysis based on historic data; however, the agency cannot control the 
fleet mix that a manufacturer ultimately sells. Moreover, while NHTSA 
makes projections about much consumers may choose to drive vehicles for 
purposes of setting standards, based on data that includes odometer 
readings, economic data, and other factors, NHTSA does not have any 
control over the drivers' actual VMT. While VMT is affected by the cost 
of driving associated with fuel economy (i.e., the rebound effect), it 
is also affected by several factors, such as economic conditions, that 
are beyond NHTSA's control.
    The fact that CO2 and criteria pollutant emissions will 
continue after NHTSA's action on standards cannot, alone, trigger 
Section 7(a)(2) consultation.\1334\ Again, consultation is not required 
where an agency lacks discretion to take action that will inure

[[Page 26065]]

to the benefit of listed species.\1335\ Ultimately, the relevant 
decisions that result in emissions are taken by third parties, and any 
on-the-ground activities to implement and carry out those decisions are 
undertaken by such third parties. This means that emissions will never 
uniformly increase or decrease for all future model years, across all 
regulated pollutants, and in all locations throughout the country. The 
only factor that NHTSA has control over is what level of stringency to 
set in each model year.
---------------------------------------------------------------------------

    \1334\ National Ass'n of Home Builders v. Defenders of Wildlife, 
551 U.S. 644, 673 (2007) (``Applying Chevron, we defer to the 
[a]gency's reasonable interpretation of ESA [section] 7(a)(2) as 
applying only to `actions in which there is discretionary Federal 
involvement or control.' '' (quoting 50 CFR 402.03)).
    \1335\ Id.; Sierra Club v. Babbitt, 65 F.3d 1502, 1509 (9th Cir. 
1995) (ESA Section 7(a)(2) consultation is not required where an 
agency lacks discretion to influence private conduct in a manner 
that will inure to the benefit of listed species).
---------------------------------------------------------------------------

(a) NHTSA Cannot Control Greenhouse Gas and Criteria Pollutant 
Emissions From Motor Vehicle Impacts to Listed Species or Critical 
Habitat
    The mechanics of climate change and both upstream and downstream 
criteria air pollutant emissions further break the chain of causality 
between NHTSA's action and specific effects on listed species or 
designated critical habitat.
    Climate change is a global phenomenon, impacted by greenhouse gas 
emissions that could occur anywhere throughout the world. As these 
gases accumulate in the atmosphere, radiative forcing increases, 
resulting in various potential impacts to the global climate system 
(e.g., warming temperatures, droughts, and changes in ocean pH) over 
long time scales. These changes could directly or indirectly impact 
listed species and/or designated critical habitat over time. Although 
this is a simplified explanation of a complex phenomenon subject to a 
significant degree of scientific study, it illustrates that the 
potential climate change-related consequences of this rulemaking on 
listed species and designated critical habitat are not ``reasonably 
certain to occur'' under any of the three tests in the ESA regulations 
and listed above. Not only are the consequences to listed species or 
designated critical habitat geographically and temporally remote from 
the emissions that result from regulated vehicles, the chain of 
causality is simply too lengthy and complex. Because impacts to listed 
species and designated critical habitat result from climate shifts 
that, in and of themselves, result from the accumulation over time of 
greenhouse gas emissions from anywhere in the world, NHTSA cannot 
``connect the dots'' between the emissions from a regulated vehicle and 
those impacts. While the potential impacts of climate change have been 
well-documented, there is no degree of certainty, using available data 
or tools, that this action (as distinct from any other source of 
CO2 emissions) would be the cause of any particular impact 
to listed species or critical habitats.\1336\
---------------------------------------------------------------------------

    \1336\ See 50 CFR 402.17(b) (``A conclusion of reasonably 
certain to occur must be based on clear and substantial information, 
using the best scientific and commercial data available.'').
---------------------------------------------------------------------------

    The chain of causality between this action and specific impacts 
from criteria pollutant emissions on listed species or designated 
critical habitat is similarly attenuated. Emissions of upstream and 
tailpipe criteria pollutant emissions are determined by similar 
manufacturer and driver controls as discussed above,\1337\ meaning that 
the impacts of CAFE standards on criteria pollutants is indirect. As 
shown in the preamble and Final SEIS, the impacts of all alternatives 
on the emissions of criteria pollutants are small,\1338\ and they 
increase and decrease based on pollutant and emissions type (i.e., 
upstream or downstream). However, while small in magnitude, net impacts 
could also vary among different geographic areas depending on the 
locations of upstream emission sources and where changes in highway 
travel occur. NHTSA has no way of knowing, with reasonable certainty, 
where these impacts would occur. Current modeling tools available are 
not designed to trace fluctuations in ambient concentration levels of 
criteria and toxic air pollutants to potential impacts on particular 
endangered species. NHTSA therefore cannot conclude that impacts 
related to the emissions of criteria air pollutants from fuel processes 
or vehicles are ``reasonably certain to occur'' to listed species or 
critical habitat.\1339\
---------------------------------------------------------------------------

    \1337\ In addition to the factors discussed above, vehicles 
produced in the model years covered by this action are subject to 
EPA's tailpipe emissions standards, and these standards are expected 
to become increasingly stringent over the timeframe covered by this 
rulemaking. However, the technologies used to increase fuel economy 
are not the same technologies that are used to decrease tailpipe 
emissions, so an increase in the first will not necessarily result 
in a decrease in the latter. That said, as discussed in the preamble 
above and further in the Final SEIS, total emissions from vehicles 
have declined dramatically since 1970 due to EPA regulation of 
vehicles and fuels.
    \1338\ For more information, see Chapter 4 of the Final SEIS.
    \1339\ See 50 CFR 402.17 (``A conclusion of reasonably certain 
to occur must be based on clear and substantial information, using 
the best scientific and commercial data available'').
---------------------------------------------------------------------------

    For these reasons, NHTSA concludes that any consequence to specific 
listed species or designated critical habitats from climate change or 
other air pollutant emissions is too remote and uncertain to be 
attributable to this action. The consequences of this action therefore 
are not ``effects'' for purposes of consultation under Section 7(a)(2), 
and this action has not triggered ESA consultation. Accordingly, NHTSA 
has concluded its review of this action under Section 7 of the ESA.
7. Floodplain Management (Executive Order 11988 and DOT Order 5650.2)
    These orders require Federal agencies to avoid the long- and short-
term adverse impacts associated with the occupancy and modification of 
floodplains, and to restore and preserve the natural and beneficial 
values served by floodplains. Executive Order 11988 also directs 
agencies to minimize the impacts of floods on human safety, health and 
welfare, and to restore and preserve the natural and beneficial values 
served by floodplains through evaluating the potential effects of any 
actions the agency may take in a floodplain and ensuring that its 
program planning and budget requests reflect consideration of flood 
hazards and floodplain management. DOT Order 5650.2 sets forth DOT 
policies and procedures for implementing Executive Order 11988. The DOT 
Order requires that the agency determine if a proposed action is within 
the limits of a base floodplain, meaning it is encroaching on the 
floodplain, and whether this encroachment is significant. If 
significant, the agency is required to conduct further analysis of the 
proposed action and any practicable alternatives. If a practicable 
alternative avoids floodplain encroachment, then the agency is required 
to implement it.
    In this final rule, NHTSA is not occupying, modifying, and/or 
encroaching on floodplains. NHTSA therefore concludes that the Orders 
do not apply to this final rule. NHTSA has, however, conducted a review 
of the alternatives on potentially affected resources, including 
floodplains, in its Final SEIS.
8. Preservation of the Nation's Wetlands (Executive Order 11990 and DOT 
Order 5660.1a)
    These orders require Federal agencies to avoid, to the extent 
possible, undertaking or providing assistance for new construction 
located in wetlands unless the agency head finds that there is no 
practicable alternative to such construction and that the final action 
includes all practicable measures to minimize harms to wetlands that 
may result from such use. Executive Order 11990 also directs agencies 
to take action to minimize the destruction, loss, or degradation of 
wetlands in ``conducting Federal activities and programs affecting land 
use, including

[[Page 26066]]

but not limited to water and related land resources planning, 
regulating, and licensing activities.'' DOT Order 5660.1a sets forth 
DOT policy for interpreting Executive Order 11990 and requires that 
transportation projects ``located in or having an impact on wetlands'' 
should be conducted to assure protection of the Nation's wetlands. If a 
project does have a significant impact on wetlands, an EIS must be 
prepared.
    NHTSA is not undertaking or providing assistance for new 
construction located in wetlands. NHTSA therefore concludes that these 
Orders do not apply to this final rule. NHTSA has, however, conducted a 
review of the alternatives on potentially affected resources, including 
wetlands, in its Final SEIS.
9. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle Protection 
Act (BGEPA), Executive Order 13186
    The MBTA (16 U.S.C. 703-712) provides for the protection of certain 
migratory birds by making it illegal for anyone to ``pursue, hunt, 
take, capture, kill, attempt to take, capture, or kill, possess, offer 
for sale, sell, offer for barter, barter, offer to purchase, purchase, 
deliver for shipment, ship, export, import, cause to be shipped, 
exported, or imported, deliver for transportation, carry or cause to be 
carried, or receive for shipment, transportation, carriage, or export'' 
any migratory bird covered under the statute.\1340\
---------------------------------------------------------------------------

    \1340\ 16 U.S.C. 703(a).
---------------------------------------------------------------------------

    The BGEPA (16 U.S.C. 668-668d) makes it illegal to ``take, possess, 
sell, purchase, barter, offer to sell, purchase or barter, transport, 
export or import'' any bald or golden eagles.\1341\ Executive Order 
13186, ``Responsibilities of Federal Agencies to Protect Migratory 
Birds,'' helps to further the purposes of the MBTA by requiring a 
Federal agency to develop a Memorandum of Understanding (MOU) with FWS 
when it is taking an action that has (or is likely to have) a 
measurable negative impact on migratory bird populations.
---------------------------------------------------------------------------

    \1341\ 16 U.S.C. 668(a).
---------------------------------------------------------------------------

    NHTSA concludes that the MBTA, BGEPA, and Executive Order 13186 do 
not apply to this final rule because there is no disturbance, take, 
measurable negative impact, or other covered activity involving 
migratory birds or bald or golden eagles involved in this rulemaking.
10. Department of Transportation Act (Section 4(f))
    Section 4(f) of the Department of Transportation Act of 1966 (49 
U.S.C. 303), as amended, is designed to preserve publicly owned park 
and recreation lands, waterfowl and wildlife refuges, and historic 
sites. Specifically, Section 4(f) provides that DOT agencies cannot 
approve a transportation program or project that requires the use of 
any publicly owned land from a public park, recreation area, or 
wildlife or waterfowl refuge of national, State, or local significance, 
unless a determination is made that:
    (1) There is no feasible and prudent alternative to the use of 
land, and
    (2) The program or project includes all possible planning to 
minimize harm to the property resulting from the use.
    These requirements may be satisfied if the transportation use of a 
Section 4(f) property results in a de minimis impact on the area.
    NHTSA concludes that Section 4(f) does not apply to this final rule 
because this rulemaking is not an approval of a transportation program 
nor project that requires the use of any publicly owned land.
11. Executive Order 12898: ``Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations''
    Executive Order 12898, ``Federal Actions to Address Environmental 
Justice in Minority Populations and Low-Income Populations'' (Feb. 16, 
1994), directs Federal agencies to ``promote nondiscrimination in 
federal programs substantially affecting human health and the 
environment, and provide minority and low-income communities access to 
public information on, and an opportunity for public participation in, 
matters relating to human health or the environment.'' E.O. 12898 also 
directs agencies to identify and consider any disproportionately high 
and adverse human health or environmental effects that their actions 
might have on minority and low-income communities and provide 
opportunities for community input in the NEPA process. CEQ has provided 
agencies with general guidance on how to meet the requirements of the 
E.O. as it relates to NEPA. A White House Environmental Justice 
Interagency Council established under E.O. 14008, ``Tackling the 
Climate Crisis at Home and Abroad,'' is expected to advise CEQ on ways 
to update E.O. 12898, including the expansion of environmental justice 
advice and recommendations. The White House Environmental Justice 
Interagency Council will advise on increasing environmental justice 
monitoring and enforcement.
    Additionally, the 2021 DOT Order 5610.2(c), ``U.S. Department of 
Transportation Actions to Address Environmental Justice in Minority 
Populations and Low-Income Populations'' (May 14, 2021), describes the 
process for DOT agencies to incorporate environmental justice 
principles in programs, policies, and activities. The DOT's 
Environmental Justice Strategy specifies that environmental justice and 
fair treatment of all people means that no population be forced to bear 
a disproportionate burden due to transportation decisions, programs, 
and policies. It also defines the term minority and low-income in the 
context of DOT's environmental justice analyses. Minority is defined as 
a person who is Black, Hispanic or Latino, Asian American, American 
Indian or Alaskan Native, or Native Hawaiian or other Pacific Islander. 
Low-income is defined as a person whose household income is at or below 
the Department of Health and Human Services poverty guidelines. Low-
income and minority populations may live in geographic proximity or be 
geographically dispersed/transient. In 2021, DOT reviewed and updated 
its environmental justice strategy to ensure that it continues to 
reflect its commitment to environmental justice principles and 
integrating those principles into DOT programs, policies, and 
activities.
    NHTSA's Draft SEIS provided a qualitative analysis of the affected 
environment for environmental justice and the environmental 
consequences for impacted communities. Specifically, NHTSA identified 
that minority and low-income communities near where oil production and 
refining occur, areas near roadways, coastal flood-prone areas, and 
urban heat islands subject to the head island effect would most likely 
be exposed to the environmental and health effects of oil production, 
distribution, and consumption, or the impacts of climate change. NHTSA 
described several ways in which environmental justice communities may 
be disproportionately impacted by these activities. However, NHTSA 
concluded that the magnitude of changes in upstream air pollutant 
emissions would not be characterized as high and adverse, and similarly 
that the changes in exposure to downstream emissions would be small in 
comparison to existing conditions. NHTSA also described how climate 
change could disproportionately affect minority and low-income 
communities; the agency concluded that even though the impacts of this 
action on minority and low-income communities would be

[[Page 26067]]

attenuated by a lengthy causal chain, the changes to climate values 
would be very small and incremental compared to expected changes 
associated with future global emissions trajectories. NHTSA concluded 
that the alternatives considered in the proposal and Draft SEIS would 
not result in disproportionately high and adverse human health effects 
or environmental effects on minority or low-income populations. This is 
because the rule sets standards nationwide, and although minority and 
low-income populations may experience some disproportionate effects or 
face inequities in receiving some benefits, impacts of the alternatives 
on human health and the environment would not be high and adverse.
    Several commenters, including the California Department of Justice, 
Office of the Attorney General et al., the American Lung Association, 
the Environmental Law & Policy Center, the Alliance of Nurses for 
Healthy Environments, the Asthma and Allergy Foundation of America, 
Greenlatinos, New Mexico Interfaith Power and Light, National Parks 
Conservation Association, and the National Religious Partnership for 
the Environment stated that the projected impacts of NHTSA's proposed 
standards are likely to be magnified in communities with higher 
percentages of Black, Asian American, and Latinx residents because 
refineries and major roadways are disproportionately located in those 
communities. More specifically, the California Department of Justice, 
Office of the Attorney General et al. stated that ``improvements in air 
quality anticipated by the proposal will serve [our States and Cities'] 
environmental justice goals, by improving air quality in communities 
historically impacted by greater pollution.'' Other commenters urged 
NHTSA to consider more stringent alternatives to combat the economic 
effects to lower-income households as well as the environmental justice 
effects from changes to criteria and toxic pollution.
    NHTSA agrees that minority and low-income populations are 
disproportionately affected by changes in criteria and air toxic 
pollutant emissions, as noted by numerous commenters. Based on comments 
and additional information available since the Draft SEIS, NHTSA 
updated its qualitative discussion of environmental justice impacts in 
the Final SEIS to incorporate peer-reviewed sources and additional data 
points on public health and vulnerable populations. In addition, the 
Final SEIS incorporates new information from EPA on health effects due 
to PM2.5 and differential vulnerabilities due to climate 
change.
    Based on the analysis presented in the Final SEIS, the agency has 
determined that this rulemaking (and alternatives considered) would not 
result in disproportionately high and adverse human health or 
environmental effects on minority or low-income populations. To the 
extent that minority and low-income populations live closer to oil 
refining facilities, these populations may be more likely to be 
adversely affected by the emissions of the Proposed Action and 
alternatives. As noted, a correlation between proximity to oil 
refineries and the prevalence of minority and low-income populations is 
suggested in the scientific literature. However, the magnitude of the 
change in emissions relative to the baseline is minor and would not be 
characterized as high and adverse. To the extent that minority and low-
income populations disproportionately live or attend schools near major 
roadways, these populations may be more likely to be adversely affected 
by the Proposed Action and alternatives. However, the change in the 
level of exposure would be small in comparison to the existing 
conditions in these areas.
    NHTSA's Final SEIS finds that all action alternatives would bring 
benefits to air quality and human health by reducing air-quality-
related adverse health impacts nationwide by 2025, 2035, and 2050. In 
general, Alternative 1 provides the largest decrease in adverse health 
impacts by 2025, while Alternative 3 would provide the largest decrease 
by 2035 and 2050. In all alternatives, adverse health impacts would 
decrease over time due to increasing stringency as action alternatives 
are implemented.
    Finally, any impacts of this rulemaking on low-income and minority 
communities due to climate change would be attenuated by a lengthy 
causal chain; but if one could attempt to draw those links, the changes 
to climate values would be very small and incremental compared to the 
expected changes associated with the future global emissions 
trajectories.
    This rulemaking would set standards nationwide, and although 
minority and low-income populations may experience some 
disproportionate effects, in particular locations, the overall impacts 
on human health and the environment would not be ``high and adverse'' 
under E.O. 12898. Section VI and the Final SEIS contain further 
discussion of NHTSA's consideration of environmental justice issues 
associated with this action.
12. Executive Order 13045: ``Protection of Children From Environmental 
Health Risks and Safety Risks''
    This action is subject to Executive Order 13045 (62 FR 19885, Apr. 
23, 1997) because it is an economically significant regulatory action 
as defined by E.O. 12866, and NHTSA has reason to believe that the 
environmental health and safety risks related to this action, although 
small, may have a disproportionate effect on children. Specifically, 
children are more vulnerable to adverse health effects related to 
mobile source emissions, as well as to the potential long-term impacts 
of climate change. Pursuant to E.O. 13045, NHTSA must prepare an 
evaluation of the environmental health or safety effects of the planned 
regulation on children and an explanation of why the planned regulation 
is preferable to other potentially effect and reasonably feasible 
alternatives considered by NHTSA. Further, this analysis may be 
included as part of any other required analysis.
    All of the action alternatives would reduce CO2 
emissions relative to the baseline and thus have positive effects on 
mitigating global climate change, and thus environmental and health 
effects associated with climate change. While environmental and health 
effects associated with criteria pollutant and toxic air pollutant 
emissions vary over time and across alternatives, negative effects, 
when estimated, are extremely small. This preamble and the agency's 
Final SEIS discuss air quality, climate change, and their related 
environmental and health effects, noting where these would 
disproportionately affect children. In addition, Section VI of this 
preamble explains why NHTSA believes that the final standards are 
preferable to other alternatives considered. Together, this preamble 
and Final SEIS satisfy NHTSA's responsibilities under E.O. 13045.
13. Executive Order 13211: ``Energy Effects''
    Executive Order 13211, ``Energy Effects'', requires agencies 
prepare a Statement of Energy Effects that describes the effects of 
certain regulatory actions on energy supply, distribution, and use. 
This action is not a ``significant energy action'' under the Executive 
order because it is not likely to have a significant adverse effect on 
the supply, distribution, or use of energy. We have outlined the energy 
effects in Table I-3 above and elsewhere in this preamble and 
associated FRIA, and those results are briefly summarized

[[Page 26068]]

here. This action reduces fuel use for passenger cars and light trucks 
under revised fuel economy standards, which will result in significant 
reductions of the consumption of petroleum, will achieve energy 
security benefits, and have no adverse energy effects. Because our 
final fuel economy standards result in significant fuel savings, this 
rule encourages more efficient use of fuels. We estimate that the final 
standards will save approximately 234 billion gallons of gasoline 
through 2050.

E. 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 rule will not have a significant economic impact on a 
substantial number of small entities. SBREFA amended the Regulatory 
Flexibility Act to require Federal agencies to provide a statement of 
the factual basis for certifying that a rule will not have a 
significant economic impact on a substantial number of small entities.
    We have considered the impacts of this final rule under the 
Regulatory Flexibility Act and certify that this final rule will not 
have a significant economic impact on a substantial number of small 
entities. The following is NHTSA's statement providing the factual 
basis for this certification pursuant to 5 U.S.C. 605(b).
    Small businesses are defined based on the North American Industry 
Classification System (NAICS) code.\1342\ One of the criteria for 
determining size is the number of employees in the firm. For 
establishments primarily engaged in manufacturing or assembling 
automobiles, as well as light duty trucks, the firm must have less than 
1,500 employees to be classified as a small business. This rule would 
affect motor vehicle manufacturers. As shown in Table VIII-1, the 
agency has identified 14 small manufacturers of passenger cars, light 
trucks, and SUVs of electric, hybrid, and internal combustion engines. 
We acknowledge that some newer manufacturers may not be listed. 
However, many of those new manufacturers tend to have transportation 
products that are not part of the light-duty vehicle fleet and have yet 
to start production of light-duty vehicles. Moreover, we do not believe 
that there are a ``substantial number'' of these newer companies.\1343\
---------------------------------------------------------------------------

    \1342\ Classified in NAICS under Subsector 336--Transportation 
Equipment Manufacturing for Automobile Manufacturing (336111), Light 
Truck (336112), and Heavy Duty Truck Manufacturing (336120). https://www.sba.gov/document/support--table-size-standards (accessed: 
February 10, 2022).
    \1343\ 5 U.S.C. 605(b).
    [GRAPHIC] [TIFF OMITTED] TR02MY22.255
    

[[Page 26069]]


    We believe that the final rulemaking would not have a significant 
economic impact on small vehicle manufacturers because under 49 CFR 
part 525, passenger vehicle manufacturers building fewer than 10,000 
vehicles per year can petition NHTSA to have alternative standards set 
for those manufacturers. Listed manufacturers producing ICE vehicles do 
not currently meet the standard and must already petition the agency 
for relief. If the standard is raised, it has no meaningful impact on 
these manufacturers--they still must go through the same process and 
petition for relief. Given there already is a mechanism for relieving 
burden on small businesses, which is the purpose of the Regulatory 
Flexibility Act, a regulatory flexibility analysis was not prepared.
---------------------------------------------------------------------------

    \1344\ Estimated number of employees as of June 2021, source: 
Linkedin.com and other websites reporting company profiles.
    \1345\ Rough estimate of light duty vehicle production for MY 
2020.
---------------------------------------------------------------------------

    Further, small manufacturers of electric vehicles would not face a 
significant economic impact. The method for earning credits applies 
equally across manufacturers and does not place small entities at a 
significant competitive disadvantage. In any event, even if the rule 
had a ``significant economic impact'' on these small EV manufacturers, 
the amount of these companies is not ``a substantial number.'' \1346\ 
For these reasons, their existence does not alter the agency's analysis 
of the applicability of the Regulatory Flexibility Act.
---------------------------------------------------------------------------

    \1346\ 5 U.S.C. 605.
---------------------------------------------------------------------------

F. Executive Order 13132 (Federalism)

    Executive Order 13132 requires Federal agencies to develop an 
accountable process to ensure ``meaningful and timely input by State 
and local officials in the development of regulatory policies that have 
federalism implications. The order defines the term ``[p]olicies that 
have federalism implications'' to include regulations that have 
``substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.'' Under 
the order, agencies may not issue a regulation that has federalism 
implications, that imposes substantial direct compliance costs, unless 
the Federal Government provides the funds necessary to pay the direct 
compliance costs incurred by the State and local governments, or the 
agencies consult with State and local officials early in the process of 
developing the proposed regulation. Similar to the CAFE preemption 
final rule,\1347\ NHTSA does not believe that this final rule 
implicates E.O. 13132, because it neither imposes substantial direct 
compliance costs on State, local, or Tribal governments, nor does it 
preempt State law. Thus, this final rule does not implicate the 
consultation procedures that E.O. 13132 imposes on agency regulations 
that would either preempt State law or impose substantial direct 
compliance costs on State, local, or Tribal governments, because the 
only entities subject to this final rule are vehicle manufacturers. 
Nevertheless, NHTSA has complied with the Order's requirements and 
consulted directly with the California Air Resources Board in 
developing a number of elements of this final rule.
---------------------------------------------------------------------------

    \1347\ See 86 FR 74236, 74365 (Dec. 29, 2021).
---------------------------------------------------------------------------

    NHTSA received several comments on CAFE preemption under 49 U.S.C. 
32919: Some stating that State regulations like California's were 
preempted, and others urging NHTSA to take a substantive stance beyond 
what the preemption final rule set forth. With regard to the federalism 
implications of the final rule, NHTSA has spoken to this issue 
separately at 86 FR 74236 (Dec. 29, 2021), ``Corporate Average Fuel 
Economy (CAFE) Preemption'' final rule. NHTSA is taking no positions on 
EPCA preemption in this final rule beyond those already expressed in 
that separate preemption final rule. Moreover, to the extent that any 
analysis in this final rule discusses State regulatory programs, 
including any from California under Section 209 of the Clean Air Act or 
other states under Section 177 of the Clean Air Act, such analysis also 
does not implicate E.O. 13132. As explained previously herein in 
response to commenters, this final rule does not entail a legal 
determination of the validity of such programs, including any 
assessment of how or whether any such programs may be affected by 49 
U.S.C. 32919. In fact, as NHTSA recently explained in the CAFE 
preemption final rule, NHTSA lacks the legal authority to legally 
dictate the scope of EPCA preemption in this manner and, instead, the 
legal status of any such programs is more appropriately adjudicated in 
a judicial forum.\1348\
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    \1348\ Id. at 74238. As a result, NHTSA determined in the CAFE 
preemption final rule that ``While this final rule concerns matters 
of preemption, it does not entail either type of regulation covered 
by Executive Order 13132's consultation requirements.'' Id. at 
74265.
---------------------------------------------------------------------------

G. Executive Order 12988 (Civil Justice Reform)

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

H. Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments)

    This final rule does not have tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, Nov. 9, 2000). This final rule will 
be implemented at the Federal level and will impose compliance costs 
only on vehicle manufacturers. Thus, Executive Order 13175, which 
requires consultation with Tribal officials when agencies are 
developing policies that have ``substantial direct effects'' on Tribes 
and Tribal interests, does not apply to this final rule.

I. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of a proposed or final rule that includes a 
Federal mandate likely to result in the expenditure by State, local, or 
Tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year (adjusted for inflation with base 
year of 1995). Adjusting this amount by the implicit gross domestic 
product price deflator for 2018 results in $153 million (110.296/71.868 
= 1.53).\1349\ Before promulgating a rule for which a written statement 
is needed, section 205 of UMRA generally requires NHTSA to identify and 
consider a reasonable number of regulatory alternatives and adopt the 
least costly, most cost-effective, or least burdensome alternative that 
achieves the objective of the rule. The provisions of section 205 do 
not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows NHTSA to adopt an alternative other than the least 
costly, most cost-effective, or least burdensome alternative if the 
agency publishes with the rule an explanation of why that alternative 
was not adopted.
---------------------------------------------------------------------------

    \1349\ Bureau of Economic Analysis, National Income and Product 
Accounts (NIPA), Table 1.1.9 Implicit Price Deflators for Gross 
Domestic Product. https://bea.gov/iTable/index_nipa.cfm (accessed: 
February 10, 2022).
---------------------------------------------------------------------------

    This final rule will not result in the expenditure by State, local, 
or Tribal governments, in the aggregate, of more than $153 million 
annually, but it will

[[Page 26070]]

result in the expenditure of that magnitude by vehicle manufacturers 
and/or their suppliers. In developing this final rule, we considered a 
range of alternative fuel economy standards. As explained in detail in 
Section VI of the preamble, NHTSA believes that our selected 
alternative is the maximum feasible alternative that achieves the 
objectives of this rulemaking, as required by EPCA/EISA.

J. Regulation Identifier Number

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

K. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTSA evaluate and use existing voluntary 
consensus standards in its regulatory activities unless doing so would 
be inconsistent with applicable law (e.g., the statutory provisions 
regarding NHTSA's vehicle safety authority) or otherwise 
impractical.\1350\
---------------------------------------------------------------------------

    \1350\ 15 U.S.C. 272.
---------------------------------------------------------------------------

    Voluntary consensus standards are technical standards developed or 
adopted by voluntary consensus standards bodies. Technical standards 
are defined by the NTTAA as ``performance-based or design-specific 
technical specification and related management systems practices.'' 
They pertain to ``products and processes, such as size, strength, or 
technical performance of a product, process or material.''
    Examples of organizations generally regarded as voluntary consensus 
standards bodies include the ASTM International, the Society of 
Automotive Engineers (SAE), and the American National Standards 
Institute (ANSI). If NHTSA does not use available and potentially 
applicable voluntary consensus standards, it is required by the Act to 
provide Congress, through OMB, an explanation of the reasons for not 
using such standards. There are currently no consensus standards that 
NHTSA administers relevant to these final CAFE standards.

L. Department of Energy Review

    In accordance with 49 U.S.C. 32902(j)(2), NHTSA submitted this rule 
to the Department of Energy for review.

M. Paperwork Reduction Act

    Under the procedures established by the Paperwork Reduction Act of 
1995 (PRA), a person is not required to respond to a collection of 
information by a Federal agency unless the collection displays a valid 
Office of Management and Budget (OMB) control number. This final rule 
modifies NHTSA's existing information collection request (ICR) for its 
Corporate Average Fuel Economy (CAFE) program (OMB control number 2127-
0019). NHTSA sought comment on its intention to seek approval from OMB 
for this modification in the proposal and forwarded the ICR to the 
Office of Management and Budget (OMB) for approval. OMB deferred 
approval of this ICR and instructed NHTSA to resubmit the ICR with 
publication of the final rule. NHTSA is now resubmitting its request 
for revision of its existing CAFE information collection.
    NHTSA's ICR describes the nature of the information collections for 
the CAFE program and their expected burden. As described in the NPRM, 
the ICR covers requirements for manufacturers to submit information on 
CAFE standards, exemptions, vehicles, technologies, and CAFE compliance 
test results. Manufacturers also provide information on any of the 
flexibilities and incentives they use during the model year to comply 
with CAFE standards. These reporting requirements are necessary to 
ensure compliance with its CAFE program.
    In the NPRM, NHTSA proposed changes to the CAFE program's 
standardized reporting templates for manufacturers to submit 
information to NHTSA on their vehicle production and CAFE credits used 
to comply with the CAFE standards. NHTSA proposed making changes to its 
reporting template for PMY and MMY reports. As noted in the NPRM, these 
changes are expected to result in additional burden hours to 
respondents.
    NHTSA estimates the total burden of this ICR is 4,861 hours and $0. 
This is a change of 843 hours and $0 (from 4,018 hours and $0). Most of 
this burden is a result of the correction of 550 hours for NHTSA's CAFE 
Credit Value Reporting Requirement. An additional 268 hours are a 
result of increased trade contracts received by NHTSA since the last 
PRA. Five of the hours are a result of additional information to be 
collected in new data fields in the PMY and MMY reports and the 
remaining 2 hours are a result of correcting calculations errors from 
the prior ICR. While NHTSA did not receive any comments about its 
burden estimates, NHTSA did receive comments on the proposed changes to 
the templates. NHTSA discusses these comments and the agency's response 
in the relevant sections above ((See Section VII.A.2.b).1-4). After 
reviewing the comments, NHTSA is revising the templates to address 
comments, as discussed above. However, NHTSA determined that no changes 
to the information collection are warranted. Accordingly, NHTSA is 
finalizing the burden estimates for the reporting requirements that 
were proposed in the NPRM. For additional information, see the 
supporting documentation for this information collection request that 
is posted to the docket.\1351\
---------------------------------------------------------------------------

    \1351\ This information is forwarded to OMB with the ICR.
---------------------------------------------------------------------------

List of Subjects in 49 CFR Parts 531, 533, 536, and 537

    Fuel economy, Reporting and recordkeeping requirements.

    For the reasons discussed in the preamble, the National Highway 
Traffic Safety Administration amends 49 CFR chapter V as follows:

0
1. Revise part 531 to read as follows:

PART 531--PASSENGER AUTOMOBILE AVERAGE FUEL ECONOMY STANDARDS

Sec.
531.1 Scope.
531.2 Purpose.
531.3 Applicability.
531.4 Definitions.
531.5 Fuel economy standards.
531.6 Measurement and calculation procedures.
Appendix A to Part 531--Example of Calculating Compliance Under 
Sec.  531.5(c)

    Authority: 49 U.S.C. 32902; delegation of authority at 49 CFR 
1.95.


Sec.  531.1  Scope.

    This part establishes average fuel economy standards pursuant to 
section 502(a) and (c) of the Motor Vehicle Information and Cost 
Savings Act, as amended, for passenger automobiles.


Sec.  531.2  Purpose.

    The purpose of this part is to increase the fuel economy of 
passenger automobiles by establishing minimum levels of average fuel 
economy for those vehicles.


Sec.  531.3  Applicability.

    This part applies to manufacturers of passenger automobiles.

[[Page 26071]]

Sec.  531.4  Definitions.

    (a) Statutory terms. (1) The terms average fuel economy, 
manufacture, manufacturer, and model year are used as defined in 
section 501 of the Act.
    (2) The terms automobile and passenger automobile are used as 
defined in section 501 of the Act and in accordance with the 
determination in part 523 of this chapter.
    (b) Other terms. As used in this part, unless otherwise required by 
the context--
    (1) Act means the Motor Vehicle Information and Cost Savings Act, 
as amended by Public Law 94-163.
    (2) [Reserved]


Sec.  531.5  Fuel economy standards.

    (a) Except as provided in paragraph (f) of this section, each 
manufacturer of passenger automobiles shall comply with the fleet 
average fuel economy standards in Table 1 to this paragraph (a), 
expressed in miles per gallon, in the model year specified as 
applicable:

                       Table 1 to Sec.   531.5(a)
------------------------------------------------------------------------
                                                          Average fuel
                                                        economy standard
                      Model year                           (miles per
                                                            gallon)
------------------------------------------------------------------------
1978.................................................               18.0
1979.................................................               19.0
1980.................................................               20.0
1981.................................................               22.0
1982.................................................               24.0
1983.................................................               26.0
1984.................................................               27.0
1985.................................................               27.5
1986.................................................               26.0
1987.................................................               26.0
1988.................................................               26.0
1989.................................................               26.5
1990-2010............................................               27.5
------------------------------------------------------------------------

    (b) For model year 2011, a manufacturer's passenger automobile 
fleet shall comply with the fleet average fuel economy level calculated 
for that model year according to Figure 1 to this paragraph (b) and the 
appropriate values in Table 2 to this paragraph (b).
[GRAPHIC] [TIFF OMITTED] TR02MY22.256

Where:

N is the total number (sum) of passenger automobiles produced by a 
manufacturer;
Ni is the number (sum) of the ith passenger automobile 
model produced by the manufacturer; and
Ti is the fuel economy target of the ith model passenger 
automobile, which is determined according to the following formula, 
rounded to the nearest hundredth:
[GRAPHIC] [TIFF OMITTED] TR02MY22.257

Where:

Parameters a, b, c, and d are defined in Table 2 to this paragraph 
(b);
e = 2.718; and
x = footprint (in square feet, rounded to the nearest tenth) of the 
vehicle model.

            Table 2 to Sec.   531.5(b)--Parameters for the Passenger Automobile Fuel Economy Targets
----------------------------------------------------------------------------------------------------------------
                                                                          Parameters
                                             -------------------------------------------------------------------
                 Model year                                                        c (gal/mi/
                                                  a (mpg)          b (mpg)           ft\2\)         d (gal/mi)
----------------------------------------------------------------------------------------------------------------
2011........................................           31.20            24.00            51.41             1.91
----------------------------------------------------------------------------------------------------------------

    (c) For model years 2012-2026, a manufacturer's passenger 
automobile fleet shall comply with the fleet average fuel economy level 
calculated for that model year (MY) according to Figure 2 to this 
paragraph (c) and the appropriate values in Table 3 to this paragraph 
(c).
[GRAPHIC] [TIFF OMITTED] TR02MY22.259

Where:

CAFErequired is the fleet average fuel economy standard for a given 
fleet (domestic passenger automobiles or import passenger 
automobiles);
Subscript i is a designation of multiple groups of automobiles, 
where each group's designation, i.e., i = 1, 2, 3, etc., represents 
automobiles that share a unique model type and footprint within the 
applicable fleet, either domestic passenger automobiles or import 
passenger automobiles;
Productioni is the number of passenger automobiles produced for sale 
in the United States within each ith designation, i.e., which share 
the same model type and footprint; and
TARGETi is the fuel economy target in miles per gallon (mpg) 
applicable to the footprint of passenger automobiles within each ith 
designation, i.e., which share the same model type and footprint, 
calculated according to Figure 3 to this

[[Page 26072]]

paragraph (c) and rounded to the nearest hundredth of a mpg, i.e., 
35.455 = 35.46 mpg, and the summations in the numerator and 
denominator are both performed over all models in the fleet in 
question.
[GRAPHIC] [TIFF OMITTED] TR02MY22.260

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet);
Parameters a, b, c, and d are defined in Table 3 to this paragraph 
(c); and
The MIN and MAX functions take the minimum and maximum, 
respectively, of the included values.

            Table 3 to Sec.   531.5(c)--Parameters for the Passenger Automobile Fuel Economy Targets
                                                 [MYs 2012-2026]
----------------------------------------------------------------------------------------------------------------
                                                                      Parameters
             Model year              ---------------------------------------------------------------------------
                                           a (mpg)            b (mpg)        c (gal/mi/ft\2\)      d (gal/mi)
----------------------------------------------------------------------------------------------------------------
2012................................              35.95              27.95          0.0005308           0.006057
2013................................              36.80              28.46          0.0005308           0.005410
2014................................              37.75              29.03          0.0005308           0.004725
2015................................              39.24              29.90          0.0005308           0.003719
2016................................              41.09              30.96          0.0005308           0.002573
2017................................              43.61              32.65          0.0005131           0.001896
2018................................              45.21              33.84          0.0004954           0.001811
2019................................              46.87              35.07          0.0004783           0.001729
2020................................              48.74              36.47          0.0004603           0.001643
2021................................              49.48              37.02           0.000453            0.00162
2022................................              50.24              37.59           0.000447            0.00159
2023................................              51.00              38.16           0.000440            0.00157
2024................................              55.44              41.48           0.000405            0.00144
2025................................              60.26              45.08           0.000372            0.00133
2026................................              66.95              50.09           0.000335            0.00120
----------------------------------------------------------------------------------------------------------------

    (d) In addition to the requirements of paragraphs (b) and (c) of 
this section, each manufacturer shall also meet the minimum fleet 
standard for domestically manufactured passenger automobiles expressed 
in Table 4 to this paragraph (d):

     Table 4 to Sec.   531.5(d)--Minimum Fuel Economy Standards for
             Domestically Manufactured Passenger Automobiles
                             [MYs 2011-2026]
------------------------------------------------------------------------
                                                                Minimum
                          Model year                            standard
------------------------------------------------------------------------
2011.........................................................       27.8
2012.........................................................       30.7
2013.........................................................       31.4
2014.........................................................       32.1
2015.........................................................       33.3
2016.........................................................       34.7
2017.........................................................       36.7
2018.........................................................       38.0
2019.........................................................       39.4
2020.........................................................       40.9
2021.........................................................       39.9
2022.........................................................       40.6
2023.........................................................       41.1
2024.........................................................       44.3
2025.........................................................       48.1
2026.........................................................       53.5
------------------------------------------------------------------------

    (e) The following manufacturers shall comply with the standards 
indicated in paragraphs (e)(1) through (15) of this section for the 
specified model years:
    (1) Avanti Motor Corporation.

      Table 5 to Sec.   531.5(e)(1)--Average Fuel Economy Standards
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1978.........................................................       16.1
1979.........................................................       14.5
1980.........................................................       15.8
1981.........................................................       18.2
1982.........................................................       18.2
1983.........................................................       16.9
1984.........................................................       16.9
1985.........................................................       16.9
------------------------------------------------------------------------

    (2) Rolls-Royce Motors, Inc.

      Table 6 to Sec.   531.5(e)(2)--Average Fuel Economy Standards
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1978.........................................................       10.7
1979.........................................................       10.8
1980.........................................................       11.1
1981.........................................................       10.7
1982.........................................................       10.6
1983.........................................................        9.9

[[Page 26073]]

 
1984.........................................................       10.0
1985.........................................................       10.0
1986.........................................................       11.0
1987.........................................................       11.2
1988.........................................................       11.2
1989.........................................................       11.2
1990.........................................................       12.7
1991.........................................................       12.7
1992.........................................................       13.8
1993.........................................................       13.8
1994.........................................................       13.8
1995.........................................................       14.6
1996.........................................................       14.6
1997.........................................................       15.1
1998.........................................................       16.3
1999.........................................................       16.3
------------------------------------------------------------------------

    (3) Checker Motors Corporation.

      Table 7 to Sec.   531.5(e)(3)--Average Fuel Economy Standards
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1978.........................................................       17.6
1979.........................................................       16.5
1980.........................................................       18.5
1981.........................................................       18.3
1982.........................................................       18.4
------------------------------------------------------------------------

    (4) Aston Martin Lagonda, Inc.

      Table 8 to Sec.   531.5(e)(4)--Average Fuel Economy Standards
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1979.........................................................       11.5
1980.........................................................       12.1
1981.........................................................       12.2
1982.........................................................       12.2
1983.........................................................       11.3
1984.........................................................       11.3
1985.........................................................       11.4
------------------------------------------------------------------------

    (5) Excalibur Automobile Corporation.

      Table 9 to Sec.   531.5(e)(5)--Average Fuel Economy Standards
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1978.........................................................       11.5
1979.........................................................       11.5
1980.........................................................       16.2
1981.........................................................       17.9
1982.........................................................       17.9
1983.........................................................       16.6
1984.........................................................       16.6
1985.........................................................       16.6
------------------------------------------------------------------------

    (6) Lotus Cars Ltd.

     Table 10 to Sec.   531.5(e)(6)--Average Fuel Economy Standards
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1994.........................................................       24.2
1995.........................................................       23.3
------------------------------------------------------------------------

    (7) Officine Alfieri Maserati, S.p.A.

      Table 11 to Sec.   531.5(e)(7)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1978.........................................................       12.5
1979.........................................................       12.5
1980.........................................................        9.5
1984.........................................................       17.9
1985.........................................................       16.8
------------------------------------------------------------------------

    (8) Lamborghini of North America.

      Table 12 to Sec.   531.5(e)(8)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1983.........................................................       13.7
1984.........................................................       13.7
------------------------------------------------------------------------

    (9) LondonCoach Co., Inc.

      Table 13 to Sec.   531.5(e)(9)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1985.........................................................       21.0
1986.........................................................       21.0
1987.........................................................       21.0
------------------------------------------------------------------------

    (10) Automobili Lamborghini S.p.A./Vector Aeromotive Corporation.

       Table 14 Sec.   531.5(e)(10)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1995.........................................................       12.8
1996.........................................................       12.6
1997.........................................................       12.5
------------------------------------------------------------------------

    (11) Dutcher Motors, Inc.

     Table 15 to Sec.   531.5(e)(11)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1986.........................................................       16.0
1987.........................................................       16.0
1988.........................................................       16.0
1992.........................................................       17.0
1993.........................................................       17.0
1994.........................................................       17.0
1995.........................................................       17.0
------------------------------------------------------------------------

    (12) MedNet, Inc.

     Table 16 to Sec.   531.5(e)(12)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                                Average
                                                                  fuel
                                                                economy
                          Model year                            standard
                                                                 (miles
                                                                  per
                                                                gallon)
------------------------------------------------------------------------
1996.........................................................       17.0
1997.........................................................       17.0
1998.........................................................       17.0
------------------------------------------------------------------------

    (13) Vector Aeromotive Corporation.

     Table 17 to Sec.   531.5(e)(13)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
1998.........................................................       12.1
------------------------------------------------------------------------

    (14) Qvale Automotive Group Srl.

     Table 18 to Sec.   531.5(e)(14)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
2000.........................................................       22.0
2001.........................................................       22.0
------------------------------------------------------------------------

    (15) Spyker Automobielen B.V.

     Table 19 to Sec.   531.5(e)(15)--Average Fuel Economy Standard
------------------------------------------------------------------------
                                                               Miles per
                          Model year                             gallon
------------------------------------------------------------------------
2006.........................................................       18.9
2007.........................................................       18.9
------------------------------------------------------------------------

Sec.  531.6  Measurement and calculation procedures.

    (a) The fleet average fuel economy performance of all passenger 
automobiles that are manufactured by a manufacturer in a model year 
shall be determined in accordance with procedures established by the 
Administrator of the Environmental Protection Agency (EPA) under 49 
U.S.C. 32904 and set forth in 40 CFR part 600.
    (b) For model years 2017 and later, a manufacturer is eligible to 
increase the fuel economy performance of passenger

[[Page 26074]]

cars in accordance with procedures established by the EPA set forth in 
40 CFR part 600, subpart F, including any adjustments to fuel economy 
the EPA allows, such as for fuel consumption improvements related to 
air conditioning efficiency and off-cycle technologies. Manufacturers 
must provide reporting on these technologies as specified in Sec.  
537.7 of this chapter by the required deadlines.
    (1) Efficient air conditioning technologies. A manufacturer that 
seeks to increase its fleet average fuel economy performance through 
the use of technologies that improve the efficiency of air conditioning 
systems must follow the requirements in 40 CFR 86.1868-12. Fuel 
consumption improvement values resulting from the use of those air 
conditioning systems must be determined in accordance with 40 CFR 
600.510-12(c)(3)(i).
    (2) Off-cycle technologies on EPA's predefined list or using 5-
cycle testing. A manufacturer that seeks to increase its fleet average 
fuel economy performance through the use of off-cycle technologies must 
follow the requirements in 40 CFR 86.1869-12. A manufacturer is 
eligible to gain fuel consumption improvements for predefined off-cycle 
technologies in accordance with 40 CFR 86.1869-12(b) or for 
technologies tested using the EPA's 5-cycle methodology in accordance 
with 40 CFR 86.1869-12(c). The fuel consumption improvement is 
determined in accordance with 40 CFR 600.510-12(c)(3)(ii).
    (3) Off-cycle technologies using the alternative EPA-approved 
methodology. A manufacturer is eligible to increase its fuel economy 
performance through use of an off-cycle technology requiring an 
application request made to the EPA in accordance with 40 CFR 86.1869-
12(d).
    (i) Eligibility under the corporate average fuel economy (CAFE) 
program requires compliance with paragraphs (b)(3)(i)(A) through (C) of 
this section. Paragraphs (b)(3)(i)(A), (B), and (D) of this section 
apply starting in model year 2024.
    (A) A manufacturer seeking to increase its fuel economy performance 
using the alternative methodology for an off-cycle technology, if prior 
to the applicable model year, the manufacturers submits to EPA a 
detailed analytical plan and is approved (i.e., for its planned test 
procedure and model types for demonstration) in accordance with 40 CFR 
86.1869-12(d).
    (B) A manufacturer seeking to increase its CAFE program fuel 
economy performance using the alternative methodology for an off-cycle 
technology must also submit an official credit application to EPA and 
obtain approval in accordance with 40 CFR 86.1869-12(e) prior to 
September of the given model year.
    (C) A manufacturer's plans, applications and requests approved by 
the EPA must be made in consultation with the National Highway Traffic 
Safety Administration (NHTSA). To expedite NHTSA's consultation with 
the EPA, a manufacturer must concurrently submit its application to 
NHTSA if the manufacturer is seeking off-cycle fuel economy improvement 
values under the CAFE program for those technologies. For off-cycle 
technologies that are covered under 40 CFR 86.1869-12(d), NHTSA will 
consult with the EPA regarding NHTSA's evaluation of the specific off-
cycle technology to ensure its impact on fuel economy and the 
suitability of using the off-cycle technology to adjust the fuel 
economy performance.
    (D) A manufacturer may request an extension from NHTSA for more 
time to obtain an EPA approval. Manufacturers should submit their 
requests 30 days before the deadlines in paragraphs (b)(3)(i)(A) 
through (C) of this section. Requests should be submitted to NHTSA's 
Director of the Office of Vehicle Safety Compliance at [email protected].
    (ii) Review and approval process. NHTSA will provide to EPA its 
views on the suitability of using the off-cycle technology to adjust 
vehicle fuel economy performance. NHTSA's evaluation and review will 
consider:
    (A) Whether the technology has a direct impact upon improving fuel 
economy performance;
    (B) Whether the technology is related to crash-avoidance 
technologies, safety critical systems or systems affecting safety-
critical functions, or technologies designed for the purpose of 
reducing the frequency of vehicle crashes;
    (C) Information from any assessments conducted by the EPA related 
to the application, the technology and/or related technologies; and
    (D) Any other relevant factors.
    (iii) Safety. (A) Technologies found to be defective or non-
compliant, subject to recall pursuant to part 573 of this chapter, due 
to a risk to motor vehicle safety, will have the values of approved 
off-cycle credits removed from the manufacturer's credit balance or 
adjusted to the population of vehicles the manufacturer remedies as 
required by 49 U.S.C. Chapter 301. NHTSA will consult with the 
manufacturer to determine the amount of the adjustment.
    (B) Approval granted for innovative and off-cycle technology 
credits under NHTSA's fuel efficiency program does not affect or 
relieve the obligation to comply with the Vehicle Safety Act (49 U.S.C. 
Chapter 301), including the ``make inoperative'' prohibition (49 U.S.C. 
30122), and all applicable Federal motor vehicle safety standards 
(FMVSSs) issued thereunder (part 571 of this chapter). In order to 
generate off-cycle or innovative technology credits manufacturers must 
state--
    (1) That each vehicle equipped with the technology for which they 
are seeking credits will comply with all applicable FMVSS(s); and
    (2) Whether or not the technology has a fail-safe provision. If no 
fail-safe provision exists, the manufacturer must explain why not and 
whether a failure of the innovative technology would affect the safety 
of the vehicle.

Appendix A to Part 531--Example of Calculating Compliance Under Sec.  
531.5(c)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of domestic passenger automobiles in MY 2012 as follows:

                                                                   Appendix A--Table I
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Model type
------------------------------------------------------------------------------------------------                              Actual
                                                      Basic engine                                     Description         measured fuel      Volume
           Group                  Carline name             (L)           Transmission class                               economy  (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.........................  PC A FWD...............             1.8  A5........................  2-door sedan...........            34.0           1,500
2.........................  PC A FWD...............             1.8  M6........................  2-door sedan...........            34.6           2,000
3.........................  PC A FWD...............             2.5  A6........................  4-door wagon...........            33.8           2,000
4.........................  PC A AWD...............             1.8  A6........................  4-door wagon...........            34.4           1,000
5.........................  PC A AWD...............             2.5  M6........................  2-door hatchback.......            32.9           3,000
6.........................  PC B RWD...............             2.5  A6........................  4-door wagon...........            32.2           8,000

[[Page 26075]]

 
7.........................  PC B RWD...............             2.5  A7........................  4-door sedan...........            33.1           2,000
8.........................  PC C AWD...............             3.2  A7........................  4-door sedan...........            30.6           5,000
9.........................  PC C FWD...............             3.2  M6........................  2-door coupe...........            28.5           3,000
                           -----------------------------------------------------------------------------------------------------------------------------
    Total.................  .......................  ..............  ..........................  .......................  ..............          27,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note to Table I to this appendix: Manufacturer X's required fleet average fuel economy standard level would first be calculated by determining the fuel
  economy targets applicable to each unique model type and footprint combination for model type groups 1-9 as illustrated in Table II to this appendix.
Manufacturer X calculates a fuel economy target standard for each unique model type and footprint combination.


                                                                  Appendix A--Table II
--------------------------------------------------------------------------------------------------------------------------------------------------------
                            Model type                                                                                                            Fuel
-------------------------------------------------------------------                                             Track                           economy
                                        Basic                          Description     Base tire   Wheelbase  width F&R  Footprint    Volume     target
      Group           Carline name      engine      Transmission                          size      (inches)   average    (ft\2\)               standard
                                         (L)           class                                                   (inches)                          (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................  PC A FWD.........        1.8  A5...............  2-door sedan....    205/75R14       99.8       61.2       42.4      1,500      35.01
2................  PC A FWD.........        1.8  M6...............  2-door sedan....    215/70R15       99.8       60.9       42.2      2,000      35.14
3................  PC A FWD.........        2.5  A6...............  4-door wagon....    215/70R15      100.0       60.9       42.3      2,000      35.08
4................  PC A AWD.........        1.8  A6...............  4-door wagon....    235/60R15      100.0       61.2       42.5      1,000      35.95
5................  PC A AWD.........        2.5  M6...............  2-door hatchback    225/65R16       99.6       59.5       41.2      3,000      35.81
6................  PC B RWD.........        2.5  A6...............  4-door wagon....    265/55R18      109.2       66.8       50.7      8,000      30.33
7................  PC B RWD.........        2.5  A7...............  4-door sedan....    235/65R17      109.2       67.8       51.4      2,000      29.99
8................  PC C AWD.........        3.2  A7...............  4-door sedan....    265/55R18      111.3       67.8       52.4      5,000      29.52
9................  PC C FWD.........        3.2  M6...............  2-door coupe....    225/65R16      111.3       67.2       51.9      3,000      29.76
                  --------------------------------------------------------------------------------------------------------------------------------------
    Total........  .................  .........  .................  ................  ...........  .........  .........  .........     27,500  .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note to Table II to this appendix: With the appropriate fuel economy targets determined for each unique model type and footprint combination,
  Manufacturer X's required fleet average fuel economy standard would be calculated as illustrated in Figure 1 to this appendix.

BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TR02MY22.261


[[Page 26076]]


[GRAPHIC] [TIFF OMITTED] TR02MY22.262

BILLING CODE 4910-59-C

Note to Figure 2 to this appendix: Since the actual fleet average fuel 
economy performance of Manufacturer X's fleet is 32.0 mpg, as compared 
to its required fleet fuel economy standard of 31.6 mpg, Manufacturer X 
complied with the CAFE standard for MY 2012 as set forth in Sec.  
531.5(c).


0
2. Revise part 533 to read as follows:

PART 533--LIGHT TRUCK FUEL ECONOMY STANDARDS

Sec.
533.1 Scope.
533.2 Purpose.
533.3 Applicability.
533.4 Definitions.
533.5 Requirements.
533.6 Measurement and calculation procedures.
Appendix A to Part 533--Example of Calculating Compliance Under 
Sec.  533.5(i)

    Authority:  49 U.S.C. 32902; delegation of authority at 49 CFR 
1.95.


Sec.  533.1  Scope.

    This part establishes average fuel economy standards pursuant to 
section 502(b) of the Motor Vehicle Information and Cost Savings Act, 
as amended, for light trucks.


Sec.  533.2  Purpose.

    The purpose of this part is to increase the fuel economy of light 
trucks by establishing minimum levels of average fuel economy for those 
vehicles.


Sec.  533.3  Applicability.

    This part applies to manufacturers of light trucks.


Sec.  533.4  Definitions.

    (a) Statutory terms. (1) The terms average fuel economy, average 
fuel economy standard, fuel economy, import, manufacture, manufacturer, 
and model year are used as defined in section 501 of the Act.
    (2) The term automobile is used as defined in section 501 of the 
Act and in accordance with the determinations in part 523 of this 
chapter.
    (3) The term domestically manufactured is used as defined in 
section 503(b)(2)(E) of the Act.
    (b) Other terms. As used in this part, unless otherwise required by 
the context--
    (1) Act means the Motor Vehicle Information Cost Savings Act, as 
amended by Public Law 94-163.
    (2) Light truck is used in accordance with the determinations in 
part 523 of this chapter.
    (3) Captive import means with respect to a light truck, one which 
is not domestically manufactured but which is imported in the 1980 
model year or thereafter by a manufacturer whose principal place of 
business is in the United States.
    (4) 4-wheel drive general utility vehicle means a 4-wheel drive, 
general purpose automobile capable of off-highway operation that has a 
wheelbase of not more than 280 centimeters, and that has a body shape 
similar to 1977 Jeep CJ-5 or CJ-7, or the 1977 Toyota Land Cruiser.
    (5) Basic engine means a unique combination of manufacturer, engine 
displacement, number of cylinders, fuel system (as distinguished by 
number of carburetor barrels or use of fuel injection), and catalyst 
usage.
    (6) Limited product line light truck means a light truck 
manufactured by a manufacturer whose light truck fleet is powered 
exclusively by basic engines which are not also used in passenger 
automobiles.


Sec.  533.5  Requirements.

    (a) Each manufacturer of light trucks shall comply with the 
following fleet average fuel economy standards, expressed in miles per 
gallon, in the model year (MY) specified as applicable:

[[Page 26077]]



                                           Table 1 to Sec.   533.5(a)
----------------------------------------------------------------------------------------------------------------
                                                            2-wheel drive light   4-wheel drive light   Limited
                                                                  trucks                trucks          product
                        Model year                        --------------------------------------------    line
                                                            Captive               Captive                light
                                                            imports     Other     imports     Other      trucks
----------------------------------------------------------------------------------------------------------------
1979.....................................................       17.2       15.8  .........  .........  .........
1980.....................................................       16.0       16.0       14.0       14.0       14.0
1981.....................................................       16.7       16.7       15.0       15.0       14.5
----------------------------------------------------------------------------------------------------------------


                                           Table 2 to Sec.   533.5(a)
----------------------------------------------------------------------------------------------------------------
                                                  Combined standard    2-wheel drive light   4-wheel drive light
                                               ----------------------        trucks                trucks
                  Model year                                         -------------------------------------------
                                                 Captive     Others    Captive               Captive
                                                 imports               imports     Others    imports     Others
----------------------------------------------------------------------------------------------------------------
1982..........................................       17.5       17.5       18.0       18.0       16.0       16.0
1983..........................................       19.0       19.0       19.5       19.5       17.5       17.5
1984..........................................       20.0       20.0       20.3       20.3       18.5       18.5
1985..........................................       19.5       19.5       19.7       19.7       18.9       18.9
1986..........................................       20.0       20.0       20.5       20.5       19.5       19.5
1987..........................................       20.5       20.5       21.0       21.0       19.5       19.5
1988..........................................       20.5       20.5       21.0       21.0       19.5       19.5
1989..........................................       20.5       20.5       21.5       21.5       19.0       19.0
1990..........................................       20.0       20.0       20.5       20.5       19.0       19.0
1991..........................................       20.2       20.2       20.7       20.7       19.1       19.1
----------------------------------------------------------------------------------------------------------------


                       Table 3 to Sec.   533.5(a)
------------------------------------------------------------------------
                                                      Combined standard
                                                   ---------------------
                    Model year                       Captive
                                                     imports     Other
------------------------------------------------------------------------
1992..............................................       20.2       20.2
1993..............................................       20.4       20.4
1994..............................................       20.5       20.5
1995..............................................       20.6       20.6
------------------------------------------------------------------------


                       Table 4 to Sec.   533.5(a)
------------------------------------------------------------------------
                       Model year                            Standard
------------------------------------------------------------------------
2001....................................................            20.7
2002....................................................            20.7
2003....................................................            20.7
2004....................................................            20.7
2005....................................................            21.0
2006....................................................            21.6
2007....................................................            22.2
2008....................................................            22.5
2009....................................................            23.1
2010....................................................            23.5
------------------------------------------------------------------------

                                                          [GRAPHIC] [TIFF OMITTED] TR02MY22.263
                                                          
Where:

N is the total number (sum) of light trucks produced by a 
manufacturer;
Ni is the number (sum) of the ith light truck model type 
produced by a manufacturer; and
Ti is the fuel economy target of the ith light truck 
model type, which is determined according to the following formula, 
rounded to the nearest hundredth:
[GRAPHIC] [TIFF OMITTED] TR02MY22.264

Where:

Parameters a, b, c, and d are defined in Table 5 to this paragraph 
(a);
e = 2.718; and
x = footprint (in square feet, rounded to the nearest tenth) of the 
model type.

[[Page 26078]]



             Table 5 to Sec.   533.5(a)--Parameters for the Light Truck Fuel Economy Targets for MYs
                                                   [2008-2011]
----------------------------------------------------------------------------------------------------------------
                                                                        Parameters
                                         -----------------------------------------------------------------------
               Model year                                                        c  (gal/mi/
                                              a  (mpg)          b  (mpg)           ft\2\)          d  (gal/mi)
----------------------------------------------------------------------------------------------------------------
2008....................................             28.56             19.99             49.30              5.58
2009....................................             30.07             20.87             48.00              5.81
2010....................................             29.96             21.20             48.49              5.50
2011....................................             27.10             21.10             56.41              4.28
----------------------------------------------------------------------------------------------------------------

                                                                                                [GRAPHIC] [TIFF OMITTED] TR02MY22.265
                                                                                                
Where:

CAFErequired is the fleet average fuel economy standard 
for a given light truck fleet;
Subscript i is a designation of multiple groups of light trucks, 
where each group's designation, i.e., i = 1, 2, 3, etc., represents 
light trucks that share a unique model type and footprint within the 
applicable fleet;
Productioni is the number of light trucks produced for 
sale in the United States within each ith designation, 
i.e., which share the same model type and footprint; and
TARGETi is the fuel economy target in miles per gallon 
(mpg) applicable to the footprint of light trucks within each ith 
designation, i.e., which share the same model type and footprint, 
calculated according to either Figure 3 or 4 to this paragraph (a), 
as appropriate, and rounded to the nearest hundredth of a mpg, i.e., 
35.455 = 35.46 mpg, and the summations in the numerator and 
denominator are both performed over all models in the fleet in 
question.
[GRAPHIC] [TIFF OMITTED] TR02MY22.266

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet);
Parameters a, b, c, and d are defined in Table 6 to this paragraph 
(a); and
The MIN and MAX functions take the minimum and maximum, 
respectively, of the included values.

            Table 6 for Sec.   533.5(a)--Parameters for the Light Truck Fuel Economy Targets for MYs
                                                   [2012-2016]
----------------------------------------------------------------------------------------------------------------
                                                                        Parameters
                                         -----------------------------------------------------------------------
               Model year                                                        c  (gal/mi/
                                              a  (mpg)          b  (mpg)           ft\2\)          d  (gal/mi)
----------------------------------------------------------------------------------------------------------------
2012....................................             29.82             22.27         0.0004546          0.014900
2013....................................             30.67             22.74         0.0004546          0.013968
2014....................................             31.38             23.13         0.0004546          0.013225
2015....................................             32.72             23.85         0.0004546          0.011920
2016....................................             34.42             24.74         0.0004546          0.010413
----------------------------------------------------------------------------------------------------------------


[[Page 26079]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.267

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet);
Parameters a, b, c, d, e, f, g, and h are defined in Table 7 to this 
paragraph (a); and
The MIN and MAX functions take the minimum and maximum, 
respectively, of the included values.

                                 Table 7 to Sec.   533.5(a)--Parameters for the Light Truck Fuel Economy Targets for MYs
                                                                       [2017-2026]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Parameters
                                                 -------------------------------------------------------------------------------------------------------
                   Model year                                                c (gal/mi/                                          g (gal/mi/
                                                    a (mpg)      b (mpg)       ft\2\)     d (gal/mi)    e (mpg)      f (mpg)       ft\2\)     h (gal/mi)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2017............................................        36.26        25.09    0.0005484     0.005097        35.10        25.09    0.0004546     0.009851
2018............................................        37.36        25.20    0.0005358     0.004797        35.31        25.20    0.0004546     0.009682
2019............................................        38.16        25.25    0.0005265     0.004623        35.41        25.25    0.0004546     0.009603
2020............................................        39.11        25.25    0.0005140     0.004494        35.41        25.25    0.0004546     0.009603
2021............................................        39.71        25.63     0.000506      0.00443           NA           NA           NA           NA
2022............................................        40.31        26.02     0.000499      0.00436           NA           NA           NA           NA
2023............................................        40.93        26.42     0.000491      0.00429           NA           NA           NA           NA
2024............................................        44.48        26.74     0.000452      0.00395           NA           NA           NA           NA
2025............................................        48.35        29.07     0.000416      0.00364           NA           NA           NA           NA
2026............................................        53.73        32.30     0.000374      0.00327           NA           NA           NA           NA
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (b)(1) For model year 1979, each manufacturer may:
    (i) Combine its 2- and 4-wheel drive light trucks and comply with 
the average fuel economy standard in paragraph (a) of this section for 
2-wheel drive light trucks; or
    (ii) Comply separately with the two standards specified in 
paragraph (a) of this section.
    (2) For model year 1979, the standard specified in paragraph (a) of 
this section for 4-wheel drive light trucks applies only to 4-wheel 
drive general utility vehicles. All other 4-wheel drive light trucks in 
that model year shall be included in the 2-wheel drive category for 
compliance purposes.
    (c) For model years 1980 and 1981, manufacturers of limited product 
line light trucks may:
    (1) Comply with the separate standard for limited product line 
light trucks in Table 1 to paragraph (a) of this section; or
    (2) Comply with the other standards specified in paragraph (a) of 
this section, as applicable.
    (d) For model years 1982-91, each manufacturer may:
    (1) Combine its 2- and 4-wheel drive light trucks (segregating 
captive import and other light trucks) and comply with the combined 
average fuel economy standard specified in paragraph (a) of this 
section; or
    (2) Comply separately with the 2-wheel drive standards and the 4-
wheel drive standards (segregating captive import and other light 
trucks) specified in paragraph (a) of this section.
    (e) For model year 1992, each manufacturer shall comply with the 
average fuel economy standard specified in paragraph (a) of this 
section (segregating captive import and other light trucks).
    (f) For each model year 1996 and thereafter, each manufacturer 
shall combine its captive imports with its other light trucks and 
comply with the fleet average fuel economy standard in paragraph (a) of 
this section.
    (g) For model years 2008-2010, at a manufacturer's option, a 
manufacturer's light truck fleet may comply with the fuel economy 
standard calculated for each model year according to Figure 1 to 
paragraph (a) of this section and the appropriate values in Table 5 to 
paragraph (a) of this section, with said option being irrevocably 
chosen for that model year and reported as specified in Sec.  537.8 of 
this chapter.
    (h) For model year 2011, a manufacturer's light truck fleet shall 
comply with the fleet average fuel economy standard calculated for that 
model year according to Figure 1 to paragraph (a) of this section and 
the appropriate values in Table 5 to paragraph (a) of this section.
    (i) For model years 2012-2016, a manufacturer's light truck fleet 
shall comply with the fleet average fuel economy standard calculated 
for that model year according to Figures 2 and 3 to paragraph (a) of 
this section and the appropriate values in Table 6 to paragraph (a) of 
this section.
    (j) For model years 2017-2026, a manufacturer's light truck fleet 
shall comply with the fleet average fuel economy standard calculated 
for that model year according to Figures 2 and 4 to paragraph (a) of 
this section and the appropriate values in Table 7 to paragraph (a) of 
this section.

[[Page 26080]]

Sec.  533.6  Measurement and calculation procedures.

    (a) Any reference to a class of light trucks manufactured by a 
manufacturer shall be deemed--
    (1) To include all light trucks in that class manufactured by 
persons who control, are controlled by, or are under common control 
with, such manufacturer;
    (2) To include only light trucks which qualify as non-passenger 
vehicles in accordance with Sec.  523.5 of this chapter based upon the 
production measurements of the vehicles as sold to dealerships; and
    (3) To exclude all light trucks in that class manufactured (within 
the meaning of paragraph (a)(1) of this section) during a model year by 
such manufacturer which are exported prior to the expiration of 30 days 
following the end of such model year.
    (b) The fleet average fuel economy performance of all light trucks 
that are manufactured by a manufacturer in a model year shall be 
determined in accordance with procedures established by the 
Administrator of the Environmental Protection Agency (EPA) under 49 
U.S.C. 32904 and set forth in 40 CFR part 600.
    (c) For model years 2017 and later, a manufacturer is eligible to 
increase the fuel economy performance of light trucks in accordance 
with procedures established by the EPA set forth in 40 CFR part 600, 
subpart F, including any adjustments to fuel economy the EPA allows, 
such as for fuel consumption improvements related to air conditioning 
efficiency, off-cycle technologies, and hybridization and other 
performance-based technologies for full-size pickup trucks that meet 
the requirements specified in 40 CFR 86.1803. Manufacturers must 
provide reporting on these technologies as specified in Sec.  537.7 of 
this chapter by the required deadlines.
    (1) Efficient air conditioning technologies. A manufacturer that 
seeks to increase its fleet average fuel economy performance through 
the use of technologies that improve the efficiency of air conditioning 
systems must follow the requirements in 40 CFR 86.1868-12. Fuel 
consumption improvement values resulting from the use of those air 
conditioning systems must be determined in accordance with 40 CFR 
600.510-12(c)(3)(i).
    (2) Incentives for advanced full-size light-duty pickup trucks. For 
model year 2023 and 2024, the eligibility of a manufacturer to increase 
its fuel economy using hybridized and other performance-based 
technologies for full-size pickup trucks must follow 40 CFR 86.1870-12 
and the fuel consumption improvement of these full-size pickup truck 
technologies must be determined in accordance with 40 CFR 600.510-
12(c)(3)(iii). Manufacturers may also combine incentives for full size 
pickups and dedicated alternative fueled vehicles when calculating fuel 
economy performance values in 40 CFR 600.510-12.
    (3) Off-cycle technologies on EPA's predefined list or using 5-
cycle testing. A manufacturer that seeks to increase its fleet average 
fuel economy performance through the use of off-cycle technologies must 
follow the requirements in 40 CFR 86.1869-12. A manufacturer is 
eligible to gain fuel consumption improvements for predefined off-cycle 
technologies in accordance with 40 CFR 86.1869-12(b) or for 
technologies tested using the EPA's 5-cycle methodology in accordance 
with 40 CFR 86.1869-12(c). The fuel consumption improvement is 
determined in accordance with 40 CFR 600.510-12(c)(3)(ii).
    (4) Off-cycle technologies using the alternative EPA-approved 
methodology. A manufacturer is eligible to increase its fuel economy 
performance through use of an off-cycle technology requiring an 
application request made to the EPA in accordance with 40 CFR 86.1869-
12(d).
    (i) Eligibility under the corporate average fuel economy (CAFE) 
program requires compliance with paragraphs (c)(4)(i)(A) through (C) of 
this section. Paragraphs (c)(4)(i)(A), (B), and (D) of this section 
apply starting in model year 2024.
    (A) A manufacturer seeking to increase its fuel economy performance 
using the alternative methodology for an off-cycle technology, if prior 
to the applicable model year, the manufacturers submits to EPA a 
detailed analytical plan and is approved (i.e., for its planned test 
procedure and model types for demonstration) in accordance with 40 CFR 
86.1869-12(d).
    (B) A manufacturer seeking to increase its fuel economy performance 
using the alternative methodology for an off-cycle technology must also 
submit an official credit application to EPA and obtain approval in 
accordance with 40 CFR 86.1869-12(e) prior to September of the given 
model year.
    (C) A manufacturer's plans, applications and requests approved by 
the EPA must be made in consultation with the National Highway Traffic 
Safety Administration (NHTSA). To expedite NHTSA's consultation with 
the EPA, a manufacturer must concurrently submit its application to 
NHTSA if the manufacturer is seeking off-cycle fuel economy improvement 
values under the CAFE program for those technologies. For off-cycle 
technologies that are covered under 40 CFR 86.1869-12(d), NHTSA will 
consult with the EPA regarding NHTSA's evaluation of the specific off-
cycle technology to ensure its impact on fuel economy and the 
suitability of using the off-cycle technology to adjust the fuel 
economy performance.
    (D) A manufacturer may request an extension from NHTSA for more 
time to obtain an EPA approval. Manufacturers should submit their 
requests 30 days before the deadlines in paragraphs (c)(4)(i)(A) 
through (C) of this section. Requests should be submitted to NHTSA's 
Director of the Office of Vehicle Safety Compliance at [email protected].
    (ii) Review and approval process. NHTSA will provide to EPA its 
views on the suitability of using the off-cycle technology to adjust 
vehicle fuel economy performance. NHTSA's evaluation and review will 
consider:
    (A) Whether the technology has a direct impact upon improving fuel 
economy performance;
    (B) Whether the technology is related to crash-avoidance 
technologies, safety critical systems or systems affecting safety-
critical functions, or technologies designed for the purpose of 
reducing the frequency of vehicle crashes;
    (C) Information from any assessments conducted by the EPA related 
to the application, the technology and/or related technologies; and
    (D) Any other relevant factors.
    (E) NHTSA will collaborate to host annual meetings with EPA at 
least once by July 30th before the model year begins to provide general 
guidance to the industry on past off-cycle approvals.
    (iii) Safety. (A) Technologies found to be defective or non-
compliant, subject to recall pursuant to part 573 of this chapter, due 
to a risk to motor vehicle safety, will have the values of approved 
off-cycle credits removed from the manufacturer's credit balance or 
adjusted to the population of vehicles the manufacturer remedies as 
required by 49 U.S.C. Chapter 301. NHTSA will consult with the 
manufacturer to determine the amount of the adjustment.
    (B) Approval granted for innovative and off-cycle technology 
credits under NHTSA's fuel efficiency program does not affect or 
relieve the obligation to comply with the Vehicle Safety Act (49 U.S.C. 
Chapter 301), including the ``make inoperative'' prohibition (49 U.S.C. 
30122), and all applicable Federal motor vehicle safety standards 
issued thereunder (FMVSSs) (part 571 of this chapter). In order to 
generate off-

[[Page 26081]]

cycle or innovative technology credits manufacturers must state--
    (1) That each vehicle equipped with the technology for which they 
are seeking credits will comply with all applicable FMVSS(s); and
    (2) Whether or not the technology has a fail-safe provision. If no 
fail-safe provision exists, the manufacturer must explain why not and 
whether a failure of the innovative technology would affect the safety 
of the vehicle.

Appendix A to Part 533--Example of Calculating Compliance Under Sec.  
533.5(i)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of light trucks in MY 2012 as follows:

                                                                   Appendix A--Table I
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Model type
------------------------------------------------------------------------------------------------                              Actual
                                                      Basic engine                                     Description         measured fuel      Volume
           Group                  Carline name             (L)           Transmission class                                economy (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.........................  Pickup A 2WD...........               4  A5........................  Reg cab, MB............            27.1             800
2.........................  Pickup B 2WD...........               4  M5........................  Reg cab, MB............            27.6             200
3.........................  Pickup C 2WD...........             4.5  A5........................  Reg cab, LB............            23.9             300
4.........................  Pickup C 2WD...........               4  M5........................  Ext cab, MB............            23.7             400
5.........................  Pickup C 4WD...........             4.5  A5........................  Crew cab, SB...........            23.5             400
6.........................  Pickup D 2WD...........             4.5  A6........................  Crew cab, SB...........            23.6             400
7.........................  Pickup E 2WD...........               5  A6........................  Ext cab, LB............            22.7             500
8.........................  Pickup E 2WD...........               5  A6........................  Crew cab, MB...........            22.5             500
9.........................  Pickup F 2WD...........             4.5  A5........................  Reg cab, LB............            22.5           1,600
10........................  Pickup F 4WD...........             4.5  A5........................  Ext cab, MB............            22.3             800
11........................  Pickup F 4WD...........             4.5  A5........................  Crew cab, SB...........            22.2             800
                           -----------------------------------------------------------------------------------------------------------------------------
    Total.................  .......................  ..............  ..........................  .......................  ..............           6,700
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note to Table I to this appendix: Manufacturer X's required fleet average fuel economy standard level would first be calculated by determining the fuel
  economy targets applicable to each unique model type and footprint combination for model type groups 1-11 as illustrated in Table II to this appendix.
Manufacturer X calculates a fuel economy target standard for each unique model type and footprint combination.


                                                                  Appendix A--Table II
--------------------------------------------------------------------------------------------------------------------------------------------------------
                            Model type                                                                                                            Fuel
-------------------------------------------------------------------                                             Track                           economy
                                        Basic                          Description     Base tire   Wheelbase  width F&R  Footprint    Volume     target
      Group           Carline name      engine      Transmission                          size      (inches)    average   (ft\2\)               standard
                                         (L)           class                                                   (inches)                          (mpg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................  Pickup A 2WD.....          4  A5...............  Reg cab, MB.....    235/75R15      100.0       68.8       47.8        800      27.30
2................  Pickup B 2WD.....          4  M5...............  Reg cab, MB.....    235/75R15      100.0       68.2       47.4        200      27.44
3................  Pickup C 2WD.....        4.5  A5...............  Reg cab, LB.....    255/70R17      125.0       68.8       59.7        300      23.79
4................  Pickup C 2WD.....          4  M5...............  Ext cab, MB.....    255/70R17      125.0       68.8       59.7        400      23.79
5................  Pickup C 4WD.....        4.5  A5...............  Crew cab, SB....    275/70R17      150.0       69.0       71.9        400      22.27
6................  Pickup D 2WD.....        4.5  A6...............  Crew cab, SB....    255/70R17      125.0       68.8       59.7        400      23.79
7................  Pickup E 2WD.....          5  A6...............  Ext cab, LB.....    255/70R17      125.0       68.8       59.7        500      23.79
8................  Pickup E 2WD.....          5  A6...............  Crew cab, MB....    285/70R17      125.0       69.2       60.1        500      23.68
9................  Pickup F 2WD.....        4.5  A5...............  Reg cab, LB.....    255/70R17      125.0       68.9       59.8      1,600      23.76
10...............  Pickup F 4WD.....        4.5  A5...............  Ext cab, MB.....    275/70R17      150.0       69.0       71.9        800      22.27
11...............  Pickup F 4WD.....        4.5  A5...............  Crew cab, SB....    285/70R17      150.0       69.2       72.1        800      22.27
    Total........  .................  .........  .................  ................  ...........  .........  .........  .........      6,700  .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note to Table II to this appendix: With the appropriate fuel economy targets determined for each unique model type and footprint combination,
  Manufacturer X's required fleet average fuel economy standard would be calculated as illustrated in Figure 1 to this appendix:

BILLING CODE 4910-59-P

[[Page 26082]]

[GRAPHIC] [TIFF OMITTED] TR02MY22.268

[GRAPHIC] [TIFF OMITTED] TR02MY22.269

BILLING CODE 4910-59-C

Note to Figure 2 to this appendix: Since the actual fleet average fuel 
economy performance of Manufacturer X's fleet is 23.3 mpg, as compared 
to its required fleet fuel economy standard of 23.7 mpg, Manufacturer X 
did not comply with the CAFE standard for MY 2012 as set forth in Sec.  
533.5(i).

0
3. Revise part 536 to read as follows:

PART 536--TRANSFER AND TRADING OF FUEL ECONOMY CREDITS

Sec.
536.1 Scope.
536.2 Application.
536.3 Definitions.
536.4 Credits.
536.5 Trading infrastructure.
536.6 Treatment of credits earned prior to model year 2011.
536.7 Treatment of carryback credits.
536.8 Conditions for trading of credits.
536.9 Use of credits with regard to the domestically manufactured 
passenger automobile minimum standard.
536.10 Treatment of dual-fuel and alternative fuel vehicles--
consistency with 49 CFR part 538.

    Authority:  49 U.S.C. 32903; delegation of authority at 49 CFR 
1.95.


Sec.  536.1  Scope.

    This part establishes regulations governing the use and application 
of corporate average fuel economy (CAFE)

[[Page 26083]]

credits up to three model years before and five model years after the 
model year in which the credit was earned. It also specifies 
requirements for manufacturers wishing to transfer fuel economy credits 
between their fleets and for manufacturers and other persons wishing to 
trade fuel economy credits to achieve compliance with prescribed fuel 
economy standards.


Sec.  536.2  Application.

    This part applies to all credits earned (and transferable and 
tradable) for exceeding applicable average fuel economy standards in a 
given model year for domestically manufactured passenger cars, imported 
passenger cars, and light trucks.


Sec.  536.3  Definitions.

    (a) Statutory terms. All terms defined in 49 U.S.C. 32901(a) are 
used pursuant to their statutory meaning.
    (b) Other terms. (1) Above standard fuel economy means, with 
respect to a compliance category, that the automobiles manufactured by 
a manufacturer in that compliance category in a particular model year 
have greater average fuel economy (calculated in a manner that reflects 
the incentives for alternative fuel automobiles per 49 U.S.C. 32905) 
than that manufacturer's fuel economy standard for that compliance 
category and model year.
    (2) Adjustment factor means a factor used to adjust the value of a 
traded or transferred credit for compliance purposes to ensure that the 
compliance value of the credit when used reflects the total volume of 
oil saved when the credit was earned.
    (3) Below standard fuel economy means, with respect to a compliance 
category, that the automobiles manufactured by a manufacturer in that 
compliance category in a particular model year have lower average fuel 
economy (calculated in a manner that reflects the incentives for 
alternative fuel automobiles per 49 U.S.C. 32905) than that 
manufacturer's fuel economy standard for that compliance category and 
model year.
    (4) Compliance means a manufacturer achieves compliance in a 
particular compliance category when:
    (i) The average fuel economy of the vehicles in that category 
exceed or meet the fuel economy standard for that category; or
    (ii) The average fuel economy of the vehicles in that category do 
not meet the fuel economy standard for that category, but the 
manufacturer proffers a sufficient number of valid credits, adjusted 
for total oil savings, to cover the gap between the average fuel 
economy of the vehicles in that category and the required average fuel 
economy. A manufacturer achieves compliance for its fleet if the 
conditions in paragraph (b)(4)(i) of this section or this paragraph 
(b)(4)(ii) are simultaneously met for all compliance categories.
    (5) Compliance category means any of three categories of 
automobiles subject to Federal fuel economy regulations in this 
chapter. The three compliance categories recognized by 49 U.S.C. 
32903(g)(6) are domestically manufactured passenger automobiles, 
imported passenger automobiles, and non-passenger automobiles (``light 
trucks'').
    (6) Credit holder (or holder) means a legal person that has valid 
possession of credits, either because they are a manufacturer who has 
earned credits by exceeding an applicable fuel economy standard in this 
chapter, or because they are a designated recipient who has received 
credits from another holder. Credit holders need not be manufacturers, 
although all manufacturers may be credit holders.
    (7) Credits (or fuel economy credits) means an earned or purchased 
allowance recognizing that the average fuel economy of a particular 
manufacturer's vehicles within a particular compliance category and 
model year exceeds that manufacturer's fuel economy standard for that 
compliance category and model year. One credit is equal to \1/10\ of a 
mile per gallon above the fuel economy standard per one vehicle within 
a compliance category. Credits are denominated according to model year 
in which they are earned (vintage), originating manufacturer, and 
compliance category.
    (8) Expiry date means the model year after which fuel economy 
credits may no longer be used to achieve compliance with fuel economy 
regulations in this chapter. Expiry dates are calculated in terms of 
model years: For example, if a manufacturer earns credits for model 
year 2011, these credits may be used for compliance in model years 
2008-2016.
    (9) Fleet means all automobiles that are manufactured by a 
manufacturer in a particular model year and are subject to fuel economy 
standards under parts 531 and 533 of this chapter. For the purposes of 
this part, a manufacturer's fleet means all domestically manufactured 
and imported passenger automobiles and non-passenger automobiles 
(``light trucks''). ``Work trucks'' and medium and heavy trucks are not 
included in this definition for purposes of this part.
    (10) Light truck means the same as ``non-passenger automobile,'' as 
that term is defined in 49 U.S.C. 32901(a)(17), and as ``light truck,'' 
as that term is defined at Sec.  523.5 of this chapter.
    (11) Originating manufacturer means the manufacturer that 
originally earned a particular credit. Each credit earned will be 
identified with the name of the originating manufacturer.
    (12) Trade means the receipt by the National Highway Traffic 
Administration (NHTSA) of an instruction from a credit holder to place 
one of its credits in the account of another credit holder. A credit 
that has been traded can be identified because the originating 
manufacturer will be a different party than the current credit holder. 
Traded credits are moved from one credit holder to the recipient credit 
holder within the same compliance category for which the credits were 
originally earned. If a credit has been traded to another credit holder 
and is subsequently traded back to the originating manufacturer, it 
will be deemed not to have been traded for compliance purposes.
    (13) Transfer means the application by a manufacturer of credits 
earned by that manufacturer in one compliance category or credits 
acquired be trade (and originally earned by another manufacturer in 
that category) to achieve compliance with fuel economy standards with 
respect to a different compliance category. For example, a manufacturer 
may purchase light truck credits from another manufacturer, and 
transfer them to achieve compliance in the manufacturer's domestically 
manufactured passenger car fleet. Subject to the credit transfer 
limitations of 49 U.S.C. 32903(g)(3), credits can also be transferred 
across compliance categories and banked or saved in that category to be 
carried forward or backwards later to address a credit shortfall.
    (14) Vintage means, with respect to a credit, the model year in 
which the credit was earned.


Sec.  536.4  Credits.

    (a) Type and vintage. All credits are identified and distinguished 
in the accounts by originating manufacturer, compliance category, and 
model year of origin (vintage).
    (b) Application of credits. All credits earned and applied are 
calculated, per 49 U.S.C. 32903(c), in tenths of a mile per gallon by 
which the average fuel economy of vehicles in a particular compliance 
category manufactured by a manufacturer in the model year in which the 
credits are earned exceeds the applicable average fuel economy 
standard, multiplied by the number of vehicles sold in that compliance

[[Page 26084]]

category. However, credits that have been traded between credit holders 
or transferred between compliance categories are valued for compliance 
purposes using the adjustment factor specified in paragraph (c) of this 
section, pursuant to the ``total oil savings'' requirement of 49 U.S.C. 
32903(f)(1).
    (c) Adjustment factor. When traded or transferred and used, fuel 
economy credits are adjusted to ensure fuel oil savings is preserved. 
For traded credits, the user (or buyer) must multiply the calculated 
adjustment factor by the number of shortfall credits it plans to offset 
in order to determine the number of equivalent credits to acquire from 
the earner (or seller). For transferred credits, the user of credits 
must multiply the calculated adjustment factor by the number of 
shortfall credits it plans to offset in order to determine the number 
of equivalent credits to transfer from the compliance category holding 
the available credits. The adjustment factor is calculated according to 
the following formula in figure 1 to this paragraph (c):
[GRAPHIC] [TIFF OMITTED] TR02MY22.270

Where:

A = Adjustment factor applied to traded and transferred credits. The 
quotient shall be rounded to 4 decimal places;
VMTe = Lifetime vehicle miles traveled as provided in the following 
Table 1 to this paragraph (c) for the model year and compliance 
category in which the credit was earned;
VMTu = Lifetime vehicle miles traveled as provided in the following 
Table 1 to this paragraph (c) for the model year and compliance 
category in which the credit is used for compliance;
MPGse = Required fuel economy standard for the originating (earning) 
manufacturer, compliance category, and model year in which the 
credit was earned;
MPGae = Actual fuel economy for the originating manufacturer, 
compliance category, and model year in which the credit was earned;
MPGsu = Required fuel economy standard for the user (buying) 
manufacturer, compliance category, and model year in which the 
credit is used for compliance; and
MPGau = Actual fuel economy for the user manufacturer, compliance 
category, and model year in which the credit is used for compliance.

                                               Table 1 to Sec.   536.4(c)--Lifetime Vehicle Miles Traveled
                                                                          [VMT]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Lifetime vehicle miles traveled  (VMT)
                       Model year                        -----------------------------------------------------------------------------------------------
                                                               2012            2013            2014            2015            2016          2017-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
Passenger Cars..........................................         177,238         177,366         178,652         180,497         182,134         195,264
Light Trucks............................................         208,471         208,537         209,974         212,040         213,954         225,865
--------------------------------------------------------------------------------------------------------------------------------------------------------

Sec.  536.5  Trading infrastructure.

    (a) Accounts. NHTSA maintains ``accounts'' for each credit holder. 
The account consists of a balance of credits in each compliance 
category and vintage held by the holder.
    (b) Who may hold credits. Every manufacturer subject to fuel 
economy standards under part 531 or 533 of this chapter is 
automatically an account holder. If the manufacturer earns credits 
pursuant to this part, or receives credits from another party, so that 
the manufacturer's account has a non-zero balance, then the 
manufacturer is also a credit holder. Any party designated as a 
recipient of credits by a current credit holder will receive an account 
from NHTSA and become a credit holder, subject to the following 
conditions:
    (1) A designated recipient must provide name, address, contacting 
information, and a valid taxpayer identification number or Social 
Security number;
    (2) NHTSA does not grant a request to open a new account by any 
party other than a party designated as a recipient of credits by a 
credit holder; and
    (3) NHTSA maintains accounts with zero balances for a period of 
time, but reserves the right to close accounts that have had zero 
balances for more than one year.
    (c) Automatic debits and credits of accounts. (1) To carry credits 
forward, backward, transfer credits, or trade credits into other credit 
accounts, a manufacturer or credit holder must submit a credit 
instruction to NHTSA. A credit instruction must detail and include:
    (i) The credit holder(s) involved in the transaction.
    (ii) The originating credits described by the amount of the 
credits, compliance category and the vintage of the credits.
    (iii) The recipient credit account(s) for banking or applying the 
originating credits described by the compliance category(ies), model 
year(s), and if applicable the adjusted credit amount(s) and adjustment 
factor(s).
    (iv) For trades, a contract authorizing the trade signed by the 
manufacturers or credit holders or by managers legally authorized to 
obligate the sale and purchase of the traded credits.
    (2) Upon receipt of a credit instruction from an existing credit 
holder, NHTSA verifies the presence of sufficient credits in the 
account(s) of the credit holder(s) involved as applicable and notifies 
the credit holder(s) that the credits will be debited from and/or 
credited to the accounts involved, as specified in the credit 
instruction. NHTSA determines if the credits can be debited or credited 
based upon the amount of available credits, accurate application of any 
adjustment factors

[[Page 26085]]

and the credit requirements prescribed by this part that are applicable 
at the time the transaction is requested.
    (3) After notifying the credit holder(s), all accounts involved are 
either credited or debited, as appropriate, in line with the credit 
instruction. Traded credits identified by a specific compliance 
category are deposited into the recipient's account in that same 
compliance category and model year. If a recipient of credits as 
identified in a credit instruction is not a current account holder, 
NHTSA establishes the credit recipient's account, subject to the 
conditions described in paragraph (b) of this section, and adds the 
credits to the newly-opened account.
    (4) NHTSA will automatically delete unused credits from holders' 
accounts when those credits reach their expiry date.
    (5) Starting January 1, 2022, all parties trading credits must also 
provide NHTSA the price paid for the credits including a description of 
any other monetary or non-monetary terms affecting the price of the 
traded credits, such as any technology exchanged or shared in exchange 
for the credits, any other non-monetary payment for the credits, or any 
other agreements related to the trade.
    (6) Starting September 1, 2022, manufacturers or credit holders 
issuing credit instructions or providing credit allocation plans as 
specified in paragraph (d) of this section, must use and submit the 
NHTSA Credit Template fillable form (Office of Management and Budget 
(OMB) Control No. 2127-0019, NHTSA Form 1475). In the case of a trade, 
manufacturers or credit holders buying traded credits must use the 
credit transactions template to submit trade instructions to NHTSA. 
Manufacturers or credit holders selling credits are not required to 
submit trade instructions. The NHTSA Credit Template must be signed by 
managers legally authorized to obligate the sale and/or purchase of the 
traded credits from both parties to the trade. The NHTSA Credit 
Template signed by both parties to the trade serves as an 
acknowledgement that the parties have agreed to trade a certain amount 
of credits, and does not dictate terms, conditions, or other business 
obligations of the parties.
    (7) NHTSA will consider claims that information submitted to the 
agency under this section is entitled to confidential treatment under 5 
U.S.C. 552(b) and under the provisions of part 512 of this chapter if 
the information is submitted in accordance with the procedures of part 
512. The NHTSA Credit Template is available for download on the CAFE 
Public Information Center website. Manufacturers must submit the cost 
information to NHTSA in a PDF document along with the Credit Template 
through the CAFE email, [email protected]. NHTSA reserves the right to 
request additional information from the parties regarding the terms of 
the trade.
    (d) Compliance. (1) NHTSA assesses compliance with fuel economy 
standards each year, utilizing the certified and reported CAFE data 
provided by the Environmental Protection Agency (EPA) for enforcement 
of the CAFE program pursuant to 49 U.S.C. 32904(e). Credit values are 
calculated based on the CAFE data from the EPA. If a particular 
compliance category within a manufacturer's fleet has above standard 
fuel economy, NHTSA adds credits to the manufacturer's account for that 
compliance category and vintage in the appropriate amount by which the 
manufacturer has exceeded the applicable standard.
    (2) If a manufacturer's vehicles in a particular compliance 
category have below standard fuel economy, NHTSA will provide written 
notification to the manufacturer that it has failed to meet a 
particular fleet target standard. The manufacturer will be required to 
confirm the shortfall and must either: submit a plan indicating how it 
will allocate existing credits or earn, transfer and/or acquire 
credits; or pay the appropriate civil penalty. The manufacturer must 
submit a plan or payment within 60 days of receiving agency 
notification.
    (3) Credits used to offset shortfalls are subject to the three- and 
five-year limitations as described in Sec.  536.6.
    (4) Transferred credits are subject to the limitations specified by 
49 U.S.C. 32903(g)(3) and this part.
    (5) The value, when used for compliance, of any credits received 
via trade or transfer is adjusted, using the adjustment factor 
described in Sec.  536.4(c), pursuant to 49 U.S.C. 32903(f)(1).
    (6) Credit allocation plans received from a manufacturer will be 
reviewed and approved by NHTSA. Starting in model year 2022, credit 
holders must use the NHTSA Credit Template (OMB Control No. 2127-0019, 
NHTSA Forms 1475) to record the credit transactions. The template is a 
fillable form that has an option for recording and calculating credit 
transactions for credit allocation plans. The template calculates the 
required adjustments to the credits. The credit allocation plan and the 
completed transaction templates must be submitted to NHTSA. NHTSA will 
approve the credit allocation plan unless it finds that the proposed 
credits are unavailable or that it is unlikely that the plan will 
result in the manufacturer earning sufficient credits to offset the 
subject credit shortfall. If the plan is approved, NHTSA will revise 
the respective manufacturer's credit account accordingly. If the plan 
is rejected, NHTSA will notify the respective manufacturer and request 
a revised plan or payment of the appropriate fine.
    (e) Reporting. (1) NHTSA periodically publishes the names and 
credit holdings of all credit holders. NHTSA does not publish 
individual transactions, nor respond to individual requests for updated 
balances from any party other than the account holder.
    (2) NHTSA issues an annual credit status letter to each party that 
is a credit holder at that time. The letter to a credit holder includes 
a credit accounting record that identifies the credit status of the 
credit holder including any activity (earned, expired, transferred, 
traded, carry-forward and carry-back credit transactions/allocations) 
that took place during the identified activity period.


Sec.  536.6  Treatment of credits earned prior to model year 2011.

    (a) Credits earned in a compliance category before model year 2008 
may be applied by the manufacturer that earned them to carryback plans 
for that compliance category approved up to three model years prior to 
the year in which the credits were earned, or may be applied to 
compliance in that compliance category for up to three model years 
after the year in which the credits were earned.
    (b) Credits earned in a compliance category during and after model 
year 2008 may be applied by the manufacturer that earned them to 
carryback plans for that compliance category approved up to three years 
prior to the year in which the credits were earned, or may be held or 
applied for up to five model years after the year in which the credits 
were earned.
    (c) Credits earned in a compliance category prior to model year 
2011 may not be transferred or traded.


Sec.  536.7  Treatment of carryback credits.

    (a) Carryback credits earned in a compliance category in any model 
year may be used in carryback plans approved by NHTSA, pursuant to 49 
U.S.C. 32903(b), for up to three model years prior to the year in which 
the credit was earned.
    (b) For purposes of this part, NHTSA will treat the use of future 
credits for compliance, as through a carryback

[[Page 26086]]

plan, as a deferral of penalties for non-compliance with an applicable 
fuel economy standard.
    (c) If NHTSA receives and approves a manufacturer's carryback plan 
to earn future credits within the following three model years in order 
to comply with current regulatory obligations, NHTSA will defer levying 
fines for non-compliance until the date(s) when the manufacturer's 
approved plan indicates that credits will be earned or acquired to 
achieve compliance, and upon receiving confirmed CAFE data from EPA. If 
the manufacturer fails to acquire or earn sufficient credits by the 
plan dates, NHTSA will initiate compliance proceedings.
    (d) In the event that NHTSA fails to receive or approve a plan for 
a non-compliant manufacturer, NHTSA will levy fines pursuant to 
statute. If within three years, the non-compliant manufacturer earns or 
acquires additional credits to reduce or eliminate the non-compliance, 
NHTSA will reduce any fines owed, or repay fines to the extent that 
credits received reduce the non-compliance.
    (e) No credits from any source (earned, transferred and/or traded) 
will be accepted in lieu of compliance if those credits are not 
identified as originating within one of the three model years after the 
model year of the confirmed shortfall.


Sec.  536.8  Conditions for trading of credits.

    (a) Trading of credits. If a credit holder wishes to trade credits 
to another party, the current credit holder and the receiving party 
must jointly issue an instruction to NHTSA, identifying the quantity, 
vintage, compliance category, and originator of the credits to be 
traded. If the recipient is not a current account holder, the recipient 
must provide sufficient information for NHTSA to establish an account 
for the recipient. Once an account has been established or identified 
for the recipient, NHTSA completes the trade by debiting the 
transferor's account and crediting the recipient's account. NHTSA will 
track the quantity, vintage, compliance category, and originator of all 
credits held or traded by all account-holders.
    (b) Trading between and within compliance categories. For credits 
earned in model year 2011 or thereafter, and used to satisfy compliance 
obligations for model year 2011 or thereafter:
    (1) Manufacturers may use credits originally earned by another 
manufacturer in a particular compliance category to satisfy compliance 
obligations within the same compliance category.
    (2) Once a manufacturer acquires by trade credits originally earned 
by another manufacturer in a particular compliance category, the 
manufacturer may transfer the credits to satisfy its compliance 
obligations in a different compliance category, but only to the extent 
that the CAFE increase attributable to the transferred credits does not 
exceed the limits in 49 U.S.C. 32903(g)(3). For any compliance 
category, the sum of a manufacturer's transferred credits earned by 
that manufacturer and transferred credits obtained by that manufacturer 
through trade must not exceed that limit.
    (c) Changes in corporate ownership and control. Manufacturers must 
inform NHTSA of corporate relationship changes to ensure that credit 
accounts are identified correctly and credits are assigned and 
allocated properly.
    (1) In general, if two manufacturers merge in any way, they must 
inform NHTSA how they plan to merge their credit accounts. NHTSA will 
subsequently assess corporate fuel economy and compliance status of the 
merged fleet instead of the original separate fleets.
    (2) If a manufacturer divides or divests itself of a portion of its 
automobile manufacturing business, it must inform NHTSA how it plans to 
divide the manufacturer's credit holdings into two or more accounts. 
NHTSA will subsequently distribute holdings as directed by the 
manufacturer, subject to provision for reasonably anticipated 
compliance obligations.
    (3) If a manufacturer is a successor to another manufacturer's 
business, it must inform NHTSA how it plans to allocate credits and 
resolve liabilities per part 534 of this chapter.
    (d) No short or forward sales. NHTSA will not honor any 
instructions to trade or transfer more credits than are currently held 
in any account. NHTSA will not honor instructions to trade or transfer 
credits from any future vintage (i.e., credits not yet earned). NHTSA 
will not participate in or facilitate contingent trades.
    (e) Cancellation of credits. A credit holder may instruct NHTSA to 
cancel its currently held credits, specifying the originating 
manufacturer, vintage, and compliance category of the credits to be 
cancelled. These credits will be permanently null and void; NHTSA will 
remove the specific credits from the credit holder's account, and will 
not reissue them to any other party.
    (f) Errors or fraud in earning credits. If NHTSA determines that a 
manufacturer has been credited, through error or fraud, with earning 
credits, NHTSA will cancel those credits if possible. If the 
manufacturer credited with having earned those credits has already 
traded them when the error or fraud is discovered, NHTSA will hold the 
receiving manufacturer responsible for returning the same or equivalent 
credits to NHTSA for cancellation.
    (g) Error or fraud in trading. In general, all trades are final and 
irrevocable once executed, and may only be reversed by a new, mutually-
agreed transaction. If NHTSA executes an erroneous instruction to trade 
credits from one holder to another through error or fraud, NHTSA will 
reverse the transaction if possible. If those credits have been traded 
away, the recipient holder is responsible for obtaining the same or 
equivalent credits for return to the previous holder.


Sec.  536.9  Use of credits with regard to the domestically 
manufactured passenger automobile minimum standard.

    (a) Each manufacturer is responsible for compliance with both the 
minimum standard and the attribute-based standard set out in the 
chapter.
    (b) In any particular model year, the domestically manufactured 
passenger automobile compliance category credit excess or shortfall is 
determined by comparing the actual CAFE value against either the 
required standard value or the minimum standard value, whichever is 
larger.
    (c) Transferred or traded credits may not be used, pursuant to 49 
U.S.C. 32903(g)(4) and (f)(2), to meet the domestically manufactured 
passenger automobile minimum standard specified in 49 U.S.C. 
32902(b)(4) and in 49 CFR 531.5(d).
    (d) If a manufacturer's average fuel economy level for domestically 
manufactured passenger automobiles is lower than the attribute-based 
standard, but higher than the minimum standard, then the manufacturer 
may achieve compliance with the attribute-based standard by applying 
credits.
    (e) If a manufacturer's average fuel economy level for domestically 
manufactured passenger automobiles is lower than the minimum standard, 
then the difference between the minimum standard and the manufacturer's 
actual fuel economy level may only be relieved by the use of credits 
earned by that manufacturer within the domestic passenger car 
compliance category which have not been transferred or traded. If the 
manufacturer does not have available earned credits to offset a credit 
shortage below the minimum standard then the manufacturer can

[[Page 26087]]

submit a carry-back plan that indicates sufficient future credits will 
be earned in its domestic passenger car compliance category or will be 
subject to penalties.


Sec.  536.10  Treatment of dual-fuel and alternative fuel vehicles--
consistency with 49 CFR part 538.

    (a) Statutory alternative fuel and dual-fuel vehicle fuel economy 
calculations are treated as a change in the underlying fuel economy of 
the vehicle for purposes of this part, not as a credit that may be 
transferred or traded. Improvements in alternative fuel or dual fuel 
vehicle fuel economy as calculated pursuant to 49 U.S.C. 32905 and 
limited by 49 U.S.C. 32906 are therefore attributable only to the 
particular compliance category and model year to which the alternative 
or dual-fuel vehicle belongs.
    (b) If a manufacturer's calculated fuel economy for a particular 
compliance category, including any statutorily-required calculations 
for alternative fuel and dual fuel vehicles, is higher or lower than 
the applicable fuel economy standard, manufacturers will earn credits 
or must apply credits or pay civil penalties equal to the difference 
between the calculated fuel economy level in that compliance category 
and the applicable standard. Credits earned are the same as any other 
credits, and may be held, transferred, or traded by the manufacturer 
subject to the limitations of the statute and this part.
    (c) For model years up to and including MY 2019, if a manufacturer 
builds enough dual fuel vehicles (except plug-in hybrid electric 
vehicles) to improve the calculated fuel economy in a particular 
compliance category by more than the limits set forth in 49 U.S.C. 
32906(a), the improvement in fuel economy for compliance purposes is 
restricted to the statutory limit. Manufacturers may not earn credits 
nor reduce the application of credits or fines for calculated 
improvements in fuel economy based on dual fuel vehicles beyond the 
statutory limit.
    (d) For model years 2020 and beyond, a manufacturer must calculate 
the fuel economy of dual fueled vehicles in accordance with 40 CFR 
600.510-12(c).

0
4. Revise part 537 to read as follows:

PART 537--AUTOMOTIVE FUEL ECONOMY REPORTS

Sec.
537.1 Scope.
537.2 Purpose.
537.3 Applicability.
537.4 Definitions.
537.5 General requirements for reports.
537.6 General content of reports.
537.7 Pre-model year and mid-model year reports.
537.8 Supplementary reports.
537.9 Determination of fuel economy values and average fuel economy.
537.10 Incorporation by reference by manufacturers.
537.11 Public inspection of information.
537.12 Confidential information.

    Authority:  49 U.S.C. 32907; delegation of authority at 49 CFR 
1.95.


Sec.  537.1  Scope.

    This part establishes requirements for automobile manufacturers to 
submit reports to the National Highway Traffic Safety Administration 
regarding their efforts to improve automotive fuel economy.


Sec.  537.2  Purpose.

    The purpose of this part is to obtain information to aid the 
National Highway Traffic Safety Administration in valuating automobile 
manufacturers' plans for complying with average fuel economy standards 
and in preparing an annual review of the average fuel economy 
standards.


Sec.  537.3  Applicability.

    This part applies to automobile manufacturers, except for 
manufacturers subject to an alternate fuel economy standard under 
section 502(c) of the Act.


Sec.  537.4  Definitions.

    (a) Statutory terms. (1) The terms average fuel economy standard, 
fuel, manufacture, and model year are used as defined in section 501 of 
the Act.
    (2) The term manufacturer is used as defined in section 501 of the 
Act and in accordance with part 529 of this chapter.
    (3) The terms average fuel economy, fuel economy, and model type 
are used as defined in subpart A of 40 CFR part 600.
    (4) The terms automobile, automobile capable of off-highway 
operation, and passenger automobile are used as defined in section 501 
of the Act and in accordance with the determinations in part 523 of 
this chapter.
    (b) Other terms. (1) The term loaded vehicle weight is used as 
defined in subpart A of 40 CFR part 86.
    (2) The terms axle ratio, base level, body style, car line, 
combined fuel economy, engine code, equivalent test weight, gross 
vehicle weight, inertia weight, transmission class, and vehicle 
configuration are used as defined in subpart A of 40 CFR part 600.
    (3) The term light truck is used as defined in part 523 of this 
chapter and in accordance with determinations in part 523.
    (4) The terms approach angle, axle clearance, brakeover angle, 
cargo carrying volume, departure angle, passenger carrying volume, 
running clearance, and temporary living quarters are used as defined in 
part 523 of this chapter.
    (5) The term incomplete automobile manufacturer is used as defined 
in part 529 of this chapter.
    (6) As used in this part, unless otherwise required by the context:
    (i) Act means the Motor Vehicle Information and Cost Savings Act 
(Pub. L. 92-513), as amended by the Energy Policy and Conservation Act 
(Pub. L. 94-163).
    (ii) Administrator means the Administrator of the National Highway 
Traffic Safety Administration (NHTSA) or the Administrator's delegate.
    (iii) Current model year means:
    (A) In the case of a pre-model year report, the full model year 
immediately following the period during which that report is required 
by Sec.  537.5(b) to be submitted.
    (B) In the case of a mid-model year report, the model year during 
which that report is required by Sec.  537.5(b) to be submitted.
    (iv) Average means a production-weighted harmonic average.
    (v) Total drive ratio means the ratio of an automobile's engine 
rotational speed (in revolutions per minute) to the automobile's 
forward speed (in miles per hour).


Sec.  537.5  General requirements for reports.

    (a) For each current model year, each manufacturer shall submit a 
pre-model year report, a mid-model year report, and, as required by 
Sec.  537.8, supplementary reports.
    (b)(1) The pre-model year report required by this part for each 
current model year must be submitted during the month of December 
(e.g., the pre-model year report for the 1983 model year must be 
submitted during December 1982).
    (2) The mid-model year report required by this part for each 
current model year must be submitted during the month of July (e.g., 
the mid-model year report for the 1983 model year must be submitted 
during July 1983).
    (3) Each supplementary report must be submitted in accordance with 
Sec.  537.8(c).
    (c) Each report required by this part must:
    (1) Identify the report as a pre-model year report, mid-model year 
report, or supplementary report as appropriate;
    (2) Identify the manufacturer submitting the report;

[[Page 26088]]

    (3) State the full name, title, and address of the official 
responsible for preparing the report;
    (4) Be submitted electronically to [email protected]. For each report, 
manufacturers should submit a confidential version and a non-
confidential (i.e., redacted) version. The confidential report should 
be accompanied by a request letter that contains supporting 
information, pursuant to Sec.  512.8 of this chapter. Your request must 
also include a certificate, pursuant to Sec.  512.4(b) of this chapter 
and part 512, appendix A, of this chapter. The word ``CONFIDENTIAL'' 
must appear on the top of each page containing information claimed to 
be confidential. If an entire page is claimed to be confidential, the 
submitter must indicate clearly that the entire page is claimed to be 
confidential. If the information for which confidentiality is being 
requested is contained within a page, the submitter shall enclose each 
item of information that is claimed to be confidential within brackets: 
``[ ].'' Confidential portions of electronic files submitted in other 
than their original format must be marked ``Confidential Business 
Information'' or ``Entire Page Confidential Business Information'' at 
the top of each page. If only a portion of a page is claimed to be 
confidential, that portion shall be designated by brackets. Files 
submitted in their original format that cannot be marked as described 
above must, to the extent practicable, identify confidential 
information by alternative markings using existing attributes within 
the file or means that are accessible through use of the file's 
associated program. A representative from NHTSA's Office of Chief 
Counsel, as designated by NHTSA, should be copied on any submissions 
with confidential business information;
    (5) Identify the current model year;
    (6) Be written in the English language; and
    (7)(i) Specify any part of the information or data in the report 
that the manufacturer believes should be withheld from public 
disclosure as trade secret or other confidential business information.
    (ii) With respect to each item of information or data requested by 
the manufacturer to be withheld under 5 U.S.C. 552(b)(4) and 15 U.S.C. 
2005(d)(1), the manufacturer shall:
    (A) Show that the item is within the scope of sections 552(b)(4) 
and 2005(d)(1);
    (B) Show that disclosure of the item would result in significant 
competitive damage;
    (C) Specify the period during which the item must be withheld to 
avoid that damage; and
    (D) Show that earlier disclosure would result in that damage.
    (d) Beginning with model year 2023, each manufacturer shall 
generate reports required by this part using the NHTSA CAFE Projections 
Reporting Template (Office of Management and Budget (OMB) Control No. 
2127-0019, NHTSA Form 1474). The template is a fillable form.
    (1) Manufacturers must select the option to identify the report as 
a pre-model year report, mid-model year report, or supplementary report 
as appropriate.
    (2) Manufacturers must complete all required information for the 
manufacturer and for all vehicles produced for the current model year 
required to comply with corporate average fuel economy (CAFE) 
standards. The manufacturer must identify the manufacturer submitting 
the report, including the full name, title, and address of the official 
responsible for preparing the report and a point of contact to answer 
questions concerning the report.
    (3) Manufacturers must use the template to generate confidential 
and non-confidential reports for all the domestic and import passenger 
cars and light truck fleet produced by the manufacturer for the current 
model year. Manufacturers must submit a request for confidentiality in 
accordance with part 512 of this chapter to withhold projected 
production sales volume estimates from public disclosure. If the 
request is granted, NHTSA will withhold the projected production sales 
volume estimates from public disclose until all the vehicles produced 
by the manufacturer have been made available for sale (usually one year 
after the current model year).
    (4) Manufacturers must submit confidential reports and requests for 
confidentiality to NHTSA on CD-ROM in accordance with Sec.  537.12. 
Email copies of non-confidential (i.e., redacted) reports to NHTSA's 
secure email address: [email protected]. Requests for confidentiality must 
be submitted in a PDF or MS Word format. Submit 2 copies of the CD-ROM 
to: Administrator, National Highway Traffic Administration, 1200 New 
Jersey Avenue SE, Washington, DC 20590, and submit emailed reports 
electronically to the following secure email address: [email protected].
    (5) Manufacturers can withhold information on projected production 
sales volumes under 5 U.S.C. 552(b)(4) and 15 U.S.C. 2005(d)(1). In 
accordance, the manufacturer must:
    (i) Show that the item is within the scope of sections 552(b)(4) 
and 2005(d)(1);
    (ii) Show that disclosure of the item would result in significant 
competitive damage;
    (iii) Specify the period during which the item must be withheld to 
avoid that damage; and
    (iv) Show that earlier disclosure would result in that damage.
    (e) Each report required by this part must be based upon all 
information and data available to the manufacturer 30 days before the 
report is submitted to the Administrator.


Sec.  537.6  General content of reports.

    (a) Pre-model year and mid-model year reports. Except as provided 
in paragraph (c) of this section, each pre-model year report and the 
mid-model year report for each model year must contain the information 
required by Sec.  537.7(a).
    (b) Supplementary report. Except as provided in paragraph (c) of 
this section, each supplementary report for each model year must 
contain the information required by Sec.  537.7(a)(1) and (2), as 
appropriate for the vehicle fleets produced by the manufacturer, in 
accordance with Sec.  537.8(b)(1) through (4) as appropriate.
    (c) Exceptions. The pre-model year report, mid-model year report, 
and supplementary report(s) submitted by an incomplete automobile 
manufacturer for any model year are not required to contain the 
information specified in Sec.  537.7(c)(4)(xv) through (xviii) and 
(c)(5). The information provided by the incomplete automobile 
manufacturer under Sec.  537.7(c) shall be according to base level 
instead of model type or carline.


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

    (a) Report submission requirements. (1) Manufacturers must provide 
a report with the information required by paragraphs (b) and (c) of 
this section for each domestic and import passenger automobile fleet, 
as specified in part 531 of this chapter, for the current model year.
    (2) Manufacturers must provide a report with the information 
required by paragraphs (b) and (c) of this section for each light truck 
fleet, as specified in part 533 of this chapter, for the current model 
year.
    (3) For model year 2023 and later, for passenger cars specified in 
part 531 and light trucks specified in part 533 of this chapter, 
manufacturers must provide

[[Page 26089]]

the information for pre-model and mid-model year reports in accordance 
with the NHTSA CAFE Projections Reporting Template (OMB Control No. 
2127-0019, NHTSA Form 1474). The required reporting template can be 
downloaded from NHTSA's website.
    (i) Manufacturers are only required to provide the actual 
information on vehicles and technologies in production at the time the 
pre- and mid-model year reports are required. Otherwise, manufacturers 
must provide reasonable estimates or updated estimates where possible 
for pre-and mid-model year reports.
    (ii) Manufacturers should attempt not to omit data which should 
only be the done for products pending production and with unknown 
information at the time CAFE reports are prepared.
    (b) Projected average and required fuel economy. (1) Manufacturers 
must state the projected average fuel economy for the manufacturer's 
automobiles determined in accordance with Sec.  537.9 and based upon 
the fuel economy values and projected sales figures provided under 
paragraph (c)(2) of this section.
    (2) Manufacturers must state the projected final average fuel 
economy that the manufacturer anticipates having if changes implemented 
during the model year will cause that average to be different from the 
average fuel economy projected under paragraph (b)(1) of this section.
    (3) Manufacturers must state the projected required fuel economy 
for the manufacturer's passenger automobiles and light trucks 
determined in accordance with Sec. Sec.  531.5(c) and 533.5 of this 
chapter and based upon the projected sales figures provided under 
paragraph (c)(2) of this section. For each unique model type and 
footprint combination of the manufacturer's automobiles, the 
manufacturer must provide the information specified in paragraphs 
(b)(3)(i) and (ii) of this section in tabular form. The manufacturer 
must list the model types in order of increasing average inertia weight 
from top to bottom down the left side of the table and list the 
information categories in the order specified in paragraphs (b)(3)(i) 
and (ii) of this section from left to right across the top of the 
table. Other formats, such as those accepted by the Environmental 
Protection Agency (EPA), which contain all the information in a readily 
identifiable format are also acceptable. For model year 2023 and later, 
for each unique model type and footprint combination of the 
manufacturer's automobiles, the manufacturer must provide the 
information specified in paragraphs (b)(3)(i) and (ii) of this section 
in accordance with the CAFE Projections Reporting Template (OMB Control 
No. 2127-0019, NHTSA Form 1474).
    (i) In the case of passenger automobiles, manufacturers must report 
the following:
    (A) Beginning model year 2013, base tire as defined in Sec.  523.2 
of this chapter;
    (B) Beginning model year 2013, front axle, rear axle, and average 
track width as defined in Sec.  523.2 of this chapter;
    (C) Beginning model year 2013, wheelbase as defined in Sec.  523.2 
of this chapter;
    (D) Beginning model year 2013, footprint as defined in Sec.  523.2 
of this chapter; and
    (E) The fuel economy target value for each unique model type and 
footprint entry listed in accordance with the equation provided in part 
531 of this chapter.
    (ii) In the case of light trucks, manufacturers must report the 
following:
    (A) Beginning model year 2013, base tire as defined in Sec.  523.2 
of this chapter;
    (B) Beginning model year 2013, front axle, rear axle, and average 
track width as defined in Sec.  523.2 of this chapter;
    (C) Beginning model year 2013, wheelbase as defined in Sec.  523.2 
of this chapter;
    (D) Beginning model year 2013, footprint as defined in Sec.  523.2 
of this chapter; and
    (E) The fuel economy target value for each unique model type and 
footprint entry listed in accordance with the equation provided in part 
533 of this chapter.
    (4) Manufacturers must state the projected final required fuel 
economy that the manufacturer anticipates having if changes implemented 
during the model year will cause the targets to be different from the 
target fuel economy projected under paragraph (b)(3) of this section.
    (5) Manufacturers must state whether the manufacturer believes that 
the projections it provides under paragraphs (b)(2) and (4) of this 
section, or if it does not provide an average or target under 
paragraphs (b)(2) and (4), the projections it provides under paragraphs 
(b)(1) and (3) of this section, sufficiently represent the 
manufacturer's average and target fuel economy for the current model 
year for purposes of the Act. In the case of a manufacturer that 
believes that the projections are not sufficiently representative for 
the purpose of determining the projected average fuel economy for the 
manufacturer's automobiles, the manufacturers must state the specific 
nature of any reason for the insufficiency and the specific additional 
testing or derivation of fuel economy values by analytical methods 
believed by the manufacturer necessary to eliminate the insufficiency 
and any plans of the manufacturer to undertake that testing or 
derivation voluntarily and submit the resulting data to the EPA under 
40 CFR 600.509-12.
    (c) Model type and configuration fuel economy and technical 
information. (1) For each model type of the manufacturer's automobiles, 
the manufacturers must provide the information specified in paragraph 
(c)(2) of this section in tabular form. List the model types in order 
of increasing average inertia weight from top to bottom down the left 
side of the table and list the information categories in the order 
specified in paragraph (c)(2) of this section from left to right across 
the top of the table. For model year 2023 and later, CAFE reports 
required by this part, shall for each model type of the manufacturer's 
automobiles, provide the information in specified in paragraph (c)(2) 
of this section in accordance with the NHTSA CAFE Projections Reporting 
Template (OMB Control No. 2127-0019, NHTSA Form 1474) and list the 
model types in order of increasing average inertia weight from top to 
bottom.
    (2)(i) Combined fuel economy; and
    (ii) Projected sales for the current model year and total sales of 
all model types.
    (3) For pre-model year reports only through model year 2022, for 
each vehicle configuration whose fuel economy was used to calculate the 
fuel economy values for a model type under paragraph (c)(2) of this 
section, manufacturers must provide the information specified in 
paragraph (c)(4) of this section in accordance with the NHTSA CAFE 
Projections Reporting Template (OMB Control No. 2127-0019, NHTSA Form 
1474).
    (4)(i) Loaded vehicle weight;
    (ii) Equivalent test weight;
    (iii) Engine displacement, liters;
    (iv) Society of Automotive Engineers (SAE) net rated power, 
kilowatts;
    (v) SAE net horsepower;
    (vi) Engine code;
    (vii) Fuel system (number of carburetor barrels or, if fuel 
injection is used, so indicate);
    (viii) Emission control system;
    (ix) Transmission class;
    (x) Number of forward speeds;
    (xi) Existence of overdrive (indicate yes or no);
    (xii) Total drive ratio (N/V);
    (xiii) Axle ratio;
    (xiv) Combined fuel economy;
    (xv) Projected sales for the current model year;

[[Page 26090]]

    (xvi)(A) In the case of passenger automobiles:
    (1) Interior volume index, determined in accordance with subpart D 
of 40 CFR part 600; and
    (2) Body style;
    (B) In the case of light trucks:
    (1) Passenger-carrying volume; and
    (2) Cargo-carrying volume;
    (xvii) Frontal area;
    (xviii) Road load power at 50 miles per hour, if determined by the 
manufacturer for purposes other than compliance with this part to 
differ from the road load setting prescribed in 40 CFR 86.177-11(d); 
and
    (xix) Optional equipment that the manufacturer is required under 40 
CFR parts 86 and 600 to have actually installed on the vehicle 
configuration, or the weight of which must be included in the curb 
weight computation for the vehicle configuration, for fuel economy 
testing purposes.
    (5) For each model type of automobile which is classified as a non-
passenger vehicle (light truck) under part 523 of this chapter, 
manufacturers must provide the following data:
    (i) For an automobile designed to perform at least one of the 
following functions in accordance with Sec.  523.5(a) of this chapter, 
indicate (by ``yes'' or ``no'' for each function) whether the vehicle 
can:
    (A) Transport more than 10 persons (if yes, provide actual 
designated seating positions);
    (B) Provide temporary living quarters (if yes, provide applicable 
conveniences as defined in Sec.  523.2 of this chapter);
    (C) Transport property on an open bed (if yes, provide bed size 
width and length);
    (D) Provide, as sold to the first retail purchaser, greater cargo-
carrying than passenger-carrying volume, such as in a cargo van and 
quantify the value which should be the difference between the values 
provided in paragraphs (c)(4)(xvi)(B)(1) and (2) of this section; if a 
vehicle is sold with a second-row seat, its cargo-carrying volume is 
determined with that seat installed, regardless of whether the 
manufacturer has described that seat as optional; or
    (E) Permit expanded use of the automobile for cargo-carrying 
purposes or other non-passenger-carrying purposes through:
    (1) For non-passenger automobiles manufactured prior to model year 
2012, the removal of seats by means of uninstalling by the automobile's 
manufacturer or by uninstalling with simple tools, such as screwdrivers 
and wrenches, so as to create a flat, floor level, surface extending 
from the forward-most point of installation of those seats to the rear 
of the automobile's interior; or
    (2) For non-passenger automobiles manufactured in model year 2008 
and beyond, for vehicles equipped with at least 3 rows of designated 
seating positions as standard equipment, permit expanded use of the 
automobile for cargo-carrying purposes or other nonpassenger-carrying 
purposes through the removal or stowing of foldable or pivoting seats 
so as to create a flat, leveled cargo surface extending from the 
forward-most point of installation of those seats to the rear of the 
automobile's interior.
    (ii) For an automobile capable of off-highway operation, identify 
which of the features in paragraphs (c)(5)(ii)(A) through (C) of this 
section qualify the vehicle as off-road in accordance with Sec.  
523.5(b) of this chapter and quantify the values of each feature:
    (A) 4-wheel drive; or
    (B) A rating of more than 6,000 pounds gross vehicle weight; and
    (C) Has at least four of the following characteristics calculated 
when the automobile is at curb weight, on a level surface, with the 
front wheels parallel to the automobile's longitudinal centerline, and 
the tires inflated to the manufacturer's recommended pressure. The 
exact value of each feature should be quantified:
    (1) Approach angle of not less than 28 degrees.
    (2) Breakover angle of not less than 14 degrees.
    (3) Departure angle of not less than 20 degrees.
    (4) Running clearance of not less than 20 centimeters.
    (5) Front and rear axle clearances of not less than 18 centimeters 
each.
    (6) Manufacturers must determine the fuel economy values provided 
under paragraphs (c)(2) and (4) of this section in accordance with 
Sec.  537.9.
    (7) Manufacturers must identify any air-conditioning (AC), off-
cycle and full-size pick-up truck technologies used each model year to 
calculate the average fuel economy specified in 40 CFR 600.510-12.
    (i) Provide a list of each air conditioning efficiency improvement 
technology utilized in your fleet(s) of vehicles for each model year. 
For each technology identify vehicles by make and model types that have 
the technology, which compliance category those vehicles belong to and 
the number of vehicles for each model equipped with the technology. For 
each compliance category (domestic passenger car, import passenger car, 
and light truck), report the air conditioning fuel consumption 
improvement value in gallons/mile in accordance with the equation 
specified in 40 CFR 600.510-12(c)(3)(i).
    (ii) Manufacturers must provide a list of off-cycle efficiency 
improvement technologies utilized in its fleet(s) of vehicles for each 
model year that is pending or approved by the EPA. For each technology, 
manufacturers must identify vehicles by make and model types that have 
the technology, which compliance category those vehicles belong to, the 
number of vehicles for each model equipped with the technology, and the 
associated off-cycle credits (grams/mile) available for each 
technology. For each compliance category (domestic passenger car, 
import passenger car, and light truck), manufacturers must calculate 
the fleet off-cycle fuel consumption improvement value in gallons/mile 
in accordance with the equation specified in 40 CFR 600.510-
12(c)(3)(ii).
    (iii) Manufacturers must provide a list of full-size pickup trucks 
in its fleet that meet the mild and strong hybrid vehicle definitions 
in 40 CFR 86.1803-01. For each mild and strong hybrid type, 
manufacturers must identify vehicles by make and model types that have 
the technology, the number of vehicles produced for each model equipped 
with the technology, the total number of full-size pickup trucks 
produced with and without the technology, the calculated percentage of 
hybrid vehicles relative to the total number of vehicles produced, and 
the associated full-size pickup truck credits (grams/mile) available 
for each technology. For the light truck compliance category, 
manufacturers must calculate the fleet pickup truck fuel consumption 
improvement value in gallons/mile in accordance with the equation 
specified in 40 CFR 600.510-12(c)(3)(iii).


Sec.  537.8  Supplementary reports.

    (a)(1) Except as provided in paragraph (d) of this section, each 
manufacturer whose most recently submitted mid-model year report 
contained an average fuel economy projection under Sec.  537.7(b)(2) 
or, if no average fuel economy was projected under that section, under 
Sec.  537.7(b)(1), that was not less than the applicable average fuel 
economy standard in this chapter and who now projects an average fuel 
economy which is less than the applicable standard in this chapter 
shall file a supplementary report containing the information specified 
in paragraph (b)(1) of this section.
    (2) Except as provided in paragraph (d) of this section, each 
manufacturer that determines that its average fuel economy for the 
current model year as

[[Page 26091]]

projected under Sec.  537.7(b)(2) or, if no average fuel economy was 
projected under Sec.  537.7(b)(2), as projected under Sec.  
537.7(b)(1), is less representative than the manufacturer previously 
reported it to be under Sec.  537.7(b)(3), this section, or both, shall 
file a supplementary report containing the information specified in 
paragraph (b)(2) of this section.
    (3) For model years through 2022, each manufacturer whose mid-model 
year report omits any of the information specified in Sec.  537.7(b) or 
(c) shall file a supplementary report containing the information 
specified in paragraph (b)(3) of this section.
    (4) Starting model year 2023, each manufacturer whose mid-model 
year report omits any of the information shall resubmit the information 
with other information required in accordance with the NHTSA CAFE 
Projections Reporting Template (OMB Control No. 2127-0019, NHTSA Form 
1474).
    (b)(1) The supplementary report required by paragraph (a)(1) of 
this section must contain:
    (i) Such revisions of and additions to the information previously 
submitted by the manufacturer under this part regarding the automobiles 
whose projected average fuel economy has decreased as specified in 
paragraph (a)(1) of this section as are necessary--
    (A) To reflect the change and its cause; and
    (B) To indicate a new projected average fuel economy based upon 
these additional measures.
    (ii) An explanation of the cause of the decrease in average fuel 
economy that led to the manufacturer's having to submit the 
supplementary report required by paragraph (a)(1) of this section.
    (2) The supplementary report required by paragraph (a)(2) of this 
section must contain:
    (i) A statement of the specific nature of and reason for the 
insufficiency in the representativeness of the projected average fuel 
economy;
    (ii) A statement of specific additional testing or derivation of 
fuel economy values by analytical methods believed by the manufacturer 
necessary to eliminate the insufficiency; and
    (iii) A description of any plans of the manufacturer to undertake 
that testing or derivation voluntarily and submit the resulting data to 
the Environmental Protection Agency under 40 CFR 600.509-12.
    (3) The supplementary report required by paragraph (a)(3) of this 
section must contain:
    (i) All of the information omitted from the mid-model year report 
under Sec.  537.6(c)(2); and
    (ii) Such revisions of and additions to the information submitted 
by the manufacturer in its mid-model year report regarding the 
automobiles produced during the current model year as are necessary to 
reflect the information provided under paragraph (b)(3)(i) of this 
section.
    (4) The supplementary report required by paragraph (a)(4) of this 
section must contain:
    (i) All information omitted from the mid-model year reports under 
Sec.  537.6(c)(2); and
    (ii) Such revisions of and additions to the information submitted 
by the manufacturer in its pre-model or mid-model year reports 
regarding the automobiles produced during the current model year as are 
necessary to reflect the information provided under paragraph (b)(4)(i) 
of this section.
    (c)(1) Each report required by paragraph (a)(1), (2), (3), or (4) 
of this section must be submitted in accordance with Sec.  537.5(c) not 
more than 45 days after the date on which the manufacturer determined, 
or could have determined with reasonable diligence, that the report was 
required.
    (2) [Reserved]
    (d) A supplementary report is not required to be submitted by the 
manufacturer under paragraph (a)(1) or (2) of this section:
    (1) With respect to information submitted under this part before 
the most recent mid-model year report submitted by the manufacturer 
under this part; or
    (2) When the date specified in paragraph (c) of this section occurs 
after the day by which the pre-model year report for the model year 
immediately following the current model year must be submitted by the 
manufacturer under this part.
    (e) For model years 2008, 2009, and 2010, each manufacturer of 
light trucks, as that term is defined in Sec.  523.5 of this chapter, 
shall submit a report, not later than 45 days following the end of the 
model year, indicating whether the manufacturer is opting to comply 
with Sec.  533.5(f) or (g) of this chapter.


Sec.  537.9  Determination of fuel economy values and average fuel 
economy.

    (a) Vehicle subconfiguration fuel economy values. (1) For each 
vehicle subconfiguration for which a fuel economy value is required 
under paragraph (c) of this section and has been determined and 
approved under 40 CFR part 600, the manufacturer shall submit that fuel 
economy value.
    (2) For each vehicle subconfiguration specified in paragraph (a)(1) 
of this section for which a fuel economy value approved under 40 CFR 
part 600, does not exist, but for which a fuel economy value determined 
under 40 CFR part 600 exists, the manufacturer shall submit that fuel 
economy value.
    (3) For each vehicle subconfiguration specified in paragraph (a)(1) 
of this section for which a fuel economy value has been neither 
determined nor approved under 40 CFR part 600, the manufacturer shall 
submit a fuel economy value based on tests or analyses comparable to 
those prescribed or permitted under 40 CFR part 600 and a description 
of the test procedures or analytical methods used.
    (4) For each vehicle configuration for which a fuel economy value 
is required under paragraph (c) of this section and has been determined 
and approved under 40 CFR part 600, the manufacturer shall submit that 
fuel economy value.
    (b) Base level and model type fuel economy values. For each base 
level and model type, the manufacturer shall submit a fuel economy 
value based on the values submitted under paragraph (a) of this section 
and calculated in the same manner as base level and model type fuel 
economy values are calculated for use under subpart F of 40 CFR part 
600.
    (c) Average fuel economy. Average fuel economy must be based upon 
fuel economy values calculated under paragraph (b) of this section for 
each model type and must be calculated in accordance with subpart F of 
40 CFR part 600, except that fuel economy values for running changes 
and for new base levels are required only for those changes made or 
base levels added before the average fuel economy is required to be 
submitted under this part.


Sec.  537.10  Incorporation by reference by manufacturers.

    (a) A manufacturer may incorporate by reference in a report 
required by this part any document other than a report, petition, or 
application, or portion thereof submitted to any Federal department or 
agency more than two model years before the current model year.
    (b) A manufacturer that incorporates by references a document not 
previously submitted to the National Highway Traffic Safety 
Administration shall append that document to the report.
    (c) A manufacturer that incorporates by reference a document shall 
clearly identify the document and, in the case of a document previously 
submitted to the National Highway Traffic Safety Administration, 
indicate the date on which and the person by whom the document was 
submitted to this agency.

[[Page 26092]]

Sec.  537.11  Public inspection of information.

    Except as provided in Sec.  537.12, any person may inspect the 
information and data submitted by a manufacturer under this part in the 
docket section of the National Highway Traffic Safety Administration. 
Any person may obtain copies of the information available for 
inspection under this section in accordance with the regulations of the 
Secretary of Transportation in part 7 of this title.


Sec.  537.12  Confidential information.

    (a) Treatment of confidential information. Information made 
available under Sec.  537.11 for public inspection does not include 
information for which confidentiality is requested under Sec.  
537.5(c)(7), is granted in accordance with section 505 of the Act and 5 
U.S.C. 552(b) and is not subsequently released under paragraph (c) of 
this section in accordance with section 505 of the Act.
    (b) Denial of confidential treatment. When the Administrator denies 
a manufacturer's request under Sec.  537.5(c)(7) for confidential 
treatment of information, the Administrator gives the manufacturer 
written notice of the denial and reasons for it. Public disclosure of 
the information is not made until after the ten-day period immediately 
following the giving of the notice.
    (c) Release of confidential information. After giving written 
notice to a manufacturer and allowing ten days, when feasible, for the 
manufacturer to respond, the Administrator may make available for 
public inspection any information submitted under this part that is 
relevant to a proceeding under the Act, including information that was 
granted confidential treatment by the Administrator pursuant to a 
request by the manufacturer under Sec.  537.5(c)(7).

    Issued on March 31, 2022, in Washington, DC, under authority 
delegated in 49 CFR 1.95.
Steven S. Cliff,
Deputy Administrator.
[FR Doc. 2022-07200 Filed 4-19-22; 11:15 am]
 BILLING CODE 4910-59-P