# Light Truck Average Fuel Economy Standards Model Years 2005-2007 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A03-8222 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** April 7, 2003 - **Citation:** 68 FR 16868 ## Text DEPARTMENT OF TRANSPORTATION National Highway Traffic Safety Administration 49 CFR Part 533 [Docket No. 2002-11419; Notice 3] RIN 2127-AI70 Light Truck Average Fuel Economy Standards Model Years 2005-2007 AGENCY: National Highway Traffic Safety Administration (NHTSA), Department of Transportation. ACTION: Final rule. SUMMARY: This final rule establishes corporate average fuel economy standards for light trucks. NHTSA is setting a standard of 21.0 miles per gallon (mpg) for model year (MY) 2005, 21.6 mpg for MY 2006, and 22.2 mpg for MY 2007. DATES: Effective: May 5, 2003. If you wish to submit a petition for reconsideration of this rule, your petition must be received by May 22, 2003. ADDRESSES: Petitions for reconsideration should refer to the docket number and be submitted to: Administrator, Room 5220, National Highway Traffic Safety Administration, 400 Seventh Street, SW., Washington, DC 20590. FOR FURTHER INFORMATION CONTACT: For technical issues, call Ken Katz, Lead Engineer, Fuel Economy Division, Office of Planning and Consumer Standards, at (202) 366-0846, facsimile (202) 493-2290, electronic mail kkatz@nhtsa.dot.gov. For legal issues, call Otto Matheke or Nancy Bell, Office of the Chief Counsel, at (202) 366-2992. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction II. Background III. Summary of the NPRM IV. Summary of Final Rule and Supporting Documents V. Maximum Feasible Fuel Economy Considerations VI. Summary of Public Comments A. Technological Comments B. Economic Comments C. Environmental Comments D. Additional Comments VII. Consideration of the Maximum Feasible Fuel Economy Levels A. Technological Feasibility 1. General Motors 2. Ford 3. DaimlerChrysler B. Economic Practicability and Other Economic Issues 1. Costs 2. Benefits to Society 3. Comparison of Estimated Costs to Estimated Societal Benefits VIII. The Effect of Other Federal Vehicle Standards on Fuel Economy A. Federal Motor Vehicle Safety Standards 1. FMVSS No. 138, Tire Pressure Monitoring Systems 2. FMVSS No. 139, Tire Upgrade 3. FMVSS No. 201, Occupant Protection in Interior Impact 4. FMVSS No. 202, Head Restraints 5. FMVSS No. 208, Occupant Crash Protection 6. FMVSS No. 225, Child Restraint Anchorage Systems 7. FMVSS No. 301, Fuel System Integrity 8. Cumulative Weight Impacts of the FMVSSs B. Federal Motor Vehicle Emissions Standards 1. Tier 2 Requirements 2. Onboard Refueling Vapor Recovery 3. Supplemental Federal Test Procedure 4. California Air Resources Board LEV II and Section 177 States IX. The Need of The Nation to Conserve Energy X. Balancing of Statutory Factors XI. Rulemaking Analyses and Notices I. Introduction Beginning in 1996, NHTSA was subject to a series of limitations on appropriations that prevented the agency from considering changes to the corporate average fuel economy (CAFE) levels established by statute at 27.5 mpg for passenger cars and by regulation at 20.7 mpg for non-passenger automobiles (light trucks). In July 2001, Secretary of Transportation Mineta asked Congress not to renew the appropriations rider restricting the agency's authority. Congress enacted the Department of Transportation and Related Agencies Appropriations Act for FY 2002 (Pub. L. 107-87) in December 2001 without the appropriations rider. Since that time, the agency has been actively engaged in collecting and analyzing data, establishing appropriate fuel economy standards, and considering ways to enhance the CAFE program within current statutory authority. Because NHTSA is required by the CAFE statute to establish the CAFE standard for a model year not later than 18 months before its beginning, and thus had to establish the light truck standard for MY 2004 on or before April 1, 2002, the agency had to act quickly after December 2001 to set that standard. Due to the lack of opportunity to gather and analyze the data necessary to support a standard different from 20.7 mpg, the agency set the MY 2004 standard at 20.7 mpg. (67 FR 16052, April 4, 2002) On February 7, 2002, the agency published a Request for Comments, seeking data relating to manufacturers' product plans for light trucks for MYs 2005-2010 and seeking comments relating to potential reforms to the CAFE program. (67 FR 5767) Having received and analyzed detailed data about manufacturers' product plans for MYs 2005-2007, the agency published a Notice of Proposed Rulemaking (NPRM) on December 16, 2002 proposing to establish the CAFE standard for light trucks at 21.0 mpg for MY 2005, 21.6 mpg for MY 2006 and 22.2 mpg for MY 2007. (67 FR 77015) NHTSA noted in the NPRM that, consistent with the recommendations of the National Academy of Sciences (NAS) in its report on the effectiveness and impacts of the CAFE standards, the agency intended to consider alternatives to the current structure of the CAFE program that would enhance long term fuel economy while protecting motor vehicle safety and American jobs, and to implement reforms consistent with our statutory authority for model years after MY 2007. We further noted our belief that advanced fuel saving technologies, such as hybrid electrics and advanced diesel vehicles, could substantially enhance the average fuel economy of the American light vehicle fleet as even more advanced technologies, such as fuel cells, are developed. Since that time, both public and private initiatives have been announced. Earlier this year, President Bush proclaimed the government's support for the active research and development of commercially viable hydrogen-powered fuel cells for transportation and stationary power applications, and the infrastructure to support them. As the President indicated in his State of the Union address, successful execution of the Hydrogen Fuel Initiative would mean that the first car driven by a child born today could be powered by fuel cells, and pollution-free. The President's Hydrogen Fuel Initiative complements the FreedomCAR initiative, a partnership with the U.S. auto industry aimed at developing technologies needed for mass production of safe and affordable hydrogen fuel cell vehicles. Together, these initiatives will enable automobile manufacturers to decide to offer affordable and technologically viable hydrogen fuel cell vehicles in the mass consumer market by 2015 and the ability to produce and deliver such vehicles to the market by 2020. The private sector is also responding to the nation's need to develop energy independence. On January 6, 2003, General Motors announced that it would offer an optional hybrid powertrain on several of its most popular models, including light trucks. While pointing out that its plans involve “relatively low volumes,” General Motors also stated that its initiative would make it “well positioned to meet market demand as it develops.” Similarly, Ford Motor Company will introduce an optional hybrid electric powertrain in its Escape Sport Utility Vehicle, beginning with MY 2004. As Ford explained: While a few automakers have introduced small, low-volume hybrid-electric cars, Ford is introducing its first HEV on a family-sized sport utility to increase mass customer appeal. The hybrid-electric powertrain also has been developed with additional applications and vehicles in mind to expand the potential impact of the environmentally responsible technology. DaimlerChrysler will introduce an optional diesel engine in the Jeep Liberty Sport Utility Vehicle, also beginning with MY 2004. The company claimed in December 2002 that American consumers could help reduce oil use by about 800 million gallons annually if they chose to purchase clean diesel engines at the same rate as Europeans. According to DaimlerChrysler: “Today's modern diesel vehicles should be part of the solution to improving fuel efficiency and reducing carbon dioxide emissions. Diesels lead to up to 30 percent improvement in fuel economy, while reducing carbon dioxide emissions an average of 20 percent.” The agency intends to address potential long-term enhancements to the fuel economy program through a separate rulemaking to be initiated this year. We will examine the best methods through which to redefine the distinctions between light trucks and passenger cars and the best basis on which to set CAFE standards. We will identify and seek comment on specific reforms aimed at enhancing fuel economy while protecting the safety of the American public and American jobs. In the meanwhile, the agency must establish fuel economy standards for light trucks to address the current need to conserve energy within the bounds of technological feasibility and economic practicability, taking into account the effects of other Federal vehicle standards on fuel economy. Having analyzed the manufacturers' product plans and other available information, and considering the nation's need to conserve energy while seeking to protect the safety and jobs of the American public, we proposed light truck CAFE levels for MYs 2005-2007. We received a significant amount of comment on the proposal, expressing a wide range of views. While some of those commenting charged that technology is available to set the standards higher, others argued that insufficient lead time and technological and market risks make it unlikely that the proposed standards would be attained. We have reviewed the comments and adjusted many aspects of the analyses to account for many of the points made. We have similarly reassessed the costs and benefits of the proposed standards. After considering the foregoing, we are adopting the standards as proposed in the NPRM, having concluded that they constitute the maximum feasible level, taking into consideration the statutory criteria, for average light truck fuel economy standards for MYs 2005-2007. We have concluded that the standards are within the technological feasibility and economic practicability of the primary companies in the light truck market, and will enhance the ability of the nation to conserve fuel and reduce its dependence on foreign oil. We have concluded further that the standards established today present the overall best balance between the express statutory criteria. II. Background In December 1975, during the aftermath of the energy crisis created by the oil embargo of 1973-1974, Congress enacted the Energy Policy and Conservation Act (EPCA). The Act established an automotive fuel economy regulatory program by adding Title V, “Improving Automotive Efficiency,” to the Motor Vehicle Information and Cost Saving Act. Title V has been amended from time to time and codified without substantive change as Chapter 329 of title 49, United States Code. 49 U.S.C. 32901-32919. Chapter 329 provides for the issuance of CAFE standards for passenger automobiles and for automobiles that are not passenger automobiles (light trucks). The CAFE standards set a minimum performance requirement in terms of an average number of miles a vehicle travels per gallon of gasoline or diesel fuel. Individual vehicles and models are not required to meet the mileage standard; rather, each manufacturer must achieve an average level of fuel economy for all specified vehicles manufactured in a given model year. Section 32902(a) of Chapter 329 states that the Secretary of Transportation shall prescribe by regulation CAFE standards for light trucks for each model year. 1 That section requires that the CAFE standards for light trucks for a given model year be issued at least 18 months before the beginning of that model year. That section also states “[e]ach standard shall be the maximum feasible average fuel economy level that the Secretary decides the manufacturers can achieve in that model year.” Section 32092(f) directs the Secretary to consider four factors in determining the “maximum feasible” fuel economy level: 1 The Secretary has delegated the authority to implement the automotive fuel economy program to the NHTSA Administrator. 49 CFR 1.50(f). (1) Technological feasibility; (2) Economic practicability; (3) The effect of other Federal motor vehicle standards on fuel economy; and (4) The need of the Nation to conserve energy. The first light truck CAFE standards were established for MY 1979 and applied to light trucks with Gross Vehicle Weight Ratings (GVWR) up to 6000 pounds. Beginning with MY 1980, NHTSA raised this GVWR ceiling to 8500 pounds. For MYs 1979-1981, NHTSA established separate standards for two-wheel drive (2WD) and four-wheel drive (4WD) light trucks, without a “combined” standard blending the two together. Beginning with MY 1982, NHTSA established a combined standard, plus optional 2WD and 4WD standards. After MY 1991, NHTSA dropped the optional 2WD and 4WD standards. During MYs 1980-1995, NHTSA also required U.S. light truck manufacturers' “captive imports” to be separated from their other truck models in determining compliance with CAFE standards. The following table lists the “combined” standards established since MY 1982: Model year CAFE standard (mpg) 1982 17.5 1983 19.0 1984 20.0 1985 19.5 1986 20.0 1987 20.5 1988 20.5 1989 20.5 1990 20.0 1991 20.2 1992 20.2 1993 20.4 1994 20.5 1995 20.6 1996 20.7 1997 20.7 1998 20.7 1999 20.7 2000 20.7 2001 20.7 2002 20.7 2003 20.7 2004 20.7 In 1994, the agency departed from its usual past practice of considering light truck standards for one or two model years at a time and published an Advance Notice of Proposed Rulemaking (ANPRM) in the Federal Register outlining NHTSA's intention to set standards for some, or all, of MYs 1998-2006. 59 FR 16324 (April 6, 1994). On November 15, 1995, the Department of Transportation and Related Agencies Appropriations Act for FY 1996 was enacted. Pub. L. 104-50. Section 330 of that Act provided: None of the funds in this Act shall be available to prepare, propose, or promulgate any regulations * * * prescribing corporate average fuel economy standards for automobiles * * * in any model year that differs from standards promulgated for such automobiles prior to enactment of this section. Pursuant to that Act, we then issued an NPRM limited to MY 1998, proposing to set the light truck CAFE standard for that year at 20.7 mpg, the same level as the standard we had set for MY 1997. 61 FR 145 (January 3, 1996). We adopted this 20.7 mpg-standard in a final rule issued on March 29, 1996. 61 FR 14680 (April 3, 1996). On September 30, 1996, the Department of Transportation and Related Agencies Appropriations Act for FY 1997 was enacted. Pub. L. 104-205. Section 323 of that Act included the same limitation on appropriations regarding the CAFE standards contained in Section 330 of the FY 1996 Appropriations Act. The agency followed the same process as the prior year and established a MY 1999 light truck CAFE standard of 20.7 mpg, the same level as the standard that had been set for MYs 1997 and 1998. Because the same limitation on the setting of CAFE standards was included in the Appropriations Acts for each of FYs 1998-2001, the agency followed that same procedure during those fiscal years and did not issue any NPRMs in the series of rulemakings we conducted to establish the light truck fuel economy standards for MYs 2000-2003. The agency concluded in those rulemakings, as it had when setting the MY 1999 standard, that the restrictions contained in the appropriations acts prevented the issuance of any standards other than the standard set for the prior model year. The agency also determined that issuing an NPRM was unnecessary and contrary to the public interest because there was no other course of action available to it. The Department of Transportation and Related Agencies Appropriations Act for FY 2001 was enacted on October 23, 2000. Pub. L. 106-346. That is the appropriations act under which we issued the light truck CAFE standard for MY 2003. While Section 320 of that Act contained a restriction on CAFE rulemaking identical to that contained in prior appropriation acts, the conference committee report for that Act directed that NHTSA fund a study by NAS to evaluate the effectiveness and impacts of CAFE standards (H.R. Conf. Rep. No. 106-940, at 117-118). NAS submitted its report to the Department of Transportation on July 30, 2001. The final report was released in January 2002. The report concludes that technologies exist that could significantly increase passenger car and light truck fuel economy within 15 years. However, their development cycles as well as future economic, regulatory, safety and consumer preferences will influence the extent to which these technologies appear in the U.S. market. All but two members of the NAS committee that authored the report said, “to the extent that the size and weight of the fleet have been constrained by CAFE requirements * * * those requirements have caused more injuries and fatalities on the road than would otherwise have occurred.” (NAS, p. 29). Specifically, they noted: “the downweighting and downsizing that occurred in the late 1970s and early 1980s, some of which was due to CAFE standards, probably resulted in an additional 1300 to 2600 traffic fatalities in 1993.” (NAS, pp. 3 and 111.) The NAS found that, to minimize financial impacts on manufacturers, and on their suppliers, employees, and consumers, sufficient lead-time (consistent with normal product life cycles) should be given when considering increases in CAFE standards. The report stated that there are advanced technologies that could be employed, without negatively affecting the automobile industry, if sufficient lead-time were provided to the manufacturers. In the NAS’ view, the selection of future fuel economy standards will require uncertain and difficult trade-offs among environmental benefits, vehicle safety, cost, energy independence, and consumer preferences. It also suggests that consideration be given to changing the CAFE regulatory program to one based on vehicle attributes, such as weight, and that allowing “credit trading” could eliminate the current CAFE program's encouragement of downweighting or the production and sale of more small cars, and also reduce costs. (NAS, pp. 5, 113) Recognizing the many trade-offs that must be considered in setting fuel economy standards, the NAS committee took no position on what CAFE standards would be appropriate for future years. In a letter dated July 10, 2001, Secretary of Transportation Mineta asked the House and Senate Appropriations Committees to lift the restriction on the agency's spending funds for the purposes of improving CAFE standards. The Department of Transportation and Related Agencies Appropriations Act for FY 2002 (Pub. L. 107-87), which was enacted on December 18, 2001, did not contain a provision restricting the Secretary's authority to prescribe fuel economy standards. When issuing our January 2002 proposal to establish the MY 2004 standard at 20.7 mpg (67 FR 3470), we noted that our newly regained ability to spend funds did not immediately enable us to conduct the level of analysis needed to set different fuel economy standards. 2 Although a number of commenters reacted to this proposal by advocating a higher MY 2004 standard, the agency determined, based on the limited information available to the agency for analyzing the manufacturers' product plans and on the lack of lead time to change those plans significantly, to set the MY 2004 standard at 20.7 mpg (67 FR 16052, April 4, 2002). 2 To prepare to establish any fuel economy standard, the agency must collect information relating to prospective CAFE levels, analyze and weigh the information in light of the statutory criteria for determining the “maximum feasible” average fuel economy level, and incorporate this information and analysis into a rulemaking action to set the standard, with opportunity for notice and comment. As NHTSA was unable to spend any funds by virtue of Section 320 of the FY 2001 Appropriations Act and the predecessor restrictions in earlier Appropriations Acts, it was not able to prepare the factual or analytical foundation necessary for rulemaking to establish CAFE standards at new levels from September 1995 to December 2001. On February 7, 2002, we issued a Request for Comments (RFC) (67 FR 5767) seeking data on which we could base our analysis of appropriate CAFE standards for light trucks for upcoming model years, beginning with MY 2005. We also sought comments on possible reforms to the CAFE program, as it applies to both passenger cars and light trucks, to protect passenger safety, advance fuel-efficient technologies, and obtain the benefits of market-based approaches. In the same month, Secretary Mineta asked Congress “to provide the Department of Transportation with the necessary authority to reform the CAFE program, guided by the NAS report's suggestions.” While we are limited today in setting CAFE standards for the relative short term and within the constraints of the current CAFE statute, we will continue to support and encourage the development of advanced vehicle technologies capable of substantial fuel economy improvements and a market structure to support them through efforts like the President's proposed research initiative to aid in developing clean, hydrogen-powered automobiles, targeted research dollars and consumer tax incentives. Consistent with the recommendations of the NAS report, we intend to study programmatic CAFE alternatives and to implement those reforms within our statutory authority to allow for greater improvements in fuel economy safely in the years beyond those addressed in this final rule. III. Summary of the NPRM NHTSA proposed light truck CAFE standards for MYs 2005-2007 in an NPRM published on December 16, 2002 (66 FR 77015). This proposal sought to set a standard for light trucks at 21.0 mpg for MY 2005, 21.6 mpg for MY 2006 and 22.2 mpg for MY 2007. These proposed standards represented NHTSA's tentative view of the maximum feasible fuel economy levels that could be achieved by light truck manufacturers in each of these model years. The agency's proposal relied heavily on the NAS fuel economy report, confidential product plans submitted by some manufacturers, data maintained by NHTSA for other manufacturers, and responses to the agency's February 2002 RFC. NHTSA analyzed the information from these sources to develop an understanding of the availability, effectiveness and costs of technologies and other means to increase light truck fuel economy. The agency then proceeded to process these data, using two methodologies. One methodology, which has been labeled as the “Stage” analysis, primarily involved application of the agency's engineering judgment and expertise about possible adjustments to the detailed product plans submitted in response to the RFC by DaimlerChrysler, General Motors, and Ford. The Stage analysis was limited to these manufacturers because they were the only ones that provided the agency with detailed product plans for MYs 2005-2007. The other methodology, used by the Department's Volpe National Transportation Systems Center (Volpe Center) and labeled as the “Volpe” analysis, relied on the aforementioned product plans as well as data relating to manufacturers that had not submitted detailed information in response to the RFC. The Stage and the Volpe analyses were both intended to provide reliable estimates of manufacturer capabilities. Stage I of the Stage analysis took existing product plans and applied technologies that manufacturers indicated would be available by MY 2005. Stage II applied more advanced transmission upgrades and engine improvements to planned model and engine changeovers. The Volpe analysis considered product plans, but also used a technology application algorithm developed by Volpe Center staff. This algorithm systematically applied consistent cost and performance assumptions to the entire industry, as well as consistent assumptions regarding economic decision-making by manufacturers. Technologies were applied in order of cost-effectiveness. Use of this methodology led to projections that low-friction lubricants, engine accessory improvements, reductions in engine friction and rolling and aerodynamic resistance, cylinder deactivation, and transmission upgrades (5-speed, 6-speed, and automatically shifted manual transmissions) would account for most of the response to the proposed CAFE standards. The NPRM explained that the Stage analysis provided the initial basis for the proposed CAFE standards, while the Volpe Center's technology application algorithm was used to estimate the overall economic impact of the proposal. The Volpe analysis covered the entire industry and assessed the economic impact of the proposal as measured in terms of increases in new vehicle prices on a manufacturer-wide, industry-wide, and average per-vehicle basis. Based on these estimates and corresponding estimates of the proposal's net economic and other benefits, the agency tentatively concluded that the proposal would be economically practicable and technologically feasible. IV. Summary of Final Rule and Supporting Documents The agency is adopting the light truck CAFE standards proposed in the NPRM: 21.0 mpg for MY 2005, 21.6 mpg for MY 2006, and 22.2 mpg for MY 2007. In establishing these standards, the agency has carefully considered all the comments submitted to the docket, but in particular those of motor vehicle manufacturers and of groups representing consumer and environmental interests. The agency has determined that these levels are the maximum feasible CAFE levels for light trucks for those model years, balancing the express statutory factors and, in particular, the impact of the standard on motor vehicle safety and American jobs. NHTSA estimates that the fuel economy increases required by the standards for MYs 2005-2007 will generate approximately 3.6 billion gallons of gasoline savings over the 25-year lifetime of the affected vehicles. The agency has analyzed potential technological improvements to the product offerings for each manufacturer with a significant share of the light truck market. In response to the public comments, we updated both the Stage and the Volpe analyses, making numerous changes to our engineering and economic calculations and determinations to account for computational errors and other adjustments we found appropriate. The agency's projection of CAFE capability is based on the most recently submitted product plans and involves technological improvements we have determined to be appropriate and feasible within the time frame. We do not believe this final rule will necessitate, nor do we believe it will result in, any “mix shifting,” e.g., changing from the planned production of heavier or larger vehicles to lighter or smaller vehicles, which might result in significant employment and/or weight reductions were it to occur. Indeed, we sought public comment on the possibility or likelihood that manufacturers would comply with these new standards by reducing vehicle weight and, if so, any safety consequences of weight reduction. The manufacturers suggested that weight reduction is a possible compliance option, while falling short of predicting that they would in fact comply by reducing the mass of their vehicles in ways that may affect their overall crashworthiness. We believe that the final rule neither will necessitate nor result in reductions in vehicle weight that will impede the overall safety of the vehicle fleet traveling on the roads of America. Indeed, as the NAS report noted, there are many technological means available to manufacturers for improving fuel economy that are much more cost-effective than weight reduction. Accordingly, we did not rely on weight reduction. We recognize that the standard established for MY 2007 is a substantial challenge for General Motors, especially in light of the updates to the product plans submitted with its comments on the NPRM. This is the first time since the issuance of MY 1983-1985 light truck standards in December 1980 that the agency has established light truck CAFE standards for more than two model years in the same final rule. We recognize that, between now and the last (MY 2007) of the model years for which standards are being established, there is more time than in previous light truck CAFE rulemakings for significant changes to occur in external factors capable of affecting the achievable levels of CAFE. These external factors include fuel prices and the demand for vehicles with advanced fuel saving technologies, such as hybrid electric and advanced diesel vehicles. Changes in these factors could lead to higher or lower levels of CAFE, particularly in MY 2007. Recognizing that the MY 2007 standard may have to be reexamined in light of any significant changes in those factors, the agency plans to monitor the compliance efforts of the manufacturers. To this end, the agency will examine the manufacturers' pre and mid-model year fuel economy reports filed with NHTSA through December 2004 and current market information, and consider the reasonableness of the efforts made by the manufacturers after this final rule to meet the MY 2007 standard. If appropriate, the agency could adjust the standard upward or downward. The CAFE standard for a model year can be increased at anytime before the 18-month period preceding that year, and decreased at anytime before the beginning of that year. Thus, the MY 2007 standard could be increased anytime before April 1, 2005 and decreased anytime before October 1, 2006. The Final Economic Assessment (FEA) discusses in detail the fuel efficiency enhancing technologies expected to be available during MYs 2005-2007. Some of the technologies discussed in the FEA have been used for over a decade ( e.g., overhead camshafts, engine friction reduction, and low friction lubricants). Others have only recently been incorporated into passenger cars, ( e.g., 5-speed and 6-speed automatic transmissions and variable valve timing). Still others have been under development for a number of years, but have not been produced in quantity for an extended period ( e.g., cylinder deactivation, variable valve lift and timing, continuously variable transmission (CVT), integrated starter/generator, advanced diesels and hybrid drive-trains). The FEA also details, and this preamble summarizes, the agency's analysis of the costs and benefits of these CAFE standards. The agency has estimated not only the anticipated costs that would have to be borne by General Motors, Ford and DaimlerChrysler and other light truck manufacturers to comply with the standards, but also the significance of the societal benefits anticipated to be achieved through direct and indirect fuel savings. We have concluded that these CAFE standards—while challenging—can be met in a cost beneficial way, and that they will benefit society considerably. A final Environmental Assessment (EA) also accompanies this final rule. The agency has determined that the proposed action would not have a significant effect on the quality of the environment. V. Maximum Feasible Fuel Economy Considerations The CAFE statute sets forth the parameters within which the agency is required to establish corporate average fuel economy standards. Section 32902(a) provides that “each standard shall be the maximum feasible average fuel economy level that the Secretary decides the manufacturers can achieve in that model year.” As noted above, the agency is required to consider the factors in 49 U.S.C. 32902(f) when determining the “maximum feasible” CAFE standards for any given model year. These are technological feasibility, economic practicability, the effect of other Federal motor vehicle standards on fuel economy, and the need of the nation to conserve energy. Although the EPCA does not include motor vehicle safety as an express statutory factor, it does not preclude consideration of it. Accordingly, NHTSA should consider safety in accordance with its statutory responsibilities regarding safety and the Administration's emphasis on ensuring motor vehicle safety. The agency has historically included consideration of numerous public policy concerns, whether considered as part of the enumerated factors or in addition to them. The courts have routinely affirmed the agency's authority to do this and have consistently upheld NHTSA's conclusions. See, e.g., Center for Auto Safety v. NHTSA, 793 F.2d 1322 (CAS II) (D.C. Cir. 1986) (administrator's consideration of market demand as component of economic practicability found to be reasonable); Public Citizen v. NHTSA, 848 F.2d 256 (D.C. Cir.1988)(Congress established broad guidelines in the fuel economy statute; agency's decision to set lower standard was a reasonable accommodation of conflicting policies). In particular, consideration of the impact of CAFE standards on motor vehicle and passenger safety has long been recognized as an integral part of the agency's process of examining the various considerations and determining maximum feasible average fuel economy. As the United States Court of Appeals pointed out in upholding NHTSA's exercise of judgment in setting the 1987-1989 passenger car standards, “NHTSA has always examined the safety consequences of the CAFE standards in its overall consideration of relevant factors since its earliest rulemaking under the CAFE program.” See, Competitive Enterprise Institute v. NHTSA (CEI I), 901 F.2d 107, 121 at n.11 (DC Cir. 1990). As discussed in many past fuel economy notices, it is clear from the legislative history of EPCA that Congress intended NHTSA to take industry-wide considerations into account in determining the maximum feasible CAFE levels, and not necessarily base its determination on any particular company's asserted or projected abilities. This does not necessarily mean that CAFE standards will be set at the level asserted by the “least capable manufacturer” with a substantial share of the market. Instead, it means that we must take particular care in considering the statutory factors with regard to these manufacturers—weighing their asserted capabilities, product plans and economic conditions against agency projections of their capabilities, the need for the nation to conserve energy and the effect of other regulations (including motor vehicle safety and emissions regulations) and other public policy objectives. This approach is consistent with the Conference Report on the legislation enacting the CAFE statute: Such determination [of maximum feasible average fuel economy level] should take industry-wide considerations into account. For example, a determination of maximum feasible average fuel economy should not be keyed to the single manufacturer that might have the most difficulty achieving a given level of average fuel economy. Rather, the Secretary must weigh the benefits to the nation of a higher average fuel economy standard against the difficulties of individual manufacturers. Such difficulties, however, should be given appropriate weight in setting the standard in light of the small number of domestic manufacturers that currently exist and the possible implications for the national economy and for reduced competition association [sic] with a severe strain on any manufacturer. * * * S. Rep. No. 94-516, 94th Congress, 1st Sess. 154-155 (1975). The agency has historically assessed whether a potential CAFE standard is economically practicable in terms of whether the standard is one “within the financial capability of the industry, but not so stringent as to threaten substantial economic hardship for the industry.” See, e.g., Public Citizen v. National Highway Traffic Safety Administration, 848 F.2d 256, 264 (D.C. Cir. 1988). In essence, in determining the maximum feasible level of CAFE, the agency assesses what is technologically feasible for manufacturers to achieve without leading to adverse economic consequences, such as a significant loss of jobs or the unreasonable elimination of consumer choice. The CAFE statute does not compel that fuel savings be gained at the expense of American jobs or competition within the motor vehicle market. At the same time, the law does not preclude a CAFE standard that poses considerable challenges to any individual manufacturer. The Conference Report makes clear, and the case law affirms, “(A) determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a given level of average fuel economy.” CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986). Instead, the agency is compelled “to weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.” Id. The statute permits the imposition of reasonable, “technology forcing” challenges on any individual manufacturer, but does not contemplate standards that will result in “severe” economic hardship by forcing reductions in employment affecting the overall motor vehicle industry. 3 3 In the past, the agency has set CAFE standards above its estimate of the capabilities of a manufacturer with less than a substantial, but more than a de minimus, share of the market. See, e.g. , Center For Auto Safety v. National Highway Traffic Safety Administration, 793 F.2d 1322, 1326 (D.C. Cir. 1986) (noting that the agency set the MY 1982 light truck standard at a level that might be above the capabilities of Chrysler, based on the conclusion that the energy benefits associated with the higher standard would outweigh the harm to Chrysler, and further noting that Chrysler had 10-15 percent market share while Ford had 35 percent market share). On other occasions, the agency reduced an established CAFE standard to address unanticipated market conditions that rendered the standard unreasonable and likely to lead to severe economic consequences. 49 FR 41250, 50 FR 40528, 53 FR 39275, Public Citizen v. National Highway Traffic Safety Administration, 848 F.2d 256, 264 (D.C. Cir. 1988). The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a particular CAFE standard may pose difficulties for one manufacturer, it may also present opportunities for another. The CAFE program is not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is intended to enhance fuel economy of the vehicle fleet on American roads, while protecting motor vehicle safety and the totality of American jobs and the overall United States economy. By the same token, maximum feasible fuel economy levels must be ones that account for the need to place technologies into mass production and cannot be based on claims of potential technologies that have not been shown to be feasible on such a production level. The standards established in this final rule fall within our Stage analysis for each of the primary companies in the light truck market for MYs 2005 and 2006, and for all but one for MY 2007. Of those companies, the Stage analysis projects that the current product plans of both DaimlerChrysler and Ford for MY 2007 will produce a light truck CAFE of 22.2. The Volpe analysis, which looks more globally at the industry as a whole, further confirms the feasibility of a CAFE level of 22.2 mpg for MY 2007. Accordingly, while the standard for that model year is being set at a level above the Stage analysis' projection for one of the primary companies in the light truck market, we believe that industry wide considerations and the additional lead time provided confirm that the standard reflects the overall best balance of technological feasibility, economic practicability and the nation's need to conserve energy and reduce our dependence on foreign oil. VI. Summary of Public Comments NHTSA received over 65,000 individual submissions to the rulemaking docket from vehicle manufacturers and associations, environmental and consumer advocacy groups, members of Congress and individual citizens. The majority of the submissions were letters or emails provided to the public by various organizations and submitted by private citizens to the docket. Many contained supplementary thoughts from the individual senders. The citizenry expressed both support for the proposal and concern that the proposed standards would not be sufficient to meet the nation's need to conserve energy in the short term or to protect natural resources and secure energy independence in the long term. Many of the individual submissions included a letter provided by the Natural Resources Defense Council describing the proposal as “woefully inadequate” and expressing concern that the proposal did not go far enough to help the country reduce our dependence on foreign oil. This letter also pointed out that the proposal was consistent with the preexisting plans of much of the automobile industry. The Union of Concerned Scientists provided citizens with a form to fill out stating that “I am disappointed because,” with a space for individual comments. Other similar documents were also placed in the docket. Some expressed a belief that technology is available through which manufacturers could exceed the CAFE standards proposed. Many stated that the potential of war in the Middle East warrants more aggressive standards. Other individuals, using either forms or personally developed submissions, expressed support for the proposal. The Coalition for Vehicle Choice urged citizens to submit comments expressing support for the maintenance of consumer choice from amongst a broad array of vehicles. Members of Congress also differed in their reaction to the proposal. Over 100 members of the House of Representative wrote to NHTSA urging the agency to increase the standards further, and stating that “a much greater increase can and should be done to take advantage of the many existing technologies in automotive design that can increase fuel economy and reduce our nation's dangerous over-dependence on imported oil.” These Congressmen also stated that “it is now unarguable that the fuel efficiency of light trucks can be improved without sacrificing safety,” and that automobile manufacturers have boasted of plans to incorporate hybrid electric vehicles in their fleets. In contrast, the Chairman and Ranking Member of the Committee on Energy and Commerce in the House of Representatives wrote that the proposal was “laudable,” and was consistent with the fuel savings goal set forth in H.R. 4, which was adopted by the House of Representatives and the House-Senate conference committee in the last Congress. These members pointed out that while H.R. 4 passed the House of Representatives by a vote of 240 to 189 with a mandate for NHTSA to conduct a multi-year rulemaking resulting in a savings of five billion gallons of gasoline by the year 2010, an amendment statutorily to increase light truck standards “was soundly defeated by a vote of 269 to 160.” These members further point out that H.R. 4 would have codified NHTSA's practice of considering any adverse safety and employment impacts. The Chairman and Ranking Member concluded that the “legislative summary of the consideration of H.R. 4, the ‘SAFE Act of 2001,’ should be instructive on the intent of Congress regarding the CAFE standards for light trucks.” The Competitive Enterprise Institute and Consumer Alert argued that increased CAFE standards have the potential to adversely affect motor vehicle safety. The Mercatus Center and Randall Lutter and Troy Kravitz of the AEI-Brookings Institute (Lutter and Kravitz) raised concerns relating to many of the analytic assumptions used in the PEA and discussed in the NPRM. Environmental and consumer advocacy groups commenting on the proposal included Public Citizen, Center for Auto Safety, the Union of Concerned Scientists, the Natural Resource Defense Council, the Sierra Club, 20/20 Vision, U.S. Public Interest Research Group, Environmental Defense, the Alliance to Save Energy and the American Council for an Energy-Efficient Economy. In general, these groups expressed dismay that the nature of the CAFE program, and its heavy reliance on the confidential technological, financial and product abilities of motor vehicle makers, preclude access to the data upon which much of the CAFE analysis is based. These groups contend that basing CAFE standards on the manufacturers' product plans unduly limits the agency to conducting passive rulemakings that neither force the companies to alter course nor advances the nation's longer-term energy needs. They also contend that technologies are available to manufacturers to enhance the fuel economy performance of their fleet. Many of these groups offered suggestions for the upcoming notice that the agency intends to publish seeking comment on potential reforms within current statutory authority. Many automobile manufacturers and their trade associations also commented on the proposal. None took issue directly with the agency's decision to establish light truck CAFE standards over a period of model years. However, many took issue with specifics of the agency's analytic approach and particular assumptions built into both the technological and economic analyses used. The companies generally, but not universally, suggested that the proposed standards are challenging, but achievable. Most of the companies argued that the agency did not properly account for technological and market risks that could render the standards infeasible. Of those who sell light trucks in the U.S. market, DaimlerChrysler, Ford and General Motors each have approximately 25 percent market share, and the remaining companies have the rest. DaimlerChrysler, whose projected CAFE levels were the highest of the three, did not take issue with any particulars in the agency's analysis of its capabilities. However, DaimlerChrysler raised concerns relating to the agency's general analytic approach and the company's view that the agency did not adequately consider the risk of deterioration in the projections. To account for that risk, DaimlerChrysler urged the agency to reduce its CAFE proposals to 20.9 mpg for MY 2005, 21.1 mpg for MY 2006 and 21.5 mpg for MY 2007. Ford's comments indicated that the company viewed NHTSA's proposal as technologically challenging. Like DaimlerChrysler, Ford raised concerns with the agency's general analytic approach and argued that the agency had underestimated the lead time necessary to incorporate fuel economy improvements in vehicles, as well as the difficulties of introducing new technologies across a high volume fleet. Nonetheless, Ford indicated that it was committed to taking additional actions beyond those it already planned to achieve the “difficult” standards as proposed. General Motors submitted the most extensive comments, challenging many of the agency's assumptions and arguing that the agency had overestimated that company's ability to achieve the proposed CAFE levels. General Motors pointed out computational errors and lead-time considerations that, it contended, render our proposal technologically infeasible and economically impracticable. We will discuss the various issues raised by General Motors and other manufacturers more fully below. While the above discussion very briefly describes the comments submitted by the various interested parties, the following summary sets forth the comments by topic. In some cases, we have provided or summarized the agency's response in this section. In other cases, our response to the comments is embedded in the more detailed analysis of the technological and economic issues discussed later in this document. A. Technological Comments 1. Relationship Between Technology Analyses General Motors commented that the “Stage” and Volpe analyses consider different technologies. General Motors said that it believed that due to the differences in the two analyses, there was a substantial gap in the rulemaking record. General Motors also stated that NHTSA has neither presented the costs of the improvements that it used in the Stage analysis nor vouched for the feasibility of the technology applications used in the Volpe analysis. 2. Technology Application Algorithm Methodology General Motors stated that Volpe's algorithm suffers from the following methodological limitations: (1) Application of technologies to all trucklines in a single model year, (2) the addition and subsequent removal of some technologies, (3) the application of aerodynamic drag reduction to only some versions of a given nameplate. 3. Lead Time The Alliance of Automobile Manufacturers (Alliance), Ford Motor Company (Ford), and General Motors stated that NHTSA's analysis inadequately considered lead-time requirements for adding existing fuel technologies and for developing new technologies, and overestimated the number of vehicle models to which technologies could be added in a single model year. General Motors and Ford submitted confidential comments responding to the particular technological advances contemplated in the NPRM. General Motors, Ford, DaimlerChrysler and the Alliance expressed concern with the simultaneous application of some technologies to all of a given manufacturer's products and stated that technologies cannot be incorporated in every vehicle at the same time. General Motors and DaimlerChrysler further claimed that NHTSA paid little attention to product life cycles or the need for lead-time. The National Automobile Dealers Association (NADA) commented that any CAFE standard set too high might prematurely force technological changes, resulting in decreased vehicle performance, reliability, and/or marketability. Honda asserted that development lead-time is essential to enhancing fuel economy without degrading safety. Union of Concerned Scientists contended that automobile manufacturers could incorporate fuel-efficient technology into vehicles faster than assumed in the NHTSA analysis. We have reviewed our analysis in light of these comments and, where appropriate, have incorporated additional lead time into the analysis by applying some technologies in MYs 2006 or 2007, rather than in MY 2005. The establishment of CAFE standards over a period of years allows us both to ensure that the standards are reasonably within the industry's projected capabilities without incurring adverse economic and safety consequences, and to encourage progress in technological advances to enhance fuel economy performance during the later model years covered by the regulation. 4. Implementation Risks in Forecasted Technological Improvements General Motors, Ford, DaimlerChrysler and the Alliance suggested that NHTSA must fully account for implementation risks in its forecast of technological improvements and that the proposed standards be lowered to account for the numerous technological and implementation risks that they may encounter. The Alliance stated that the following risks should be included: availability of technology options, cost of technology, level of technology applied, success of each new technology in meeting its targets, range of product offerings, overall economic climate, customer requirements for utility, size, performance, usage patterns, options, powertrains, and the level of new regulations in vehicle safety and emissions. The Alliance also stated that risks cannot be reduced by assuming that an increase in the popularity of crossover vehicles may limit the future sales of full size utility vehicles or that consumers will consider traction control and limited slip differentials as replacements for 4WD in vehicles. DaimlerChrysler stated that NHTSA's projections are based on the highest and riskiest levels of technology and may not be attainable. General Motors provided specific estimates of suggested CAFE reductions to account for various risks, Ford suggested that NHTSA consider scenarios involving both high and low fuel economy estimates from each manufacturer, and DaimlerChrysler recommended reducing the standards to 20.9 mpg for MY 2005, 21.1 mpg for MY 2006 and 21.5 mpg for MY 2007. DaimlerChrysler stated that its current projected costs to improve fuel economy, taking into account the risks described in its submission to the RFC, are approximately four times higher than those projected by the agency in the NPRM. DaimlerChrysler provided no other analysis or data to support lowering the proposed CAFE standards. The companies also asserted that their projected CAFE performance tends to be overly optimistic and must often be reduced in light of actual market demand. Public advocates were skeptical of those claims and countered that the industry's tendency to market less fuel efficient vehicles, in lieu of marketing more fuel efficient vehicles, contributes to any discrepancy between projected and actual CAFE performance. As noted above, we have made adjustments in our technological analysis, where appropriate, to account for certain technology risks and included into our analysis additional lead time. The agency has at times included in its assessment of maximum feasible a “risk factor” to account for unforeseen external factors that may render reasonable efforts to comply inadequate to meet the standards. This was done, for example, when establishing light truck CAFE standards for MY 1995 and reducing passenger car standards for MYs 1987-88. When faced with the necessity of lowering the statutorily established CAFE standard for passenger cars, the agency concluded that the risk that manufacturers would be forced to restrict product offerings to meet more challenging standards outweighed the risk that manufacturers could develop means to outperform the established CAFE level. The agency acted to adjust the passenger car standard just prior to the start of the 1987 model year and about a year before the advent of the 1988 model year, noting that as of that time the record showed that manufacturers had made good faith, but unsuccessful, compliance efforts. We do not believe the same type of “risk factor” is appropriate to apply to this rulemaking. While we recognize that the standard set for MY 2007 is an aggressive one in light of General Motor's current product plans, we also believe that technological advancements, market acceptance of hybrids and modern diesels, and other external factors could alter General Motor's relative position. Unlike the situation in the late 1980s, which included a risk factor when no lead time was possible, there remains sufficient lead time for a manufacturer whose current product plan may not yet project compliance to develop product offerings to enhance their currently projected CAFE performance. In addition, unlike any time in the past, the market is beginning to include vehicles with advanced technologies including hybrid electric and advanced diesel engines that are more fuel-efficient and that do not adversely affect safety or American jobs. Accordingly, unlike the situation presented to the agency in the late 1980s, current conditions and contingencies lead us to conclude that the potential harm of setting the light truck CAFE standard too low for MYs 2005-2007 outweighs the risk of setting it too high. As noted above, the agency intends to examine the manufacturers' pre and mid-model year fuel economy reports filed with NHTSA through December 2004 and current market information, and consider the reasonableness of the efforts made by the manufacturers after this final rule to meet the MY 2007 standard. If appropriate, the agency could adjust the standard upward or downward. 5. Use of Weight Reduction To Meet Proposed Standards The Alliance, General Motors, Competitive Enterprise Institute, Insurance Institute for Highway Safety, and Lutter and Kravitz commented that manufacturers may reduce vehicle weight in response to the standards and that doing so would have negative safety implications. Competitive Enterprise Institute argued that the historical fact is that vehicle manufacturers tend to respond to CAFE standards by reducing the size of their fleets. Competitive Enterprise Institute also argued that higher CAFE standards would likely encourage sales of the smaller, less crashworthy SUVs at the expense of the larger, safest SUVs. In addition, that organization argued that higher CAFE standards would diminish the ongoing market trend toward larger, safer SUVs; that is, such standards would reduce or eliminate future upsizing. That organization stated that the agency's proposal fails to acknowledge or analyze these effects. American Honda Motor Co., Inc. (Honda), Environmental Defense, Union of Concerned Scientists, American Council for an Energy-Efficient Economy, and Center for Auto Safety argued that weight reduction is an important fuel economy strategy that may not have negative net safety implications, if it were limited to the largest and heaviest light trucks. The Sierra Club disagreed with the assumption that weight and safety are always inversely related and with the NAS report's conclusions about the safety impact of the current standards. It also commented that safety is a function of design, not size. Similarly, Environmental Defense argued that the NAS report and agency studies treat weight as the only vehicle attribute affecting safety and do not account for size, crashworthiness, compatibility and the general quality of the vehicle structure and its safety features. That organization and Public Citizen further argued that agency studies are unable to distinguish between the effects of vehicle weight and vehicle size. Public Citizen argued that any safety problem associated with changes in the fleet of light vehicles was largely due to increases in the overall divergence in vehicle weight within the light vehicle fleet caused by the growth in the number of light trucks and to the rollover proneness of light trucks. Finally, Public Citizen argued that any safety concerns associated with downweighting are irrelevant when the focus is exclusively on CAFE standards for light trucks instead of those for both passenger cars and light trucks. We note that these comments reflect diverging views on the relationship between size and safety. Some commenters, such as CEI, embraced the proposition that increasing vehicle size always results in safety benefits. Others, such as Honda and Public Citizen, stated that they believe that other vehicle characteristics besides size have an impact on safety. For its part, Honda emphasized that vehicles can become lighter and still retain their size and ability to protect occupants. Public Citizen took the view that there are number of design characteristics that may impact the safety of light truck occupants and persons in other vehicles, including height and stability. Moreover, the organization indicated that fuel economy regulations having a potential to reduce or restrain the size of light trucks would have different safety impacts than those that might force changes in size to both cars and trucks. As discussed below, while manufacturers point out that weight reduction is a compliance option, the CAFE standards established by this final rule can be met without the need to reduce vehicle weight and we do not believe that manufacturers will employ weight reduction to meet the standards. 6. NHTSA's Proposed Standards and Projected Manufacturer Capabilities DaimlerChrysler, Ford, and General Motors commented that it would be difficult to comply with the proposed standards. Toyota agreed that it would be difficult for other companies to meet the standard. General Motors detailed what it views as flaws in the agency's analysis of its potential capability and also provided revised product plans exhibiting different CAFE values (higher for MYs 2005-2006 and lower for MY 2007) than those it previously submitted. Ford presented revised fleet projections that are lower than those contained in its response to the RFC and discussed technologies that the agency added to Ford's fleet which are not feasible. Public interest groups, based on public announcements by Ford and General Motors about improving fuel economy of SUVs and introduction of hybrids, supported higher standards than those proposed. Environmental Defense, Union of Concerned Scientists and Public Citizen presented analyses arguing that technology permits NHTSA to set a higher standard. The American Council for an Energy-Efficient Economy and Cummins argued that NHTSA should take diesel technologies into account in this rulemaking. Toyota asserted that it has applied more fuel-efficient technologies, such as variable valve timing (VVT) and multi-valve cylinder heads, than most other manufacturers. It suggested that the proposed standards would encourage the entire industry to similarly apply the best available technologies. We believe the standards established today are challenging enough to encourage the further development and implementation of fuel efficient technologies while also available enough within the applicable time frame to be economically practicable and feasible for the industry. As noted above, we have concluded that the standards set through this final rule represent the best overall balance of the statutory factors, and in addition are consistent with the protection of motor vehicle safety and American jobs. 7. Estimated Fuel Savings of Technologies Environmental Defense, American Council for an Energy-Efficient Economy, and Union of Concerned Scientists stated that NHTSA underestimated the fuel savings of the technologies it considered. Environmental Defense argued that some technologies can be optimized for increasing fuel economy, performance or other features and that NHTSA's analysis should use higher values more reflective of optimization for fuel economy purposes. In related comments, Environmental Defense and Union of Concerned Scientists argued also that the agency should hold vehicle weight and performance constant in determining future fuel economy capability instead of assuming continued increases in both. American Council for an Energy-Efficient Economy and Union of Concerned Scientists stated that the National Research Council (NRC/NAS) values should have been used without reduction. More specifically, Environmental Defense disagreed with the agency's estimated 1-2 percent fuel economy benefit for VVT and variable value lift and timing (VVLT) technologies and claimed that published estimates show that optimal application of VVLT technology provides a 10-12 percent fuel economy benefit. Environmental Defense also disagreed with the agency's 0.5 percent estimated benefit for automatic transmissions using aggressive shift logic, which, they state, shows fuel economy improvements of 9-12 percent using 6-speed transmissions. American Council for an Energy Efficient Economy argued that NHTSA's limited consideration of only the technologies available to the Big 3 undercuts its estimates of achievable fuel economy and that NHTSA should have used the cost and benefit numbers from the NAS report. In the NPRM, the agency indicated that it did not expect manufacturers to deviate from existing plans for vehicle weight and performance in their efforts to comply with our proposal. At the same time, our NPRM contained, as Stage III of the Stage analysis, a projection that manufacturers could replace 6.0L and larger displacement engines with smaller displacement engines of similar design. Perhaps focusing more on the statement that NHTSA did not anticipate changes in weight and performance than on an analysis containing a cutback in engine sizes, some commenters stated that we failed to realize the fuel saving benefits that would have been realizable if determinations of future fuel economy capability had been premised upon limiting further increases in light truck mass and performance. CAFE standards must be economically practicable and, as we have observed before, consumers will not buy what they do not want. Forcing through regulation substantial deviation from product offerings based on projected consumer demand incurs a risk of running afoul of economical practicability. At the same time, maximum feasible fuel economy standards should encourage the continuing development and use of more fuel-efficient technology. Current projections of consumer demand may not fully account for potential changes in consumer preferences that may accompany new entrants in the market, fluctuating fuel prices, and other factors that can affect actual CAFE performance. The agency therefore intends to monitor the compliance efforts of the manufacturers and to examine the manufacturers' pre and mid-model year fuel economy reports filed with NHTSA through December 2004 and current market information before the onset of MY 2007. As indicated below, our analysis and projection of manufacturer capabilities now relies on more optimistic fuel economy gains for some technologies, including low viscosity lubricants and low rolling resistance tires, than those contained in the NPRM. These revised values place the estimated fuel saving benefits of these technologies in line with the estimates contained in the NAS report. We do not agree, however, that either VVLT or improved shift logic will yield the benefits claimed by Environmental Defense. We note that the NAS panel was afforded an opportunity to review similar returns claimed for these technologies and did not, on an incremental basis similar to that used here by the agency, adopt the claimed values. 4 In regard to the technologies used, NHTSA believes that the lead time available restricts the agency from assuming that manufacturers will be able to rely on advanced technologies that are not yet proven or available for use. 4 Committee on the Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards, National Research Council, Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards, Washington, DC, National Academy Press, 2002, p. 136. 8. Diesel Engines and HEVs Automobile manufacturers and their associations commented that NHTSA's exclusion of advanced diesels and hybrid electric vehicles (HEVs) from the technology analysis was appropriate given the emissions and cost challenges facing advanced diesels and HEVs, respectively. Environmental organizations and another commenter expressed greater optimism regarding diesels for consideration in setting the CAFE standard. The American Council for an Energy-Efficient Economy commented that NHTSA's technology analysis was inadequate because it excluded HEVs and diesels. Cummins stated that its diesel engine development program demonstrates a fuel economy improvement of 50 percent-70 percent over gasoline engines. Cummins also stated that target engine availability is within the time frame proposed in the NPRM. The Alliance to Save Energy cited the Ford Escape HEV as surpassing most passenger cars in fuel economy and as providing support for the proposition that there is no technological reason for NHTSA not to require a significant increase in fuel economy standards for all light trucks. As described above, since the publication of the NPRM both public and private initiatives have been announced. These include a government initiative to develop, over the longer term, viable hydrogen fuel cell powered transportation and General Motor's initiative to begin to offer optional hybrid propulsion systems in light trucks. In addition, Ford Motor Company and DaimlerChrysler will offer hybrid and modern diesel Sport Utility Vehicles beginning with MY 2004. We believe it possible that an active market for hybrid and modern diesel vehicles may significantly enhance the actual fuel economy of the light truck fleet by MY 2007. The infusion by these companies and others of advanced technology vehicles into that market is an important step towards that development. Although we mentioned our support for the development of a market for the advanced diesels and hybrid electric vehicles in the NPRM, we did not incorporate them into the proposal because we did not have information on the extent of product offerings and marketing to generate public interest in them during MYs 2005-2007. For the final rule, we have incorporated hybrid and diesel vehicles incorporated into the manufacturers' product plans, but not beyond. We continue to note, however, that such vehicles may yet come to play an important role in the market by MY 2007. B. Economic Comments 1. Cost of Specific Technologies General Motors, Ford, the Alliance and Toyota Motor North America, Inc. (Toyota) argued that manufacturer incremental costs are understated. Ford and General Motors asserted that NHTSA's analysis underestimates the costs for applying certain technologies and thus underestimates its costs per fuel economy improvement for those technologies. General Motors claimed that part of NHTSA's underestimation occurs as the result of a clerical error because NHTSA did not use the technology costs identified in its rulemaking support documents, but instead used much lower costs. General Motors also stated that the Volpe analysis assumes that all technologies will cost manufacturers the same amount for all models no matter how much progress has been made to date. General Motors stated that NHTSA's assumption that it can make improvements in these areas at the same rate and at the same costs to other manufacturers is incorrect. Public Citizen, Honda, and 20/20 Vision commented that fuel-efficient vehicles, e.g. , hybrids, could be manufactured for reasonable costs. 2. Projected Number of Sales General Motors and other manufacturers argued that the sales rate used by NHTSA for new model year vehicles during the first several months of a model year was too high (4.167 percent vs. 3.125 percent) and that the agency mistakenly assumed that all vehicles of a given model year would be on the road and in use by January 1 of the calendar year following the start of that model year. General Motors commented that NHTSA's benefit model does not accurately reflect the number of new vehicles on the road during the initial calendar years in which they were sold. General Motors provided a number that reduced the total societal benefits for the three years by $62M. 3. Impact on Consumer Choice General Motors asserted that some product restrictions might be necessary to achieve the proposed levels. The Recreational Vehicle Industry Association stated that reductions in size and towing capacity of light trucks resulting from proposed levels may restrict size, weight, and capacity offerings in trailers and conversion vehicles. The agency tentatively concluded in the NPRM that the standards would not lead to product restrictions or impede consumer choice. We believe that the CAFE standards established today will not diminish the existing vibrant market for light trucks, offering the public a wide array of features and functions. We further believe that sufficient lead time exists before MY 2007 such that technologies not currently within manufacturers' product plans and/or the development of a market for alternative propulsion systems may significantly enhance fuel economy performance without affecting the features and functions offered to consumers. 4. Baseline of 20.7 MPG The Alliance and Ford asserted that manufacturer incremental costs are understated because many manufacturers have already added significant costs in anticipation of the increased CAFE standards that are not included in the agency's incremental costs. The Alliance suggested that a more appropriate baseline would utilize data from the current model year assuming the manufacturers meet the 20.7 mpg CAFE standard absent technologies used in anticipation of future standards. Public Citizen argued that the agency relied too heavily on the manufacturers for the baseline mpg level and for estimated mpg levels for future model years. The Alliance to Save Energy argued that the proposal should have considered the manufacturers' voluntary commitments to improve the fuel economy of their fleets (citing Ford's 2001 commitment to improve SUV fuel economy by 25 percent by 2005) and indicated that hybrid technology should have been weighted more in determining model year baselines. For reasons discussed below, we have estimated the incremental costs associated either with increasing CAFE from an average fuel economy standard of 20.7 mpg, or from the manufacturer's baseline, if over 20.7 mpg, to the newly established standard. We have accounted for incremental benefits the same way, and thereby have treated the incremental costs and the incremental benefits in the same manner. 5. Survival Rates by Age of Vehicle; Vehicle Miles Traveled The Alliance and Ford commented that the agency should recalculate costs using only a 25-year useful life, rather than a 30-year useful life. Ford stated that the assumed vehicle miles travel (VMT) growth rate of 1.8 percent is too high in comparison to recent experience and claimed that VMT instead has remained stable. Public interest groups criticized the agency for its use of a VMT baseline that they asserted was too low. Union of Concerned Scientists argued that NHTSA's estimate of VMT is low compared with other studies and underestimates the consumer benefits of fuel economy improvements. Union of Concerned Scientists cited survey data and stated that first year travel is over 15,000 miles and does not lower to 12,000 miles for several years. The agency's analysis in the NPRM used a 25-year useful life. Data reflecting a previous assumption of a 30-year lifetime was inadvertently included in a spreadsheet placed in the docket, but these data were not used in the agency's calculations. We have decided to calculate VMT based on the Update of Fleet Characterization Data for Use in EPA's MOBILE6 program, EPA's most recent mobile source emission model. 6. Value of Externalities Citing various studies, the Alliance and General Motors asserted that NHTSA should not include any monopsony or supply disruption externality in its benefit analysis. The Alliance argued that the agency failed to address other externalities associated with an increase in the CAFE standard, such as increased congestion and highway fatalities. The Mercatus Center commented that the link between energy security and fuel economy is not well known, but suggested that it is likely close to zero. General Motors commented that increased travel resulting from the rebound effect would result in increased traffic crashes, injuries, and fatalities. Lutter and Kravitz commented that the economic analysis should include the external costs of increased accidents caused by additional driving due to the rebound effect and stated that estimates of marginal external accident costs range from 6 to 20 cents per vehicle mile. The Alliance, General Motors, and Lutter and Kravitz commented that the agency's economic analysis should include the external costs of increased congestion caused by additional driving due to the rebound effect. Lutter and Kravitz stated that the economic analysis should use estimates of congestion costs ranging from at least 6 to 10 cents per vehicle-mile. As discussed below, we have added costs attributable to increased congestion, noise and crashes resulting from the additional exposure associated with the rebound effect. We have also monetized the benefits associated with the time savings gained from the increase in the intervals between vehicle refuelings. We have otherwise determined that our values were consistent with the applicable literature. 7. Impact of Safety Standards on Vehicle Weight Comments from the Alliance, General Motors, and Ford claimed that NHTSA did not consider and/or underestimated the impact of several proposed safety standards. General Motors argued that to meet future safety standards and to voluntarily implement new safety features, manufacturers might be forced to reduce vehicle weight elsewhere on the vehicle to comply with the proposed CAFE standard. As discussed below, we have considered these concerns but do not agree that companies will be forced to limit safety related systems to comply with these CAFE standards. 8. Rebound Effect The Alliance, General Motors, and Ford urged the agency to use a value of 35 percent rather than 15 percent, with a sensitivity analysis of 20 percent to 50 percent. These commenters each based this recommendation on a recent survey article, Greening, Greene, and Difiglio (Energy Policy 28 (2000) 389-401) and on the agreement of participants in “Car Talk,” a Clinton Administration dialogue on fuel economy among the auto industry, environmental organizations, think tanks, and government organizations. DaimlerChrysler seemed also to recommend a value of about 35 percent, stating, “the commonly accepted price elasticity of VMT is a negative 3.5 percent, which means that a 10 percent reduction in per mile vehicle fuel consumption actually only reduces fuel consumption by 7 percent.” The American Council for an Energy-Efficient Economy stated that it believes that a 15 percent rebound factor might be too high, based on the agency's statement that increasing fuel economy by 10 percent will produce an estimated 8-9 percent reduction in fuel use. According to that organization, this implies an assumption that the rebound effect is between 1 percent and 12 percent. In consideration of these comments, we have revised the estimate of the fuel economy rebound effect for light trucks used in this analysis from 15 percent to 20 percent. We recognize that the magnitude of the assumed rebound effect and the implications of any rebound effect are complex issues. NHTSA will continue to monitor relevant research for use in future CAFE rulemakings. 9. Present Value of Benefits (Including 7 Percent Discount Factor) Both Lutter and Kravitz and the Mercatus Center argued for discount rates higher than 7 percent. Lutter and Kravitz stated that the agency should have used a rate ranging from 7.6-10 percent, the average new car finance rate during 1984-95. The Mercatus Center argued that the discount rate should be much higher (14 percent-28 percent), since fuel economy should be treated as an irreversible investment. For reasons discussed below, we have decided to use the proposed discount rate of 7 percent. 10. Impact of Higher Prices on Sales General Motors commented that an increase in light truck prices, due to fuel economy initiatives, above competitive pricing levels would be met by a disproportionate loss in unit sales to its competition. Honda stated that most customers would be willing to pay a little extra to buy a car with higher fuel economy but would not trade fuel economy for desired features. Public Citizen and 20/20 Vision commented that surveys illustrate that consumers are willing to pay more for vehicles that have a higher fuel economy. In response to comments, the agency has added to its analysis a discussion of impacts of higher prices of sales using a price elasticity of 1.0. The agency believes that higher light truck prices could shift some new vehicle sales from light trucks to automobiles and might also delay retirement and replacement of used vehicles. These issues are discussed more fully in the FEA. 11. Market Efficiency and Consumer Rationality The Alliance and General Motors commented that NHTSA has consistently overestimated consumer demand for increased fuel economy. They stated further that automobile buyers are rational and informed and that vehicle producers effectively respond to the extent of their preferences for fuel economy. The Mercatus Center commented that NHTSA's analysis should include the foregone benefit to consumers from being unable to choose attributes they would prefer in a vehicle, e.g. , a 6.0L engine in instead of a 5.3L engine. Lutter and Kravitz stated that NHTSA's analysis incorrectly assumes that consumers have inadequate information about vehicle fuel economy, and that they are unable to value correctly the future fuel savings resulting from improved fuel economy and as a consequence vehicle manufacturers supply inadequate levels of fuel economy. Public Citizen argued that there is no validity to the “consumer choice” argument made by manufacturers because vehicle offerings are driven, not by consumer choice, but by manufacturers' advertising. Many commenters asserted that NHTSA had made a determination that there is a market failure in the provision of vehicle fuel efficiency. In the NPRM, the agency did not make any such determination. NHTSA noted a paradox that cost-saving technologies appeared to be penetrating the market to only a limited extent and therefore sought public comment on possible sources of market failure. First, on the supply side of the vehicle market, it is well known that the light truck market is concentrated in three large producers who account for roughly 75 percent of market share, although there are a number of smaller producers that account for the remaining 25 percent. As several commenters noted, there is substantial evidence of competition among producers in the light truck market and indications that the three large producers are under increasing competition from the smaller producers. Under these circumstances, NHTSA maintains its previous statement that there is only a “remote” possibility that a supply side failure in the marketplace accounts for the limited market penetration of cost-saving, fuel-saving technologies. Second, commenters discussed whether there could be a failure on the demand side of the market for fuel economy, rooted perhaps in the way that consumers perceive the private benefits of enhanced fuel economy and incorporate that information in their purchasing decisions. Several commenters noted that consumers are provided clear and substantial information about the fuel efficiency ratings of different vehicles, including information about the operating expenses associated with these fuel efficiency ratings. However, the argument for demand side failure may have less to do with the absence of consumer information about fuel efficiency than with the overall complexity of the vehicle-purchasing decision, the number of other factors of greater salience to consumers, the temporal aspects of ownership and resale, and the difficulty of weighing fuel efficiency differences against other (especially nonmonetary) attributes of vehicles. Rational consumers, cognizant of decision making costs, may use simplified decision rules when purchasing vehicles that give limited, diminished or no weight to fuel economy differences—at least when projected fuel prices are relatively low. The agency does not know whether this demand-side argument is true and did not receive much comment that supports or refutes it. The agency believes the plausibility of this argument is less remote than the supply-side argument but still quite speculative. Regardless of how consumers perceive fuel economy benefits when they make purchasing decisions, it is clear that consumers will experience the benefits of cost-saving technologies when they operate their vehicles—assuming the engineering-economics information underlying the NAS Report is accurate. C. Environmental 1. Foreign/Domestic Refining Split General Motors disputed the agency's assumption that 45 percent of the reduction in fuel will come from domestic refineries and 55 percent will come from imported finished gasoline. General Motors stated that it believes that a 2000 Energy Information Administration's (EIA) study is the source of this estimate and that the study merely states that 55 percent of U.S. petroleum needs are imported (in the form of crude and refined products) and that the other 45 percent are met from domestic sources. General Motors claimed that there is little evidence that these same proportions apply to reductions in fuel use and that U.S. refinery emissions are just as likely to remain the same as the baseline under the proposed standard and should not be credited against the rebound effect without substantiation. After considering a variety of data sources, we have decided to use a 50/50 split to account for reductions in refining. 2. Use of the GREET Model/Value of Emissions per Ton General Motors stated that NHTSA's benefits model incorrectly used emission factors from the “Greenhouse Gases and Regulated Emissions in Transportation” (GREET) model for refinery emissions. According to General Motors, NHTSA incorrectly included extraction emission factors in its analysis. General Motors calculated a reduced total societal benefit for three years of $3,000,000 based on this error. We agree with General Motors that we did not appropriately account for emissions reductions likely to result from gasoline savings. But we disagree with the contention that emissions attributable to petroleum extraction would be unaffected. Accordingly, we separated emission factors to account for different states in the petroleum cycle. 3. Greenhouse Gas Emissions for Carbon Environmental Defense requested that NHTSA place a value on the benefit of avoided greenhouse gas emissions, while also noting: “the magnitude of the global warming externality is admittedly difficult to estimate.” The value of avoiding greenhouse gas emissions is not quantifiable at this time. However, our analysis in the Environmental Assessment indicates that the established standards will result in an estimated 9.4 million metric tons of avoided greenhouse gas emissions over the 25-year lifetime of the vehicles (measured in terms of carbon equivalents). D. Additional Comments 1. Limited-Line Light Truck Manufacturers Porsche AG, Porsche North America, Inc. (Porsche) urged NHTSA to establish a separate standard or standards for limited-line truck manufacturers, possibly using a graduated standard based on the number of light truck models offered. According to Porsche, smaller manufacturers are penalized because they do not sell small economy vehicles that are capable of producing offsetting credits. Limited-line manufacturers, according to Porsche, must struggle to meet CAFE because of their limited resources and a limited truck line that does not allow them to average their fleet fuel economy. Therefore, if their vehicle line does not meet the current standard, they must pay penalties or incur disproportionate costs in attempting to meet the applicable standard. With an annual worldwide production of more than 10,000 vehicles, Porsche agreed that it was foreclosed from applying for a manufacturer-specific fuel economy standard under the exemption provisions of 49 U.S.C. § 32902(d). However, Porsche argued that worldwide consolidation of the automobile industry indicates that the 10,000-vehicle threshold is no longer appropriate and should be raised. Barring any change to the threshold, which Porsche acknowledged is beyond NHTSA's authority, the company suggested that NHTSA is obligated to ensure that small limited-line manufacturers are not harmed. To fulfill this obligation, Porsche argued that the agency should follow an earlier precedent and establish a separate light truck standard for limited-line manufacturers as it did in 1980 and 1981. The agency does not agree with Porsche's suggestion that the company's particular circumstances support establishment of a separate fuel economy standard for limited-line manufacturers. We note that both full-line and limited line manufacturers have indicated that their product mix places them at a disadvantage in complying with CAFE. For some, having too many large trucks is a problem. For others, like Porsche, not having other more fuel-efficient trucks is the obstacle. In either case, the challenge of meeting is difficult for both classes of manufacturers. Porsche stated that it faces a disadvantage because it makes only a single high performance truck and has no “legitimate” opportunity to comply. Although some manufacturers have chosen to participate in market segments that make it easier for them to meet CAFE, we note that all manufacturers must meet particular challenges when complying with a standard. Porsche is correct in pointing out that NHTSA, in the very first years in which CAFE standards were in effect, established a separate light truck standard for light truck manufacturers who did not use passenger car engines in their trucks. This separate standard, promulgated in 1978, offered a degree of relief to International Harvester, a company struggling to meet both CAFE and emissions standards with limited resources. NHTSA finds it difficult to equate Porsche's present position with that of International Harvester in 1978. Unlike International Harvester, which had been producing a family of larger light trucks whose basic design remained unchanged from the early 1960's, Porsche began the design process knowing that CAFE standards would apply to its product. Porsche presumably entered the light truck market after determining that the costs of compliance or paying penalties were offset by the benefits of doing so. While the increase in CAFE standards established by this final rule will require that Porsche increase its efforts to build more fuel efficient light trucks, the company cannot state that its designs pre-date CAFE, that an increase in CAFE standards was not foreseeable or that it is not technologically feasible for Porsche to meet the standards. As indicated above, NHTSA does not believe that present market conditions dictate establishing a separate fuel economy standard for Porsche or other limited-line manufacturers. We are also not convinced by Porsche's argument that doing so would be consistent with Congressional intent. Porsche has correctly observed that NHTSA cannot modify the current statutory threshold for small manufacturers entitled to seek exemption from CAFE under 49 U.S.C. § 32902(d). However, Porsche apparently believes that the existence of the exemption provision supports the larger notion that limited-line manufacturers are entitled to relief. We believe that the more logical conclusion is that in creating the exemption provision and limiting its applicability, Congress intended to restrict rather than expand NHTSA's authority to exempt manufacturers from CAFE. 2. Executive Order 12866 General Motors and the Alliance also commented that neither the NPRM nor the Preliminary Economic Assessment (PEA) identified regulatory alternatives to raising CAFE standards for light trucks as required by Executive Order 12866, Regulatory Planning and Review. General Motors stated that, for example, raising the gas tax by 2.4 cents per gallon would achieve the same fuel savings associated with NHTSA's proposal and would be 50 times less costly than NHTSA's proposal. NHTSA believes that the statutory structure and regulatory framework narrowly limit the regulatory alternatives that the agency can consider. The statute specifically requires NHTSA to establish the maximum feasible average fuel economy standard accounting for certain, specified considerations. Implicit in that analysis is consideration of the level at which the best balance of the statutory criteria can be achieved. We note that, unlike broader based empowering statutes, EPCA does not contemplate that the agency will address the nation's need to conserve energy through any alternatives other than the establishment of an average fuel economy standard applicable to a class or classes of non-passenger automobiles. We further note that, while General Motors points out that an increase in the gas tax may be a public policy alternative, it is not a regulatory alternative available under EPCA. 3. Confidential Business Information Consumer and environmental advocacy groups expressed frustration that they do not have access to the same confidential technological, financial and product data as the agency, and therefore are limited in their ability to critique and comment upon the agency's analysis. Environmental Defense argued that NHTSA's authorizing legislation states that the agency may withhold information only if the Administrator finds that disclosure of information would cause “significant competitive damage.” NHTSA considers EPCA's reference to “significant competitive damage” as being substantively synonymous with Exemption 4 of the Freedom of Information Act. We acknowledge the frustrations expressed by the consumer and environmental advocacy groups that they do not have access to the same confidential technological, financial and product data as the agency, and therefore are limited in their ability to critique the agency's analysis. We note, however, that Congress entrusted the establishment of appropriate corporate average fuel economy standards—and, indeed, the balancing of the express statutory and public policy considerations—to the Secretary of Transportation, who has in turn delegated that responsibility to the expertise of the National Highway Traffic Safety Administration. In the NPRM we provided detailed descriptions of the methodologies employed in our engineering and economic analysis. In doing so, we ensured that sufficient information was available for all to comment on the approach and fundamental assumptions used to conduct the analyses leading to the proposal and, ultimately, to this final rule. 4. Small Business Impacts The Recreational Vehicle Industry Association stated that the impacts of the required increases in light truck fuel economy on sales and production of trailers, other recreational vehicles that require towing, and conversion vehicles based on light trucks would be disproportionately or exclusively borne by small businesses. NHTSA does not believe that this standard will have an adverse effect on the recreational vehicle industry. The agency has determined that the average fuel economy standards established in this final rule will not significantly impact product offerings or the utility available to consumers. 5. Dual Fuel Credits General Motors and the Alliance expressed concern that the agency had not yet finalized the proposed regulation extending the Alternative Motor Fuels Act of 1988 (AMFA) credits. They argued that, while NHTSA is not permitted to incorporate those credits into the CAFE standards (and thereby potentially eliminate the pure incentive Congress intended), the agency should consider the practical impact of the credits. On March 11, 2002, the agency published a proposal to extend the dual fuel vehicle credits that vehicle manufacturers can earn by producing vehicles capable of operating on gasoline and other types of fuel. (67 FR 10873). Since then, both the Senate and the House of Representatives passed bills that would statutorily extend the credits. The extension was also included in the conference energy bill (H.R. 4) in the last Congress. We will separately issue a final rule addressing the proposed extension of the AMFA credits. In the meanwhile, Congress has made clear that we may not take the existence or use of those credits into consideration when determining maximum feasible fuel economy levels. We have reviewed the legislative history surrounding the establishment of those credits to determine whether Congress would nonetheless expect the agency to acknowledge the existence of those credits when analyzing the costs and benefits associated with any proposed CAFE standard. We are skeptical that Congress would have expected the agency to assume technological costs, potential job losses or adverse safety consequences that, as a practical matter, are improbable in light of the AMFA credits. The legislative history, however, indicates that Congress expected these credits to be a pure incentive. Because consideration of costs and benefits is a critical component to determining the economic practicability of the proposed standard, we have concluded that the statute does not permit us to consider the impact of the AMFA credits when assessing the costs and benefits of proposed CAFE standards. VII. Consideration of the Maximum Feasible Fuel Economy Levels A. Technological Feasibility 1. General Motors Our December 2002 NPRM estimated that General Motors would be able to achieve a light truck CAFE of 20.97 mpg in 2005, 21.63 mpg in 2006, and 22.29 mpg in 2007. This estimate was based on the “Stage” analysis described above. Use of the “Stage” analysis yielded the following potential improvements to the General Motors light truck fleet: Potential General Motors CAFE Improvements, mpg 1 Model year Stage I improvements Stage II improvements Stage III improvements Total Potential CAFE, mpg. 2005 .439 .466 .1065 1.012 20.97 2006 .936 .502 .0616 1.500 21.63 2007 .921 .496 .0825 1.499 22.29 1 Due to rounding, the individual improvements may not equal the potential CAFE for General Motors. As we indicated in the NPRM, NHTSA relied, in part, on information provided by General Motors to determine which Stage I technologies General Motors could employ in MYs 2005-2007 to enhance its fuel economy performance. Our analysis indicated that General Motors could employ five technologies by MY 2005 in certain parts of its light truck fleet and an additional three technologies in certain parts of its light truck fleet by MY 2006. In NHTSA's view, all of these technologies would continue to be used in future model years. We also used the numbers provided by General Motors for percentage increases in fuel economy in calculating the possible fuel economy increase attributable to each of these technologies. To determine how and when General Motors could employ Stage II technologies for MYs 2005-2007, NHTSA relied on General Motors' comments, the agency's own engineering judgment, and the submissions from other manufacturers. Our analysis indicated that General Motors could employ two technologies by MY 2005, and an additional technology by MY 2006. To determine possible fuel economy increases, NHTSA examined manufacturer-provided estimates for the percentage increases in fuel economy for each technology. We placed more credence on a value if a manufacturer had already introduced that specific technology, if it was in the NAS range of estimates, and if at least one other manufacturer provided a similar value for the fuel economy potential of that technology. In the Stage III analysis for the NPRM, the agency tentatively concluded that the bulk of General Motors models equipped with the 6.0L engines could be equipped instead with 5.3L engines without notably degrading their utility. We determined that, standing alone, this change to General Motors' MYs 2005-2007 light truck fleet would increase General Motors' CAFE by 0.1 mpg. As we indicated in our summary of the comments provided above, General Motors disagreed with NHTSA's projections and provided new and revised data to support its assertions. The company's February 2003 submission indicates that General Motors believes it can achieve a CAFE of 20.4 mpg in MYs 2005 and 2006, and 20.6 mpg in MY 2007. General Motors pointed out clerical mistakes in the NPRM, such as double counting certain vehicles and technologies that were already being used by General Motors to meet the company's projected CAFE. General Motors stated that correcting for these clerical errors would lower NHTSA's assessment of General Motors CAFE by 0.08 mpg in MY 2005, 0.18 mpg in MY 2006, and 0.16 mpg in MY 2007. Additionally, General Motors argued that NHTSA's technological assessment is too optimistic about the degree to which General Motors can improve its CAFE, particularly since NHTSA made no allowance for deterioration or “risk” in its forecasts. General Motors also stated that NHTSA's projections of the company's capability to improve its CAFE ignored how little lead time General Motors had to implement changes to its MY 2005 trucks “ which would begin production in July 2004. Compared to its May 2002 CAFE forecasts, General Motors' February 2003 CAFE forecasts are higher for MYs 2005 and 2006, but lower for MY 2007. The updated forecasts involve several model changes, volume changes, and greater use of some of the technologies included in NHTSA's analyses. Based on these updated forecasts, General Motors provided its own computation of what General Motors' CAFE would be for MYs 2005-2007 if either the Stage or Volpe technologies were added to General Motors' updated product plans without any instances of double counting. These projections indicated that the Stage analysis projected General Motors' attaining a CAFE of 21.20 mpg in MY 2005, 21.65 mpg in MY 2006 and 21.75 mpg in MY 2007. Using the Volpe method, General Motors reported that its projected CAFE should be 21.12 mpg in MY 2005, 21.47 mpg in MY 2006 and 21.70 mpg in MY 2007. The foregoing projections, according to General Motors, are still far too optimistic, even after the effects of double counting and other clerical errors are addressed. General Motors indicated that the agency's proposal included the use of technologies that could not be implemented in the time available, including some that were not yet ready for commercial application. In other instances, General Motors asserted that it had already exploited particular technologies to the extent possible. General Motors also indicated that both the “Stage” analysis and the Volpe analysis relied on projected improvements from certain technologies that were unrealistic. Accordingly, General Motors submitted its own estimates of benefits from the application of the same technologies. In many instances, these estimates were lower than those used by NHTSA. The company also disagreed with NHTSA's view in the NPRM that the displacement reductions envisioned in NHTSA's Stage III analysis—replacing a larger engine with a smaller one in some vehicles—were a practical means of improving fuel economy. According to General Motors, requiring the replacement of one engine with another constituted more than a change in a single vehicle. Instead, the company argued that such a change was the equivalent of prohibiting production of an entire model line. General Motors concluded that NHTSA's proposed CAFE standards are neither technologically feasible nor economically practicable. As it did for the NPRM, NHTSA used two methodologies to explore the potential for improvement in General Motors' fuel economy. One, the “Stage” analysis, examined the potential use of various technologies and other means after separating these methods into three different “Stages” and applying them to manufacturers in a designated sequence. The agency's “Stage” analysis, which is contained in the FEA that has been placed in the docket, corrected errors that General Motors had found in our earlier analysis. As was the case with the “Stage” analysis performed in support of the NPRM, we based our choices as to which technologies to apply on our review of manufacturer product plans. In the case of General Motors, the agency re-examined many of our preliminary findings about which technologies could be applied to improve General Motors' fuel economy and revised its estimates. In so doing, we noted that General Motors' May 2002 submission, submitted in response to our February 7, 2002 request for comments, contained a number of references to technologies or returns on technologies that the company either abandoned or discounted in its February 14, 2003 submission. In some instances, our analysis was modified to reflect General Motors' February 2003 view of which measures could be employed. In others, we examined both the May 2002 and February 2003 General Motors submissions to see if opportunities existed to expand the use of technologies that appeared to be consistent with General Motors' product plans as depicted in both documents. We also considered improvements from technologies that had been adopted by other manufacturers. Our analysis projected that some of these technologies could be used to improve fuel economy if General Motors expended additional effort to implement some of these changes. We further believe that, while there are technological and market risks associated with establishing a CAFE standard three model years beyond MY 2004, the last year for which a standard has been established, there is also the opportunity to incorporate further technological advancements to achieve the standard and beyond. We also believe that General Motors' projected CAFE capabilities may be further enhanced should consumers begin to demand more hybrid electric vehicles, diesel vehicles and cross-over utility vehicles and should General Motors expand its offerings in this arena to meet consumer demand. NHTSA believes that it is technologically feasible for General Motors to meet the standards established in this final rule. We note that our updated “Stage” analysis responds to General Motors” most recent comments and projections by adjusting the use, introduction, and application of fuel economy improvements to conform better to General Motors' currently planned deployment of technologies. The agency also reexamined the application of several technologies to ensure that they were applied to vehicles suitable for their use. In so doing, NHTSA examined the way in which these technologies were being used by the industry. Our analysis applies technologies that are either already in use or are sufficiently mature to have been included by other manufacturers in their MY 2005-2007 product plans. Finally, our analysis did not rely on the use of clean diesel engines or the production of hybrids beyond those already planned by General Motors. However, the agency believes that the use of diesel engines and hybrid technology would enable General Motors to offset some of their anticipated risks of technical implementation and meet the new standard. Both of these technologies offer significant promise for increased fuel efficiency and one, if not both, could certainly be in place during MYs 2005-2007. Other external uncertainties, such as further technological development and fluctuating fuel prices that may affect consumer demand by MY 2007, could assist General Motors in achieving the standards established by this final rule. General Motors' comments also took issue with the validity and execution of NHTSA's “Volpe” analysis. As indicated in the PEA prepared in conjunction with our December 2002 NPRM, NHTSA computed the potential costs of its proposal through an analysis developed by the Volpe National Transportation Systems Center. This analysis used an algorithm that applied fuel economy technologies to different model lines based on the cost-effectiveness of each technology. General Motors argued that the Volpe analysis contained a number of errors, including some clerical and mathematical errors. The company also claimed that the Volpe analysis was illogical in the manner in which technologies were used and discarded without sufficient regard for capital costs. The analysis was also flawed, in General Motors' view, because the Volpe analysis applied different techniques for estimating costs than those employed in the Stage analysis to raise General Motors' fuel economy. Finally, General Motors also indicated that many of the technologies employed in the “Volpe” analysis were either not ready, did not deliver the fuel savings described or were, in many instances, not practicable for General Motors. The agency agrees that the Volpe analysis prepared for the NPRM contained clerical errors and, in some instances, applied and removed technologies without consideration of capital costs. We have remedied the clerical errors in our earlier Volpe analysis, changed our application of technologies to reflect the impact of repaying capital investments and modified the analysis so that the Volpe cost estimates are more nearly based on the technologies, or their equivalents, used by NHTSA in its updated Stage analysis. We have also performed a more traditional analysis of General Motors' projected costs by calculating the total cost of all the projected “Stage” technologies. As we are also using the Volpe methodology to calculate costs for the industry, as well as for General Motors, the Volpe methodology was also changed to reflect that capital costs might require employment of technologies for several years, rather than a single year. As is the case with the Stage analysis, the Volpe analysis was also changed to apply technologies in a manner more consistent with General Motors' projections of its product plans and capabilities. In so doing, we also examined the abilities and plans of the industry as a whole in determining which technologies could reasonably be used. As indicated in our discussion regarding costs, we believe that the Volpe analysis provides an accurate accounting of the potential aggregate costs of this final rule. After careful review of General Motors' comments, the agency modified its application of both the Stage analysis and the Volpe analysis. One Stage I technology was not applied as widely as it was in the NPRM. A Stage II technology that NHTSA had calculated could be widely introduced in MY 2005 is now being applied in phases in MYs 2006 and 2007. Technologies that were not used in our analysis for the NPRM are now being applied as Stage II technologies. Finally, in regard to Stage III, our analysis no longer relies on General Motors' removing the existing 6.0L engine from some trucks and replacing it with a smaller V-8. As stated above, the possibility that forcing through regulation substantial deviation from product offerings based on projected consumer demand may impose unreasonable constraints on the market leads us to conclude that it is not appropriate to include such engine shifts in the Stage analysis. Nonetheless, market forces may yet independently favor further reassessment of product plans for which there remains adequate lead time. In addition to these changes in the technologies used and the way they were applied, we also changed our estimates of the improvements we expect to gain from certain technologies. In the case of low rolling resistance tires and low viscosity/low friction lubricants, the agency had previously estimated that these technologies would each yield a .5 percent improvement in fuel economy. In response to criticisms that our values were either too low or too high, we decided to use the NAS mid-range estimates (where available) since they were developed based on extensive study and review. Thus, we adopted a 1.3 percent improvement for low rolling resistance tires, which is the midpoint value projected by the NAS report. In the case of low friction/low viscosity lubricants, we indicated in the PEA accompanying the CAFE NPRM that these lubricants could yield anywhere from a 0.3 percent to 1.0 percent improvement in fuel economy. However, our calculations for the NPRM relied on a 0.5 percent improvement from low friction/low viscosity lubricants. After consideration of the potential benefits of these lubricants, we now anticipate, as did the NAS, that use of these oils will yield a 1 percent improvement. In addition to changing the estimated returns for the preceding technologies, our analysis also reduced the percentage improvement related to improved cooling fans from 2.4 percent to 2.0 percent. After correcting errors in our earlier analysis and making other changes as described above, our Stage analysis projects, based on General Motors' most recently submitted product plans, light truck CAFE estimates for that company of 20.96 mpg for MY 2005, 21.56 mpg for MY 2006 and 21.99 mpg for MY 2007. Unlike many previous CAFE rulemakings, we are establishing light truck standards for three consecutive model years. This provides, especially as regards the third model year, MY 2007, additional lead time for companies to develop compliance options not typically available when a standard is set just 18 months prior to a model year. We believe that, although General Motors' current product plans do not project that it will achieve a 22.2 mpg light truck CAFE without further adjustments, that the opportunity and technologies exist to make such adjustments technologically feasible and economically practicable for MY 2007. We note that, while Ford finds the standards “challenging,” that company stated that it would make just such adjustments to meet the standards. Further, the Volpe analysis (while principally a tool to assess costs and benefits) suggests a projection of 22.2 mpg for MY 2007 for General Motors. Rather than address General Motors' product plans on a model-by-model basis, the Volpe analysis estimates the company's projected CAFE capabilities through application of technologies available to the industry as a whole. The Volpe analysis suggests that the Stage analysis may present a conservative projection for MY 2007, given the additional lead time provided for that model year. Moreover, the CAFE statute does not contemplate that each standard automatically be set at the lowest projected level of the “least capable manufacturer with a significant share of the market.” Instead, it contemplates CAFE levels at the maximum level attainable within the industry as a whole without necessitating consequential adverse economic consequences. As noted above, this is the first time since 1980 that the agency has simultaneously established light truck standards for more than two model years. As a result, we believe it to be within the intent of the statute to set more challenging—but still reasonable—CAFE levels during the year(s) furthest in the future. Indeed, the concept of the “least capable manufacturer with a significant share of the market” was intended to be a surrogate for analyzing whether employment reductions or other adverse economic consequences (including vehicle weight reductions) were necessary to meet the standards. While we have not pointed to particular measures based on current plans and projections that will bring General Motors' MY 2007 CAFE level to 22.2 mpg, that level may be achieved through additional technological improvements and the expansion of hybrid electric, diesel engine or cross-over utility vehicles in the marketplace. External market factors may also impact actual CAFE performance. As a result, we have determined that—for MY 2007, as well as MYs 2005 and 2006—the CAFE standards are technologically feasible, and economically practicable, for the industry as a whole despite being set at a level above the current projections for a company with a substantial share of the light truck market. 2. Ford Our December 2002 NPRM estimated, based on examination of Ford's product plans and use of the Stage analysis, that Ford could improve its light truck CAFE to 21.0 mpg for MY 2005, 21.6 mpg for MY 2006 and 22.2 mpg for MY 2007. The agency determined that Ford could reach these levels by raising its projected CAFE by an additional .08 mpg from 20.9 mpg in MY 2005 and an additional .19 mpg from 22.0 mpg in MY 2007. Ford's response to the NPRM did not specifically dispute NHTSA estimates for MYs 2005 and 2006. However, Ford indicated that it believed the agency's projection for its CAFE for MY 2007 overstated the company's capability by as much as a tenth of a mile per gallon. In its response to the NPRM, Ford indicated that it viewed NHTSA's proposal as technologically challenging and submitted updated information about its product plans that supported this contention. At the same time, Ford indicated that it was committed to taking additional actions beyond those it already planned to achieve these “difficult” standards. The company indicated, as did General Motors and other manufacturers, that the agency's proposal underestimated the leadtime needed to incorporate fuel economy improvements in vehicles as well as the difficulties of introducing new technologies across a large manufacturer's fleet. Ford also indicated that hybrid and advanced diesel technology are not mature enough to improve overall CAFE performance significantly. In Ford's view, the weight increases due to safety standards have been significantly underestimated. Ford also commented that NHTSA's proposal did not account for any risks that projected increases in fuel efficiency would not materialize. As a general matter, the company also said that increased sales of full-size trucks could erode its CAFE estimates in spite of its plans. In regard to specific changes to Ford's fleet projected by NHTSA, Ford argued that it could not take some of the measures that NHTSA had identified in the agency's Stage analysis. Some of these measures, according to Ford, would be much more costly than NHTSA estimated. Others, in Ford's view, had not yet been sufficiently proven to be suitable for use on MY 2005-2007 vehicles. Ford noted that NHTSA's use of some proven technologies would make it necessary for that company to expend tremendous resources. The company also noted that some technologies, although proven and presumably available, would not be acceptable to consumers. NHTSA projects that Ford has the technological capability to meet the light truck CAFE standards set forth in this final rule. After reviewing Ford's comments, NHTSA has undertaken a further analysis of the company's projected capabilities and the technologies available for improving Ford's CAFE. As with General Motors and DaimlerChrysler, the agency did not include expanded production of hybrid electric or diesel engines beyond those already included in each company's product plans. However, as noted above, we believe these advanced technologies are likely to offset some of the potential risks Ford anticipates and potentially may enhance CAFE performance beyond current projections. Further, our analysis continues to apply technologies as a means of improving fuel economy in lieu of weight reduction and downsizing. After reviewing Ford's comments, we made a number of revisions to our analysis. A more detailed account of these changes is found in the FEA accompanying this document. In general, we adjusted our estimates based on the updated product plans contained in Ford's comments. Using these plans, we considered the extent to which certain fuel economy measures are now being implemented within the industry and considered those technologies that will be sufficiently mature to be available in MYs 2005-2007. These technologies were then applied in a fashion consistent with how other manufacturers are using them and, in our view, consistent with Ford's projected capabilities. Ford's comments also indicated that it believed that NHTSA has seriously underestimated the weight penalty, and subsequent loss in fuel efficiency, caused by weight increases necessitated by safety standards. As indicated below in our discussion of the impact of other federal standards on fuel economy, NHTSA disagrees. Some of the weight penalties claimed by Ford are related to proposed requirements that are not yet final. Others are more speculative and based on agency initiatives that have not yet generated proposals. For rules that are already in place, NHTSA believes some of the Ford claims overestimate the impact. Based on the Stage analysis, Ford's projected light truck CAFE is 20.96 mpg in MY 2005, 21.56 mpg in MY 2006 and 22.23 mpg in MY 2007. The Volpe analysis indicates that Ford can achieve 21.00 mpg for MY 2005, 21.68 mpg for MY 2006, and 22.2 mpg for MY 2007. 3. DaimlerChrysler The agency's December [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A03-8222. Public record. Not legal advice.