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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-07200

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** May 2, 2022
- **Citation:** 87 FR 25710

## Text

DEPARTMENT OF TRANSPORTATION
National Highway Traffic Safety Administration
49 CFR Parts 531, 533, 536, and 537
[NHTSA-2021-0053]
RIN 2127-AM34
Corporate Average Fuel Economy Standards for Model Years 2024-2026 Passenger Cars and Light Trucks

AGENCY:

National Highway Traffic Safety Administration (NHTSA).

ACTION:

Final rule.

SUMMARY:

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

DATES:

This rule is effective July 1, 2022.

ADDRESSES:

For access to the dockets or to read background documents or comments received, please visit
https://www.regulations.gov,
and/or Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Room W12-140, 1200 New Jersey Avenue SE, Washington, DC 20590. The Docket Management Facility is open between 9 a.m. and 4 p.m. Eastern Time, Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT:

For technical and policy issues, Greg Powell, CAFE Program Division Chief, Office of Rulemaking, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE, Washington, DC 20590; email:
gregory.powell@dot.gov.
For legal issues, Rebecca Schade, NHTSA Office of Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE, Washington, DC 20590; email:
rebecca.schade@dot.gov.

SUPPLEMENTARY INFORMATION:

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Does this action apply to me?

This action affects companies that manufacture or sell new passenger automobiles (passenger cars) and non-passenger automobiles (light trucks) as defined under NHTSA's CAFE regulations.
1

Regulated categories and entities include:

1
“Passenger car” and “light truck” are defined in 49 CFR part 523.

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

Executive Summary

NHTSA, on behalf of the Department of Transportation, is amending standards regulating corporate average fuel economy (CAFE) for passenger cars and light trucks for MYs 2024-2026. This final rule responds to NHTSA's statutory obligation to set CAFE standards at the maximum feasible level that the agency determines vehicle manufacturers can achieve in each model year, in order to improve energy conservation. NHTSA's review of the prior standards was instigated in response to President Biden's directive in Executive Order 13990 of January 20, 2021, “Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis,” that “The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger Cars and Light Trucks” (2020 final rule, SAFE rule, or SAFE 2 final rule) (85 FR 24174, April 30, 2020) be immediately reviewed for consistency with NHTSA's statutory obligation and our Nation's abiding commitment to promote and protect our public health and the environment, among other things. NHTSA undertook that review immediately, and this final rule is the result of that review, conducted with reference to NHTSA's statutory obligations.

The amended CAFE standards increase in stringency for both passenger cars and light trucks, by 8 percent per year for MYs 2024-2025, and by 10 percent per year for MY 2026. The agency calls the amended standards Alternative 2.5. NHTSA concludes that these levels are the maximum feasible for these model years as discussed in more detail in Section VI. The final rule considers a range of regulatory alternatives, consistent with NHTSA's obligations under the National Environmental Policy Act (NEPA) and E.O. 12866. While E.O. 13990 directed the review of CAFE standards for MYs 2021-2026, statutory lead time requirements
2

mean that MY 2024 is the earliest model year that can currently be amended in the CAFE program.
3

The standards remain vehicle-footprint-based, like the CAFE standards in effect since MY 2011. Recognizing that many readers think about CAFE standards in terms of the miles per gallon (mpg) values that the standards are projected to eventually require, NHTSA currently projects that the standards will require, on an average industry fleet-wide basis, roughly 49 mpg in MY 2026. NHTSA notes both that real-world fuel economy is generally 20-30 percent lower than the estimated required CAFE level stated above, and also that the actual CAFE standards are the footprint target curves for passenger cars and light trucks, meaning that ultimate fleet-wide levels will vary depending on the mix of vehicles that industry produces for sale in those model years. Table I-1 shows the incremental differences in stringency levels for passenger cars and light trucks, by the different regulatory alternatives considered, in the model years subject to regulation.

2
49 U.S.C. 32902(a) and (g).

3
49 U.S.C. 32902(a).

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This final rule reflects a conclusion significantly different from the conclusion that NHTSA reached in the 2020 final rule, but this is because important facts have changed, and because NHTSA has reconsidered how to balance the relevant statutory considerations in light of those facts. In this document, NHTSA concludes that significantly more stringent standards are the maximum feasible that the agency determines that vehicle manufacturers can achieve in the rulemaking time frame. Standards that are more stringent than those that were finalized in 2020 appear economically practicable, based on manageable average per-vehicle cost increases, large consumer fuel savings, minimal effects on sales, and estimated increases in employment, among other things. Additionally, and importantly, contrary to the 2020 final rule, NHTSA recognizes that the need of the United States to conserve energy must include serious consideration of the energy security risks, as well as environmental and public health implications, of continuing to consume oil, which more stringent fuel economy standards can reduce. By increasing fuel economy, more stringent standards can also protect consumers from oil market volatility from global events outside the borders of the U.S. that can result in rapid fuel price increases domestically. Through greater energy conservation, more stringent standards also reduce climate impacts to our Nation, which further benefit our national security. NHTSA also believes that the final standards are complementary to other motor vehicle standards of the Government that are simultaneously applicable during MYs 2024-2026.

Moreover, at least part of the automobile industry is increasingly demonstrating that improving fuel economy and reducing GHG emissions is a growth market for them, and that the market rewards investment in advanced technology. Nearly all auto manufacturers have rolled out new higher fuel economy and electric vehicle models since MY 2020, and continue to announce even more models forthcoming during the rulemaking time frame. Five major manufacturers voluntarily bound themselves to stricter GHG requirements than set forth by the U.S. Environmental Protection Agency (EPA) in 2020 through contractual agreements with the State of California.
4

Some of the technologies that automakers will deploy to meet those standards will both reduce emissions and improve fuel economy. These companies (including both those who joined the Framework Agreements with California and those that have not) are sophisticated, for-profit enterprises. If they are taking these steps, rolling out these new models, and making these announcements, NHTSA can now be more confident than the agency was in 2020 that the market is getting ready to make the leap to significantly higher fuel economy. The California Framework Agreements and the clear planning by industry to migrate toward more advanced technologies provide corroborating evidence of the practicability of more stringent standards. Additionally, more stringent CAFE standards can improve equity, by encouraging industry to continue improving the fuel economy of all vehicles, so that all Americans can benefit from higher fuel economy and save money on fuel. While NHTSA does not consider the fuel economy of electric vehicles in setting CAFE standards, consistent with Congress' direction in 49 U.S.C. 32902(h), using electric vehicles to meet the standards is a compliance option that many automakers are pursuing. Further, NHTSA is setting these CAFE standards in the context of a much larger conversation about the future of the U.S. light-duty vehicle fleet, the increasing and obvious need to move away from fossil fuels for reasons of national and energy security, and the evidence of a changing climate that is emerging on an almost daily basis.

4

https://ww2.arb.ca.gov/news/framework-agreements-clean-cars
(accessed: March 23, 2022).

NHTSA concludes, as we will explain in more detail below, that Alternative 2.5 is the maximum feasible alternative that manufacturers can achieve for MYs 2024-2026, based on its significant fuel savings benefits to consumers and its environmental and energy security benefits relative to all other alternatives except Alternative 3. Although Alternative 3 would provide greater fuel savings benefits, NHTSA estimates that Alternative 3 would result in a large average per-vehicle cost increase compared to the price of vehicles under Alternative 2.5, which for many automakers could exceed $2,000. In contrast to Alternative 3, Alternative 2.5

comes at a cost we believe the market can bear, and NHTSA believes it is the appropriate choice given this record. We believe that providing the greatest amount of lead time for the biggest stringency increase of 10 percent for MY 2026, the last of three years covered in the rule, is reasonable and appropriate, particularly given the ongoing rapid changes in the auto industry. Choosing Alternative 3 would require industry to ramp up even faster, and thus provide less lead time, with consequences for economic practicability. With relatively small sales effects and positive effects on employment, we are confident that Alternative 2.5 is feasible, and that industry can rise to meet these standards.

For all of these reasons, and based on consideration of the comments received, NHTSA concludes that Alternative 2.5, with standards that increase at 8 percent per year for MYs 2024 and 2025, and a 10-percent increase in MY 2026, is maximum feasible.

This action is also different from the 2020 final rule in that it is issued by NHTSA alone, and EPA has issued a separate final rule.
5

EPA's revised standards apply to MY 2023 as well as MYs 2024-2026. NHTSA's 18-month lead time requirement precludes amendment of the MY 2023 CAFE standards. An important consequence of this is that EPA's rate of stringency increase, after increasing in MY 2023, looks slower than NHTSA's over the same time period, although collectively EPA's standards achieve at least as stringent levels as NHTSA's Alternative 2.5 by MY 2026.
6

NHTSA emphasizes, however, that the new standards are what NHTSA believes best fulfill our statutory directive of energy conservation. Additionally, in the context of the EPA standards, the analysis we have done tackles the core question of whether compliance with both standards should be achievable with the same vehicle fleet, after manufacturers fully understand the requirements from both sets of standards, and NHTSA believes that, as always, compliance with both standards will be achievable with the same vehicle fleet. It is also worth noting that the differences in what the two agencies' standards require become smaller each year, until near alignment is achieved in 2026.

5
86 FR 74434 (Dec. 30, 2021).

6
EPA projected a fleet average fuel economy value of about 52 mpg associated with its MY 2026 standards (assuming full use of air conditioning refrigerant credits). See Table 4-43, “Revised 2023 and Later Model Year Light-Duty Vehicle GHG Emissions Standards: Regulatory Impact Analysis,” EPA-420-R-21-028, December 2021.

While NHTSA recognizes that the last three CAFE standard rulemakings have been issued jointly with EPA, and that issuing separate rules represents a change in regulatory approach, NHTSA coordinated with EPA to avoid inconsistencies and produce requirements that are consistent with the agencies' respective statutory authorities.
7

Additionally, and importantly, NHTSA has also considered and accounted for California's Zero Emission Vehicle (ZEV) program (and its adoption by a number of other states) in developing the baseline for this final rule, and has also accounted in the baseline for the aforementioned “Framework Agreements” between California and BMW, Ford, Honda, VWA, and Volvo, which are national-level GHG emission reduction agreements to which these companies committed for several model years. NHTSA reasonably assumes that automakers will meet other regulatory requirements that apply to them, and commitments that they have made through the Framework Agreements. Reflecting these in the analysis improves the accuracy of the baseline in reflecting the state of the world without the revised CAFE standards, and thus the information available to the decision-makers.

7
Throughout this preamble, NHTSA uses the term “maximum feasible” as shorthand to refer to the statutory directive in EPCA, requiring the agency to exercise its discretionary authority to set CAFE standards at the “maximum feasible average fuel economy level that the Secretary decides the manufacturers can achieve in that model year.” 49 U.S.C. 32902(a).

A number of other improvements and updates have been made to the analysis since the 2020 final rule based on NHTSA analysis, new data, and public comments to the NPRM (86 FR 49602, Sept. 3, 2021) as described in Section III. Table I-2 summarizes these, and they are discussed in much more detail below and in the documents accompanying this preamble.

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NHTSA estimates that this action could reduce average fuel outlays over the lifetimes of MY 2029 vehicles by about $1,387, while increasing the average cost of those vehicles by about $1,087 over the baseline described above, at a 3-percent discount rate. With the social cost of greenhouse gases (SC-GHG)
8

and all other benefits and costs discounted at 3 percent, when considering the entire fleet for MYs 1981-2029, NHTSA estimates $128 billion in monetized costs and $145 billion in monetized benefits attributable to the new standards, such that the present value of aggregate net monetized benefits to society would be over $16 billion, not including other important unquantified effects, such as energy security benefits, distributional effects, and certain air quality benefits from the reduction of toxic air pollutants and other emissions, among other things.

8
The “social cost of greenhouse gases” or “SC-GHG” refers to the combination of the social costs of carbon dioxide (CO
2
), methane (CH
4
), and nitrous oxide (N
2
O) emissions. In this preamble, and in the TSD, FRIA, and Final SEIS, NHTSA may occasionally use the term “social cost of carbon” or “SCC” to refer to the SC-GHG, and means no substantive difference between them.

These cost and benefit estimates are based on many different and uncertain inputs. One of the inputs informing the benefits estimates is the SC-GHG. In this final rule, NHTSA employed the SC-GHG values from the Interim Revised Estimates developed by the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG), and discounted it at values recommended by the IWG for its main analysis. Those values are based on the best available science and economics and are the most appropriate values to focus on in the analysis of this rule, though DOT also affirms that, in its expert judgment, those values are conservative estimates that likely significantly underestimate the full benefits to social welfare of reducing greenhouse gas pollution. NHTSA also explored in its sensitivity analyses values based on other assumptions, including values calculated at different discount rates, Furthermore, in light of pending litigation, NHTSA also explored an analysis that used the same SC-GHG value employed in the 2020 final rule. Specifically, on February 11, 2022, the United States District Court for the Western District of Louisiana issued a preliminary injunction that enjoined NHTSA from, among other activities, “[a]dopting, employing, treating as binding, or relying upon any Social Cost of Greenhouse Gas estimates based on global effects,” as well as from “adopting, employing, treating as binding, or relying upon the work product of the [IWG].”
9

9

Louisiana
v.
Biden
, Order, No. 2:21-CV-01074, ECF No. 99 (W.D. La. Feb. 11, 2022).

Although the injunction was stayed by the United States Court of Appeals for the Fifth Circuit on March 16, 2022,
10

prior to the stay, in order to comply with this prohibition, NHTSA conducted a cost-benefit analysis based on the SC-GHG values presented in the 2020 final rule. In DOT's judgment, those values do not reflect the best available science and economics for estimating climate effects in the analysis of this rule. As detailed more thoroughly elsewhere in this rule and the supporting Technical Support Document (TSD) and Final Regulatory Impact Analysis (FRIA), the only way to achieve an efficient allocation of resources for greenhouse gas emissions reduction on a global basis—and so benefit the United States and its citizens—is for all countries to consider global estimates of climate damages. To correctly assess the total climate damages to U.S. citizens and residents, an analysis must account for all climate impacts that directly and indirectly affect the welfare of U.S. citizens and residents, how U.S. greenhouse gas mitigation activities affect mitigation activities by other countries, and spillover effects from climate action elsewhere. The estimates used in the 2020 rule, therefore, severely underestimate climate damages. Nevertheless, even if NHTSA's cost-benefit analysis applied the misleadingly low SC-GHG estimates from the 2020 rule, which severely underestimate the impacts of climate effects on U.S. citizens, NHTSA would still conclude in this rule that Alternative 2.5 is maximum feasible under its statutory authority. Notably, for example, net consumer benefits from significant fuel savings remained positive for Alternative 2.5 independent of any estimate of climate benefits.

10

Louisiana
v.
Biden
, Order, No. 22-30087, Doc. No. 00516242341 (5th Cir. Mar. 16, 2022).

Moreover, NHTSA is required to consider four statutory factors—technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy—to determine whether the standards it adopts are maximum feasible,
11

and NHTSA finds that Alternative 2.5 is the maximum feasible on the basis of these factors, and particularly considering the statutory mandate to improve energy conservation and reduce the Nation's energy dependence on foreign sources. The cost-benefit analysis is not one of those statutory factors. While NHTSA's estimates of costs and benefits are important considerations and are directed by E.O. 12866, again, it is the balancing required by statute—that is, the requirement to set CAFE standards at “the maximum feasible average fuel economy level that the Secretary decides the manufacturers can achieve in that model year” 49 U.S.C. 32902(a)—that is the basis for the setting of CAFE standards. Cost-benefit analysis provides only one informative data point in addition to the host of considerations that NHTSA must balance by statute when determining maximum feasible standards. As such, any changes in the monetized climate benefit figures that resulted from using the SC-GHG value from the 2020 final rule did not justify disrupting the overall balance of other significant qualitative and quantitative considerations and factors that support the selection of the Preferred Alternative—as described at length throughout this final rule. When the 5th Circuit stayed the injunction, NHTSA returned to using the Interim SC-GHG developed by the IWG, discounted at 3 percent, because we believe it to be the more accurate and reasonable value.

11
49 U.S.C. 32902(g).

It is worth emphasizing that CAFE standards apply only to new vehicles. The costs attributable to new CAFE standards are thus “front-loaded,” because they result primarily from the application of fuel-saving technology to new vehicles. By contrast, the impact of new CAFE standards on fuel consumption and energy savings, air pollution, and greenhouse gases—and the associated benefits to society—occur over an extended time, as drivers buy, use, and eventually scrap these new vehicles. By accounting for many model years and extending well into the future (2050), our analysis accounts for these differing patterns in impacts, benefits, and costs. Given the front-loaded costs versus longer-term benefits, it is likely that an analysis extending even further into the future would reveal at least some additional net present benefits. Our analysis also accounts for the potential that, by changing new vehicle prices and fuel economy levels, CAFE standards could indirectly impact the operation of vehicles produced before or after the MYs 2024-2026 for which we are finalizing new CAFE standards. This means that some of the final rule's impacts and corresponding benefits and costs are actually attributable to indirect

impacts on vehicles produced before and after MYs 2024-2026.

The bulk of our analysis considers a “model year” perspective that considers the lifetime impacts attributable to all vehicles produced prior to MY 2030, accounting for the operation of these vehicles over their entire lives (with some MY 2029 vehicles estimated to be in service as late as 2068). This approach emphasizes the role of MYs 2024-2026, while accounting for the potential that it may take manufacturers a few additional years to produce fleets fully responsive to the final MY 2026 standards,
12

and for the potential that the final standards could induce some changes in the operation of vehicles produced prior to MY 2024, for example, some individuals might choose to keep older vehicles in operation, rather than purchase new ones.

12
The fact that manufacturers have up to three model years to “settle” compliance for a given model year is a function of statutory flexibilities—namely, that overcompliance credits may be “carried back” up to three model years—and does not in any way imply that NHTSA believes that the MY 2026 standards are not feasible in MY 2026.

Our analysis also considers a “calendar year” (CY) perspective that includes the annual impacts attributable to all vehicles estimated to be in service in each calendar year for which our analysis includes a representation of the entire registered light-duty fleet. For this final rule, this calendar year perspective covers each of CYs 2021-2050, with differential impacts accruing as early as MY 2023.
13

Compared to the “model year” perspective, this calendar year perspective emphasizes model years of vehicles produced in the longer term, beyond those model years for which standards are currently being promulgated. Table I-3 summarizes estimates of selected impacts viewed from each of these two perspectives, for each of the regulatory alternatives considered in this final rule.
14

13
For a presentation of effects by calendar year, please see FRIA Chapter 6.5 and Chapter 6.6.

14
As discussed at length below, Alternative 0 is the set of CAFE standards promulgated in 2020, and thus constitutes the “No-Action Alternative.” Impacts of the four “Action Alternatives” are measured relative to this baseline. Alternatives 1, 2, 2.5, and 3 specify passenger car and light truck standards for each of MYs 2024-2026 that NHTSA estimates will, taken together, increase overall CAFE requirements in MY 2026 by about 14, 22, 25, and 30 percent, respectively, although actual average requirements will ultimately depend on the future composition of the fleet, which NHTSA cannot predict with certainty. Above, Table I-1 shows corresponding projected increases in average requirements for each fleet in each model year. Below, Section IV.B discusses the specific definitions of each of these regulatory alternatives.

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Additional important health, environmental, and energy security benefits could not be fully quantified or monetized. Finally, for purposes of comparing the benefits and costs of new CAFE standards to the benefits and costs of other Federal regulations, policies, and programs, we have computed “annualized” benefits and costs.

15
Climate benefits are based on reductions in CO
2
, CH
4
, and N
2
O emissions and are calculated using four different estimates of the global social cost of each greenhouse gas (SC-GHG model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate), which each increase over time. For the presentational purposes of this table and other similar summary tables, we show the benefits associated with the average global SC-GHG at a 3 percent discount rate, but the agency does not have a single central SC-GHG point estimate. We emphasize the importance and value of considering the benefits calculated using all four SC-GHG estimates. See Section III.G.2 for more information. Where percent discount rate values are reported in this table, the social benefits of avoided climate damages are discounted at 3 percent. The climate benefits are discounted at the same discount rate as used in the underlying SC-GHG values for internal consistency.

16
To be clear, monetized values do not include other important unquantified effects, such as certain climate benefits, certain energy security benefits, distributional effects, and certain air quality benefits from the reduction of toxic air pollutants and other emissions, among other things.

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Again, and as discussed in detail below, the monetized estimated costs and benefits of this final rule are relevant to and inform the agency's conclusion regarding which levels of CAFE standards are maximum feasible for MYs 2024-2026, but they do not fully capture the total benefits of the standards and are not part of the factors contained in the governing statute. It is the balancing of the four statutory factors (none of which expressly requires maximization of net benefits, although NHTSA does consider net benefits pursuant to E.O. 12866) that provides the basis for setting CAFE standards. Notably, NHTSA confirms that on the basis of its four statutory factors, and particularly considering the statutory mandate to improve energy conservation and reduce the Nation's energy dependence on foreign sources, NHTSA would select Alternative 2.5 as the maximum feasible even if the cost-benefit analysis had adopted different assumptions for the monetization of climate benefits.

It is also worth emphasizing that, although NHTSA is prohibited from considering the availability of certain flexibilities in making our determination about the levels of CAFE standards that would be maximum feasible,
17

manufacturers have a variety of flexibilities available to them to aid their compliance. Table I-12 through Table I-15 below summarize available compliance flexibilities.

17
49 U.S.C. 32902(h).

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NHTSA recognizes that the lead time for this final rule is shorter than some past rulemakings have provided, and that the economy and the country are in the process of recovering from a global pandemic and the resulting economic distress. At the same time, NHTSA also recognizes that at least parts of the industry are nonetheless stepping up their product offerings and releasing more and more high-fuel-economy vehicle models, and many companies did not deviate significantly over the past ten years from product plans established in response to the EPA and NHTSA standards set forth in the 2012 final rule (77 FR 62624, Oct. 15, 2012) and the EPA standards confirmed by EPA in its January 2017 Final Determination. With these and other considerations in mind, NHTSA is amending the CAFE standards for MYs 2024-2026, and believes that Alternative 2.5 is maximum feasible and represents the best balancing of multiple statutory and policy goals for these model years. NHTSA, like any other Federal agency, is afforded an opportunity to reconsider prior views and, when warranted, to adopt new positions. Indeed, as a matter of good governance, agencies should revisit their positions when appropriate, especially to ensure that their actions and regulations reflect legally sound interpretations of the agency's statutory authority and remain consistent with the agency's policy views and practices. As a matter of law, “an Agency is entitled to change its interpretation of a statute.”
18

Nonetheless, “[w]hen an Agency adopts a materially changed interpretation of a statute, it must in addition provide a `reasoned analysis' supporting its decision to revise its interpretation.”
19

The analysis presented in this preamble and in the accompanying TSD, FRIA, Final Supplemental Environmental Impact Statement (Final SEIS), CAFE Model Documentation, and extensive

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

18

Phoenix Hydro Corp.
v.
FERC
, 775 F.2d 1187, 1191 (D.C. Cir. 1985).

19

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

II. Overview of the Final Rule

In this final rule, NHTSA is revising CAFE standards for MYs 2024-2026. On January 20, 2021, the President signed E.O. 13990, “Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis.”
20

In it, the President directed that the 2020 final rule must be immediately reviewed for consistency with the policy commitments in that E.O., including listening to the science; improving public health and protect our environment; ensuring access to clean air and water; limiting exposure to dangerous chemicals and pesticides; holding polluters accountable, including those who disproportionately harm communities of color and low-income communities; reducing greenhouse gas emissions; bolstering resilience to the impacts of climate change; restoring and expanding our national treasures and monuments; and prioritizing both environmental justice and the creation of the well-paying union jobs necessary to deliver on these goals.
21

E.O. 13990 states expressly that the Administration prioritizes listening to the science, improving public health and protecting the environment, reducing greenhouse gas emissions, and improving environmental justice while creating well-paying union jobs.
22

The E.O. thus directs that the 2020 final rule be reviewed at once and that (in this case) the Secretary of Transportation consider “suspending, revising, or rescinding” it, via an NPRM, by July 2021.
23

On September 3, 2021, NHTSA published an NPRM to revise these requirements, which are being finalized, with changes in response to public comments and additional analysis, in this final rule.

20
84 FR 7037 (Jan. 25, 2021).

21

Id.
, sections 1, 2.

22

Id.
, section 1.

23

Id.
, section 2(a)(ii).

Section 32902(g)(1) of title 49, United States Code allows the Secretary (by delegation to NHTSA) to prescribe regulations amending an average fuel economy standard prescribed under 49 U.S.C. 32902(a), like those prescribed in the 2020 final rule, if the amended standard meets the requirements of section 32902(a). The Secretary's authority to set fuel economy standards is delegated to NHTSA at 49 CFR 1.95(a); therefore, NHTSA is revising fuel economy standards for MYs 2024-2026. Section 32902(g)(2) states that when the amendment makes an average fuel economy standard more stringent, it must be prescribed at least 18 months before the beginning of the model year to which the amendment applies. NHTSA generally calculates the 18-month lead time requirement as April of the calendar year prior to the start of the model year. Thus, 18 months before MY 2023 would be April 2021, because MY 2023 begins in October 2022. Because of this lead time requirement, NHTSA is not amending the CAFE standards for MYs 2021-2023, even though the 2020 final rule also covered those model years. For purposes of the CAFE program, the 2020 final rule's standards for MYs 2021-2023 will remain in effect.

For the model years for which there is statutory lead time to amend the standards, however, NHTSA is amending the currently applicable fuel economy standards. Although only two years have passed since the 2020 final rule, the agency believes it is reasonable and appropriate to revisit the CAFE standards for MYs 2024-2026. In particular, the agency has further considered the serious adverse effects on energy conservation that the standards finalized in 2020 would cause as compared to the final standards. The need of the U.S. to conserve energy is greater than understood in the 2020 final rule. In addition, informed by an updated technical analysis, standards that are more stringent than those that were finalized in 2020 appear economically practicable, based on manageable average per-vehicle cost increases, minimal effects on sales, and estimated increases in employment, as well as higher (and increasing) consumer demand for more fuel economy, among other considerations. NHTSA also believes that the final standards are complementary to other motor vehicle standards of the Government that affect fuel economy that are simultaneously applicable during MYs 2024-2026. The renewed focus on addressing energy conservation and the industry's apparent ability to meet more stringent standards show that a rebalancing of the EPCA factors, and a corresponding issuance of more stringent standards, is appropriate for MYs 2024-2026.

The following sections introduce the action in more detail.

Summary of NPRM

In the NPRM, NHTSA proposed to revise the existing CAFE standards for MYs 2024-2026. NHTSA explained that it was proposing to revise those standards because it had reconsidered its determination made in 2020 about what levels of CAFE stringency would be maximum feasible for those model years, after reviewing the standards in response to the President's direction in E.O. 13990. NHTSA discussed the differences between the proposal and the 2020 final rule, including NHTSA's tentative conclusion that significantly more stringent standards would be maximum feasible, based on a reconsideration of how to balance the relevant statutory considerations and updated technical information. NHTSA also discussed the fact that it was issuing the proposal independently, unlike several past rulemakings in which NHTSA and EPA had issued joint proposals. NHTSA explained that EPA's revised standards apply to MY 2023 as well as MYs 2024-2026, while NHTSA's 18-month lead time requirement precluded amendment of the MY 2023 CAFE standards. An important consequence of this was that EPA's proposed rate of stringency increase, after taking a big leap in MY 2023, looked slower than NHTSA's over the same time period. NHTSA emphasized, however, that the proposed standards were what NHTSA believed best fulfilled our statutory directive of energy conservation, and that the agencies had worked closely together in developing their respective proposals, and that by the end of the rulemaking time frame, alignment would be achieved between the two agencies' standards. NHTSA also explained that it had employed an analytical baseline for the NPRM that included both a representation of the California ZEV program (and its adoption in a number of states) and the California “Framework Agreements” between that state and BMW, Ford, Honda, Volkswagen of America (VWA), and Volvo. NHTSA also described other analytical improvements made for the NPRM since the 2020 final rule.

NHTSA proposed CAFE standards for MYs 2024-2026 that would increase at a rate of 8 percent per year, for both passenger cars and light trucks, and also took comment on a wide range of alternatives, including retaining the 2020 standards and returning to levels consistent with what was set forth in the 2012 final rule. Table II-1 and TableII-2 below contain descriptions of the regulatory alternatives on which comment was sought, and the estimated translation of those alternatives into mpg levels, respectively, for the reader's reference. The proposal was accompanied by a Preliminary Regulatory Impact Analysis (PRIA), a Draft Supplemental Environmental Impact Statement (Draft SEIS), and the

CAFE Model software source code and documentation, all of which were also subject to comment in their entirety and all of which received significant comments.

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ER02MY22.027

NHTSA also sought comment on another potential alternative, the effects of which were not expressly quantified, under which MYs 2024-2025 would increase at 8 percent per year, but MY 2026 would increase at 10 percent per year. NHTSA explained that average requirements and achieved CAFE levels would ultimately depend on manufacturers' and consumers' responses to standards, technology developments, economic conditions, fuel prices, and other factors. NHTSA estimated that over the lives of vehicles produced prior to MY 2030, the proposal would save about 50 billion gallons of gasoline and increase electricity consumption (as the percentage of electric vehicles increased over time) by about 275 terawatts (TWh), compared to the levels of gasoline and electricity consumption that NHTSA projected would occur under the baseline standards. Accounting for emissions from both vehicles and upstream energy sector processes, NHTSA estimated that the proposal would reduce greenhouse gas emissions by about 465 million metric tons of carbon dioxide, about 500 thousand metric tons of methane, and about 12 thousand metric tons of nitrous oxide. NHTSA also estimated that emissions of criteria pollutants would generally decline dramatically over time.

In terms of economic effects, NHTSA estimated that for an average MY 2029 vehicle subject to the proposed standards, consumers could see a price increase of $960, but would gain lifetime fuel savings of $1,280. With the SC-GHG discounted at 2.5 percent and other benefits and costs discounted at 3 percent, NHTSA estimated that costs and benefits could be approximately $120 billion and $121 billion, respectively, such that the present value of aggregate net benefits to society could be somewhat less than $1 billion. With the SC-GHG discounted at 3 percent and other benefits and costs discounted at 7 percent, NHTSA estimated approximately $90 billion in costs and $76 billion in benefits, such that the present value of aggregate net costs to society could be approximately $15 billion.

NHTSA explained that it tentatively concluded that Alternative 2 was maximum feasible for MYs 2024-2026 based on new information and a reconsideration of how to interpret and balance the statutory factors, as compared to the decision made in the 2020 final rule. The 2020 rule had prioritized industry concerns and sought to reduce new vehicle costs to consumers, based on assumptions about low consumer demand for higher fuel economy vehicles and a discounting of the need of the U.S. to conserve energy. In the NPRM, NHTSA recognized the importance of the need of the U.S. to conserve energy, and tentatively concluded that ongoing manufacturer announcements and rollouts of new higher-fuel-economy vehicles indicated industry expectation of growing consumer demand for those vehicles, such that more stringent standards could be economically practicable. NHTSA underscored that “an [a]gency is entitled to change its interpretation of

a statute,”
24

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

24

Phoenix Hydro Corp.
v.
FERC
, 775 F.2d 1187, 1191 (D.C. Cir. 1985).

25

Alabama Educ. Ass'n.
v.
Chao
, 455 F.3d 386, 392 (D.C. Cir. 2006) (quoting
Motor Vehicle Mfrs. Ass'n. of U.S., Inc.
v.
State Farm Mut. Auto. Ins. Co.
, 463 U.S. 29, 57 (1983)); see also
Encino Motorcars, LL
C v.
Navarro
, 136 S. Ct. 2117, 2125 (2016) (“Agencies are free to change their existing policies as long as they provide a reasoned explanation for the change.”) (citations omitted).

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

NHTSA was also confident that industry would still be able to build a single fleet of vehicles to meet both the NHTSA and EPA standards, even if it required them to be slightly more strategic than they might otherwise have preferred. NHTSA sought comment broadly on all aspects of the proposal.

B. Public Participation Opportunities and Summary of Comments

The NPRM was published on NHTSA's website on August 10, 2021, and published in the
Federal Register
on September 3, 2021,
26

beginning a 60-day comment period. The agency left the docket open for considering late comments to the extent practicable. A separate
Federal Register
notification, also published on September 14, 2021 (86 FR 51092), announced a virtual public hearing taking place on October 13th and 14th of 2021. Approximately 77 individuals and organizations signed up to participate in the hearing. The hearing started at 9:30 a.m. EDT on October 13th and ended at approximately 5:30 p.m., completing the entire list of participants within a single day, resulting in a 58-page transcript.
27

The hearing also collected many pages of comments from participants, in addition to the hearing transcript, all of which were submitted to the docket for the rule.

26
86 FR 49602 (Sept. 3, 2021).

27
The transcript is available in the docket for this rule.

Besides the comments submitted as part of the public hearings, NHTSA's docket received a total of 67,256 form letters, 1,636 individual comments from stakeholder organizations, and 693 attachments in response to the proposal, for an overall total of 69,585 submissions. NHTSA also received several hundred comments on its Draft SEIS to the separate Draft SEIS docket (NHTSA-2021-0054). While the majority of individual comments were form letters, the agency received over 6,000 pages of substantive comments on the proposal.

Many commenters generally supported the proposal. Commenters supporting the proposal tended to cite concerns about climate change, which are relevant to the need of the United States to conserve energy, and the need for Federal programs to continue or expand for a carbon-neutral, carbon-free future. Commenters also expressed the need for NHTSA and EPA harmonization and close coordination for their respective programs. Citizens and environmental groups demonstrated strong support for pushing the proposed standard to Alternative 3 or beyond, while closing potential loopholes in the program. There were mixed views on NHTSA's inclusion of battery electric vehicles in NHTSA's modeling analysis. Many manufacturers supported alignment with EPA's proposed standards, while electric vehicle manufacturers such as Tesla and Rivian supported NHTSA's Alternative 3.

In other areas, commenters expressed mixed views on the statutorily mandated Petroleum Equivalency Factor (PEF) used to calculate mpg values for electrified vehicles and the disclosure of credit trading information in NHTSA's revised reporting templates.

Discussion and responses to comments can be found throughout this preamble in areas applicable to the comment received.

Nearly every aspect of the NPRM's analysis and discussion received some level of comment by at least one commenter. The comments received, as a whole, were both broad and deep, and the agency appreciates the level of engagement of commenters in the public comment process and the information and opinions provided.

C. Changes in Light of Public Comments and New Information

Comments received to the NPRM were considered carefully, because they are critical for understanding stakeholders' positions, as well as for gathering additional information that can help to inform the agency about aspects or effects of the proposal that the agency may not have considered at the time of the proposal. The views, data, requests, and suggestions contained in the comments help us to form solutions and make appropriate adjustments to our proposals so that we may be better assured that the final standards we set are, indeed, maximum feasible for the rulemaking time frame.

For this final rule, the agency made substantive changes resulting directly from the suggestions and recommendations from commenters, as well as new information obtained from the time the proposal was developed, and corrections both highlighted by commenters and discovered internally. These changes reflect DOT's long-standing commitment to ongoing refinement of its approach to estimating the potential impacts of new CAFE standards. Through further consideration and deliberation, and also in response to many public comments received since then, NHTSA has made a number of changes to the CAFE Model since the 2020 final rule, including those that are listed in the Executive Summary and detailed in Section III, as well as in the TSD and FRIA that accompany this final rule.

D. Final Standards—Stringency

NHTSA is setting CAFE standards for passenger cars and light trucks manufactured for sale in the United States in MYs 2024-2026. Passenger cars are generally sedans, station wagons, and two-wheel drive crossovers and sport utility vehicles (CUVs and SUVs), while light trucks are generally 4WD sport utility vehicles, pickups, minivans, and passenger/cargo vans.
28

The final standards, represented by Alternative 2.5 in NHTSA's analysis, increase at a rate of 8 percent per year for both cars and trucks for MYs 2024-

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

28
“Passenger car” and “light truck” are defined at 49 CFR part 523.

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

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

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

ER02MY22.030

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

Final Standards—Impacts

As for past CAFE rulemakings, NHTSA has used the CAFE Model to estimate the effects of this final rule's CAFE standards, and of other regulatory alternatives under consideration. Some inputs to the CAFE Model are derived from other models, such as Argonne National Laboratory's “Autonomie” vehicle simulation tool and Argonne's “GREET” fuel-cycle emissions analysis model, the U.S. Energy Information Administration's (EIA's) National Energy Modeling System (NEMS), and EPA's “MOVES” vehicle emissions model. Especially given the scope of the NHTSA's analysis (through MY 2050, with driving of MY 2029 vehicles accounted for through CY 2068), these inputs involve a multitude of uncertainties. For example, a set of inputs with significant uncertainty could include future population and economic growth, future gasoline and electricity prices, future petroleum market characteristics (
e.g.,
imports and exports), future battery costs, manufacturers' future responses to standards and fuel prices, buyers' future responses to changes in vehicle prices and fuel economy levels, and future emission rates for “upstream” processes (
e.g.,
refining, finished fuel transportation, electricity generation). Considering that all of this is, to some extent, uncertain from a current vantage point, NHTSA underscores that all results of this analysis are, in turn, uncertain, and simply represent the agency's best estimates based on the information currently before us and on the agency's reasonable judgment.

NHTSA estimates that this final rule would increase the eventual
30

average of manufacturers' CAFE requirements to about 49 mpg by 2026 rather than, under the No-Action Alternative (
i.e.,
the baseline standards issued in 2020), about 40 mpg. For passenger cars, the average in 2026 is estimated to reach just over 59 mpg, and for light trucks, just over 42 mpg. This compares with 47 mpg and 34 mpg for cars and trucks, respectively, under the No-Action Alternative.

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

ER02MY22.031

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

ER02MY22.032

As discussed above, NHTSA's analysis—unlike its CAFE analyses for previous rulemakings—estimates manufacturers' potential responses to the combined effect of CAFE standards and separate CO
2
standards (including agreements some manufacturers have reached with California), ZEV mandates, and fuel prices. Together, the aforementioned regulatory programs are more binding (
i.e.,
require more of manufacturers) than any single program considered in isolation, and this analysis, like past analyses, shows some estimated overcompliance with the final CAFE standards, albeit by much less than what was shown in the NPRM that preceded the 2020 final rule, and any overcompliance is highly manufacturer-dependent.

The estimated average CO
2
levels equivalent to the above required and achieved CAFE levels (using 8,887 grams of CO
2
per gallon of gasoline vehicle certification fuel) are provided in Table II-6 and Table II-7.

ER02MY22.033

ER02MY22.034

Average requirements and achieved CAFE levels would ultimately depend on manufacturers' and consumers' responses to standards, technology developments, economic conditions, fuel prices, and other factors.

NHTSA estimates that over the lives of vehicles produced prior to MY 2030, the final standards would save about 60 billion gallons of gasoline and increase electricity consumption (as the percentage of electric vehicles increases over time) by about 180 terawatts (TWh), compared to levels of gasoline and electricity consumption NHTSA projects would occur under the baseline standards (
i.e.,
the No-Action Alternative) as shown in Table II-8.
31

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

ER02MY22.035

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

ER02MY22.036

ER02MY22.037

Accounting for emissions from both vehicles and upstream energy sector processes (
e.g.,
petroleum refining and electricity generation), which are relevant to NHTSA's evaluation of the need of the United States to conserve energy, NHTSA estimates that the final rule would reduce greenhouse gas emissions by about 607 million metric tons of carbon dioxide (CO
2
), about 733 thousand metric tons of methane (CH
4
), and about 17 thousand tons of nitrous oxide (N
2
O).

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ER02MY22.038

As for fuel consumption, NHTSA's analysis also estimates annual emissions attributable to the entire on-road fleet from CY 2020 through CY 2050. Also accounting for both vehicles and upstream processes, NHTSA estimates that CO
2
emissions could evolve over time as shown in Figure II-5, which accounts for both emissions from both vehicles and upstream processes.

ER02MY22.039

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Estimated emissions of methane and nitrous oxides follow similar trends. As discussed in the TSD, FRIA, and this preamble, NHTSA has performed two types of supporting analysis. This document and FRIA focus on the “standard setting” analysis, which sets aside the potential that manufacturers could respond to standards by using compliance credits or introducing new alternative fuel vehicle (including BEVs) models during the “decision years” (for this document, 2024, 2025, and 2026). The accompanying Final SEIS focuses on an “unconstrained” analysis, which does not set aside these potential manufacturer actions. The Final SEIS presents much more information regarding projected GHG emissions, as well as model-based estimates of corresponding impacts on several measures of global climate change.

Also accounting for vehicular and upstream emissions, NHTSA has estimated annual emissions of most criteria pollutants (
i.e.,
pollutants for which EPA has issued National Ambient Air Quality Standards). NHTSA estimates that under each regulatory alternative, annual emissions of carbon monoxide (CO), volatile organic compounds (VOC), nitrogen oxide (NO
X
), and particulate matter with a diameter equal to or less than 2.5 microns (PM
2.5
) attributable to the light-duty on-road fleet will decline dramatically between 2020 and 2050, and that emissions in any given year could be very nearly the same under each regulatory alternative. For example, Figure II-6 shows NHTSA's estimate of future NO
X
emissions under each alternative.

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BILLING CODE 4910-59-C

On the other hand, as discussed in the FRIA and Final SEIS, NHTSA projects that annual SO
2
emissions attributable to the light-duty on-road fleet could increase modestly under the action alternatives, because, as discussed above, NHTSA projects that each of the action alternatives could lead to greater use of electricity (for PHEVs and BEVs). The adoption of actions—such as actions prompted by President Biden's Executive order directing agencies to develop a Federal Clean Electricity and Vehicle Procurement Strategy—to reduce electricity generation emission rates beyond projections underlying NHTSA's analysis (discussed in Chapter 5 of the TSD) could dramatically reduce SO
2
emissions under all regulatory alternatives considered here.
32

32

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

For the “standard setting” analysis, the FRIA accompanying this document provides additional detail regarding projected criteria pollutant emissions and health effects, as well as the inclusion of these impacts in this benefit-cost analysis. For the “unconstrained” or “EIS” type of analysis, the Final SEIS accompanying this document presents much more information regarding projected criteria pollutant emissions, as well as model-based estimates of corresponding impacts on several measures of urban air quality and public health. As mentioned above, these estimates of criteria pollutant emissions are based on a complex analysis involving interacting simulation techniques and a myriad of input estimates and assumptions. Especially extending well past 2040, the analysis involves a multitude of uncertainties. Therefore, actual criteria pollutant emissions could ultimately be different from NHTSA's current estimates.

To illustrate the effectiveness of the technology added in response to this final rule, Table II-10 presents NHTSA's estimates for increased vehicle cost and lifetime fuel expenditures if we assumed the behavioral response to the lower cost of driving were zero.
33

These numbers are presented in lieu of NHTSA's primary estimate of lifetime fuel savings, which would give an incomplete picture of technological effectiveness because the analysis accounts for consumers' behavioral response to the lower cost-per-mile of driving a more fuel-efficient vehicle.

33
While this comparison illustrates the effectiveness of the technology added in response to this final rule, it does not represent a full consumer welfare analysis, which would account for drivers' likely response to the lower cost-per-mile of driving, as well as a variety of other benefits and costs they will experience. The agency's complete analysis of the final rule's likely impacts on passenger car and light truck buyers appears in the FRIA, Appendix I, Table A-23-1.

ER02MY22.041

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

ER02MY22.042

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

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Model results can be viewed many different ways, and NHTSA's rulemaking considers both “model year” and “calendar year” perspectives. The “model year” perspective, above, considers vehicles projected to be produced in some range of model years, and accounts for impacts, benefits, and costs attributable to these vehicles from the present (from the model year's perspective, 2020) until they are projected to be scrapped. The bulk of NHTSA's analysis considers vehicles produced prior to MY 2030, accounting for the estimated indirect impacts new standards could have on the remaining operation of vehicles already in service. This perspective emphasizes impacts on those model years nearest to those (2024-2026) for which NHTSA is finalizing new standards. NHTSA's analysis also presents some results focused only on MYs 2024-2026, setting aside the estimated indirect impacts on earlier model years, and the impacts estimated to occur during MYs 2027-2029, as some manufacturers and products “catch up” to the standards.

Another way to present the benefits and costs of the final rule is the “calendar year” perspective shown in Table II-14, which is similar to how EPA presents benefits and costs in its final analysis for GHG standards. The calendar year perspective considers all vehicles projected to be in service in each of some range of future calendar years. NHTSA's presentation of results from this perspective considers CYs 2021-2050, because the model's representation of the full on-road fleet extends through 2050. Unlike the model year perspective, this perspective includes vehicles projected to be produced during MYs 2021-2050. This perspective emphasizes longer-term impacts that could accrue if standards were to continue without change. Under the calendar year perspective, net benefits for the standards are estimated to be nearly $112 billion by 2050 at a 3 percent discount rate, and over $73 billion by 2050 at a 7 percent discount rate.

ER02MY22.045

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

ER02MY22.046

Though based on the exact same model results, these two perspectives provide considerably different views of estimated costs and benefits. Because technology costs account for a large share of overall estimated costs, and are also projected to decline over time (as manufacturers gain more experience with new technologies), costs tend to be “front loaded”—occurring early in a vehicle's life and tending to be higher in earlier model years than in later model years. Conversely, because social benefits of standards occur as vehicles are driven, and because both fuel prices and the social cost of CO
2
emissions are projected to increase in the future, benefits tend to be “back loaded.” As a result, estimates of future fuel savings, CO
2
reductions, and net social benefits are higher under the calendar year perspective than under the model year perspective. On the other hand, with longer-term impacts playing a greater role, the calendar year perspective is more subject to uncertainties regarding, for example, future technology costs and fuel prices.

Even though NHTSA and EPA estimate benefits, costs, and net benefits using similar methodologies and achieve similar results, different approaches to accounting may give the false appearance of significant divergences. Table II-13 above presents NHTSA's results using comparable accounting to EPA's preamble Table 4. EPA also presents cost and benefit information in its RIA over CYs 2021 through 2050.
34

The numbers most comparable to those presented in EPA's RIA are those NHTSA developed to complete its Final SEIS using an identical accounting approach. This is because the statutory limitations constraining NHTSA's standard setting analysis, such as those in 49 U.S.C. 32902(h), do not similarly apply to its “unconstrained” analysis, some effects of which are used in NHTSA's Final SEIS.
35

NHTSA's “unconstrained” analysis estimates $312 billion in monetized costs, $443 billion in monetized benefits, and $132 billion in monetized net benefits using a 3-percent discount rate over CYs 2021 through 2050, with the social cost of carbon discounted at 3 percent.
36

NHTSA describes its cost and benefit accounting approach in Section V of this preamble.

34
EPA's RIA is available at
https://www.epa.gov/regulations-emissions-vehicles-and-engines/final-rule-revise-existing-national-ghg-emissions
(accessed: March 24, 2022).

35
As the Final SEIS analysis contains information that NHTSA is statutorily prevented from considering, the agency is limited on the extent this analysis is used in regulatory decision-making. Additionally, the Final SEIS includes no cost and benefit analysis, and does not rely in any way on the social cost of greenhouse gas emissions.

36

See
FRIA Chapter 6.5 for more information regarding NHTSA's estimates of annual benefits and costs using NHTSA's standard setting analysis.
See
Tables B-7-25 through B-7-30 in Appendix II of the FRIA for a more detailed breakdown of NHTSA's Final SEIS analysis.

Final Standards Are the Maximum Feasible

NHTSA's conclusion, after consideration of the factors described below and information in the administrative record for this action, is that 8-percent increases in stringency for MYs 2024-2025 and a 10-percent increase for MY 2026 for both passenger cars and light trucks (Alternative 2.5 of this analysis) are maximum feasible. The Department of Transportation is deeply committed to working aggressively to improve energy conservation and reduce environmental harms and economic and security risks associated with energy use. NHTSA agrees with many public comments suggesting that the need of the United States to conserve energy and protect the environment compels more stringent standards than those set in 2020 if they appear to be consistent with the other factors that NHTSA must consider. NHTSA has concluded that Alternative 2.5 is technologically feasible, is economically practicable (based on manageable average per-vehicle cost increases, minimal effects on sales, and estimated increases in employment, among other considerations), and is complementary to other motor vehicle standards of the Government on fuel economy that are simultaneously applicable during MYs 2024-2026, as described in more detail below. Despite only 2 years having passed since the 2020 final rule, enough has changed in the United States and the world, including as reflected in the technical analysis, that revisiting the CAFE standards for MYs 2024-2026, and raising their stringency considerably, is both appropriate and reasonable.

The 2020 final rule set CAFE standards that increased at 1.5 percent per year for cars and trucks for MYs 2021-2026, in large part because it prioritized industry concerns and reducing upfront costs to consumers and manufacturers—even at the expense of longer-term net savings to consumers. This final rule reflects greater emphasis on the statutory priority of energy conservation, while also taking into account other statutory requirements. Moreover, NHTSA is also legally required to consider the environmental implications of this action under NEPA, and while the 2020 final rule did undertake a NEPA analysis, it did not prioritize the environmental

considerations encompassed within the statutory mandate to set “maximum feasible” fuel economy standards to conserve energy. This rule also reflects NHTSA's updated technical analysis.

NHTSA recognizes that the amount of lead time available before MY 2024 is less than what was provided in the 2012 rule. The amount of lead time is nevertheless consistent with the agency's statutory requirements. As will be discussed further in Section VI, NHTSA believes that the evidence suggests that the final standards are economically practicable as explained above and as discussed in Section VI.

We note further that while this final rule is different from the 2020 final rule (and also from the 2012 final rule), NHTSA, like any other Federal agency, is afforded an opportunity to reconsider prior views and, when warranted, to adopt new positions. Indeed, as a matter of good governance, agencies
should
revisit their positions when appropriate, especially to ensure that their actions and regulations reflect legally sound interpretations of the agency's statutory authority and remain consistent with the agency's policy views and practices. As a matter of law, “an [a]gency is entitled to change its interpretation of a statute.”
37

Nonetheless, “[w]hen an [a]gency adopts a materially changed interpretation of a statute, it must in addition provide a `reasoned analysis' supporting its decision to revise its interpretation.”
38

This preamble and the accompanying TSD and FRIA all provide extensive detail on the agency's updated analysis, and Section VI contains the agency's explanation of how the agency has considered that analysis and other relevant information in determining that the standards represented by Alternative 2.5 are maximum feasible for MY 2024-2026 passenger cars and light trucks.

37

Phoenix Hydro Corp.
v.
FERC
, 775 F.2d 1187, 1191 (D.C. Cir. 1985).

38

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

Final Standards Are Feasible in the Context of EPA's Final Standards and California's Programs

The NHTSA and EPA final rules remain coordinated despite being issued as separate regulatory actions. Because NHTSA and EPA are regulating the exact same vehicles and manufacturers will use many of the same technologies to meet both sets of standards, NHTSA coordinated with EPA during the development of each agency's independent rulemaking to revise their respective standards set forth in the 2020 final rule. The NHTSA CAFE and EPA CO
2
standards for MY 2026 represent roughly equivalent levels of stringency. While the rates of increase for the final CAFE and CO
2
standards for MYs 2024-2026 are different, the specific differences in what the two agencies' standards require become smaller each year, until near alignment is achieved in 2026. NHTSA nevertheless coordinated closely with EPA to minimize inconsistency between the programs while still ensuring that NHTSA's standards were maximum feasible for MYs 2024-2026.

While NHTSA's and EPA's programs differ in certain other respects, like programmatic flexibilities, those differences are not new in this final rule. Some parts of the programs are harmonized, and others differ, often as a result of the respective statutory frameworks. Since NHTSA and EPA began coordinating their regulations under President Obama, differences in programmatic flexibilities have meant that manufacturers have had (and will have) to plan their compliance strategies considering both the CAFE standards and the GHG standards and assure that they are in compliance with both. NHTSA is finalizing CAFE standards that increase at 8 percent per year over MYs 2024-2025 and at 10 percent per year for MY 2026 because that is what NHTSA has concluded is maximum feasible in those model years, under the EPCA factors. Auto manufacturers are extremely sophisticated companies, well able to manage compliance strategies that account for multiple regulatory programs concurrently. Past experience with these programs indicates that each manufacturer will optimize its compliance strategy around whichever standard is most binding for its fleet of vehicles. If different agencies' standards are more binding for some companies in certain years, this does not mean that manufacturers must build
multiple
fleets of vehicles, simply that they will have to be more strategic about
how
they build their fleet. NHTSA discusses this issue in greater detail in Section VI.A of this preamble. Critically, NHTSA has concluded that it is feasible for manufacturers to meet both the EPA and the NHTSA standards.
39

39
This is consistent with NHTSA's and EPA joint finding in the 2012 final rule, as discussed further in Section VI below.

NHTSA has also considered and accounted for California's ZEV mandate (and its adoption by a number of other states) in developing the baseline for this final rule, as additional legal obligations that automakers will be meeting during this time frame, and has also accounted for the Framework Agreements between California and BMW, Ford, Honda, VWA, and Volvo, as those companies have committed to meeting those Agreements. NHTSA believes that it is appropriate to include ZEV in the baseline for this final rule because EPA has granted a waiver of Clean Air Act preemption to California for its Clean Cars Program,
40

and it is appropriate for the baseline to reflect other legal obligations that automakers will be meeting during this time period. The baseline should reflect the state of the world without the CAFE standards so that the regulatory analysis can identify the distinct effects of the CAFE standards. In addition, according to information provided by California,
41

there has been extensive industry overcompliance with the ZEV standards, which suggests that regardless of the waiver, many companies intend to produce ZEVs in volumes comparable to what the current ZEV mandate would require. Thus, including state ZEV mandates in the regulatory baseline for this final rule is consistent with guidance in OMB Circular A-4 directing agencies to develop analytical baselines that are as accurate as possible regarding the state of the world in the absence of the regulatory action being evaluated. However, because modeling a subnational fleet is not currently an analytical option for NHTSA, NHTSA has not expressly accounted for California GHG standards in the analysis for this final rule. Chapter 6 of the accompanying FRIA shows the estimated effects of all of these programs simultaneously.

40
87 FR 14332 (Mar. 14, 2022).

41

See, e.g., https://ww2.arb.ca.gov/sites/default/files/2020-01/appendix_a_minimum_zev_regulation_compliance_scenarios_formatted_ac.pdf
(accessed: March 24, 2022) (stating that “Since the 2012 adoption of the ACC requirements, vehicle technology has advanced faster and developed more broadly than originally anticipated, and the assumptions used in the original rulemaking scenario no longer reflect vehicles expected in the 2018 through 2025 timeframe.”).

III. Technical Foundation for Final Rule Analysis

Why does NHTSA conduct this analysis?

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

CAFE stringency for both passenger cars and light trucks to increase at a rate of 8 percent, 8 percent, and 10 percent per year annually during MY 2024, MY 2025, and MY 2026, respectively. NHTSA estimates that over the useful lives of vehicles produced prior to MY 2030, these standards would save about 60 billion gallons of gasoline and increase electricity consumption by about 180 TWh. Accounting for emissions from both vehicles and upstream energy sector processes (
e.g.,
petroleum refining and electricity generation), NHTSA estimates that these standards would reduce greenhouse gas emissions by about 605 million metric tons of carbon dioxide (CO
2
), about 730 thousand metric tons of methane (CH
4
), and about 17 thousand tons of N
2
O.

When NHTSA promulgates new regulations, it generally presents an analysis that estimates the impacts of such regulations, and the impacts of other regulatory alternatives. These analyses derive from statutes such as the Administrative Procedure Act (APA), National Environmental Policy Act (NEPA), Executive orders (such as E.O. 12866 and E.O. 13653), and from other administrative guidance (
e.g.,
Office of Management Budget Circular A-4). For CAFE, the Energy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA), contains a variety of provisions that require NHTSA to consider certain compliance elements in certain ways and avoid considering other things, in determining maximum feasible CAFE standards. Collectively, capturing all of these requirements and guidance elements analytically means that, at least for CAFE, NHTSA presents an analysis that spans a meaningful range of regulatory alternatives, that quantifies a range of technological, economic, and environmental impacts, and that does so in a manner that accounts for EPCA's express requirements for the CAFE program (
e.g.,
passenger cars and light trucks are regulated separately, and the standard for each fleet must be set at the maximum feasible level in each model year).

NHTSA's decision regarding the final standards is thus supported by extensive analysis of potential impacts of the regulatory alternatives under consideration. Along with this preamble, a TSD, a FRIA, and a Final SEIS, together provide an extensive and detailed enumeration of related methods, estimates, assumptions, and results. These additional analyses can be found in the rulemaking docket for this final rule
42
and on NHTSA's website.
43
NHTSA's analysis has been constructed specifically to reflect various aspects of governing law applicable to CAFE standards and has been expanded and improved in response to comments received to the prior rulemaking and to the proposal, as well as additional work conducted over the last year or two. Further improvements may be made in the future based on comments received to the proposal, which were either out of scope for this rulemaking or for which the improvements were too extensive or complex to implement in the available time, on the 2021 NAS Report,
44
and on other additional work generally previewed in these rulemaking documents. The analysis for this final rule aided NHTSA in implementing its statutory obligations, including the weighing of various considerations, by reasonably informing decision-makers about the estimated effects of choosing different regulatory alternatives.

NHTSA's analysis makes use of a range of data (
i.e.,
observations of things that have occurred), estimates (
i.e.,
things that may occur in the future), and models (
i.e.,
methods for making estimates). Two examples of
data
include (1) records of actual odometer readings used to estimate annual mileage accumulation at different vehicle ages

and (2) CAFE compliance data used as the foundation for the “analysis fleet” containing, among other things, production volumes and fuel economy levels of specific configurations of specific vehicle models produced for sale in the U.S.

Two examples of
estimates
include (1) forecasts of future GDP growth used, with other estimates,

to forecast future vehicle sales volumes and (2) the “retail price equivalent” (RPE) factor used to estimate the ultimate cost to consumers of a given fuel-saving technology, given accompanying estimates of the technology's “direct cost,” as adjusted to account for estimated “cost learning effects” (
i.e.,
the tendency that it will cost a manufacturer less to apply a technology as the manufacturer gains more experience doing so).

42
Docket No. NHTSA-2021-0053, which can be accessed at
https://www.regulations.gov.

43

See https://www.nhtsa.gov/laws-regulations/corporate-average-fuel-economy.

44
National Academies of Sciences, Engineering, and Medicine, 2021.
Assessment of Technologies for Improving Fuel Economy of Light-Duty Vehicles—2025-2035
, Washington, DC: The National Academies Press (hereafter, “2021 NAS Report”).
Available at https://www.nationalacademies.org/our-work/assessment-of-technologies-for-improving-fuel-economy-of-light-duty-vehicles-phase-3
(accessed: February 11, 2022) and for hard-copy review at DOT headquarters.

NHTSA uses the CAFE Compliance and Effects Modeling System (usually shortened to the “CAFE Model”) to estimate manufacturers' potential responses to new CAFE and CO
2
standards and to estimate various impacts of those responses. DOT's Volpe National Transportation Systems Center (often simply referred to as the “Volpe Center”) develops, maintains, and applies the model for NHTSA. NHTSA has used the CAFE Model to perform analyses supporting every CAFE rulemaking since 2001. The 2016 rulemaking regarding heavy-duty pickup and van fuel consumption and CO
2
emissions also used the CAFE Model for analysis.

The basic design of the CAFE Model is as follows: The system first estimates how vehicle manufacturers might respond to a given regulatory scenario, and from that potential compliance solution, the system estimates what impact that response will have on fuel consumption, emissions, and economic externalities. In a highly summarized form, Figure III-1 shows the basic categories of CAFE Model procedures and the sequential flow between different stages of the modeling. The diagram does not present specific model inputs or outputs, as well as many specific procedures and model interactions. The model documentation accompanying this preamble presents these details, and Chapter 1 of the TSD contains a more detailed version of this flow diagram for readers who are interested.

BILLING CODE 4910-59-P

ER02MY22.047

BILLING CODE 4910-59-C

More specifically, the model may be characterized as an integrated system of models. For example, one model estimates manufacturers' responses, another estimates resultant changes in total vehicle sales, and still another estimates resultant changes in fleet turnover (
i.e.,
scrappage). Additionally, and importantly, the model does not determine the form or stringency of the standards. Instead, the model applies inputs specifying the form and stringency of standards to be analyzed and produces outputs showing the impacts of manufacturers working to meet those standards, which become the basis for comparing between different potential stringencies. A regulatory scenario, meanwhile, involves specification of the form, or shape, of the standards (
e.g.,
flat standards, or linear or logistic attribute-based standards), scope of passenger car and truck regulatory classes, and stringency of the CAFE standards for each model year to be analyzed. For example, a regulatory scenario may define CAFE standards that increase in stringency by a given percent per year for a given number of consecutive years.

Manufacturer compliance simulation and the ensuing effects estimation, collectively referred to as compliance modeling, encompass numerous subsidiary elements. Compliance simulation begins with a detailed user-provided initial forecast of the vehicle models offered for sale during the simulation period.
45

The compliance simulation then attempts to bring each manufacturer into compliance with the standards defined by the regulatory

scenario contained within an input file developed by the user.
46

45
Because the CAFE Model is publicly available, anyone can develop their own initial forecast (or other inputs) for the model to use. The DOT-developed Market Data file that contains the forecast used for this final rule is available on NHTSA's website at
https://www.nhtsa.gov/corporate-average-fuel-economy/cafe-compliance-and-effects-modeling-systems.
(Accessed: March 22, 2022).

46
With appropriate inputs, the model can also be used to estimate impacts of manufacturers' potential responses to new CO
2
standards and to California's ZEV program.

Estimating impacts involves calculating resultant changes in new vehicle costs, estimating a variety of costs (
e.g.,
for fuel) and effects (
e.g.,
CO
2
emissions from fuel combustion) occurring as vehicles are driven over their lifetimes before eventually being scrapped, and estimating the monetary value of these effects. Estimating impacts also involves consideration of consumer responses—
e.g.,
the impact of vehicle fuel economy, operating costs, and vehicle price on consumer demand for passenger cars and light trucks. Both basic analytical elements involve the application of many analytical inputs. Many of these inputs are developed
outside
of the model and not
by
the model. For example, the model
applies
fuel prices; it does not
estimate
fuel prices.

NHTSA also uses EPA's MOVES model to estimate “tailpipe” (a.k.a. “vehicle” or “downstream”) emission factors for criteria pollutants,
47

and uses four DOE and DOE-sponsored models to develop inputs to the CAFE Model, including three developed and maintained by DOE's Argonne National Laboratory. The agency uses the DOE Energy Information Administration's (EIA's) National Energy Modeling System (NEMS) to estimate fuel prices,
48

and uses Argonne's Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model to estimate emissions rates from fuel production and distribution processes.
49

DOT also sponsored DOE/Argonne to use Argonne's Autonomie full-vehicle modeling and simulation system to estimate the fuel economy impacts for over a million combinations of technologies and vehicle types.
50 51

The TSD and FRIA describe details of the agency's use of these models. In addition, as discussed in the Final SEIS accompanying this final rule, DOT relied on a range of climate models to estimate impacts on climate, air quality, and public health. The Final SEIS discusses and describes the use of these models.

47

See https://www.epa.gov/moves.
This final rule uses version MOVES3, available at
https://www.epa.gov/moves/latest-version-motor-vehicle-emission-simulator-moves.
(Accessed: February 16, 2022).

48

See https://www.eia.gov/outlooks/archive/aeo21.
(Accessed: February 16, 2022) This final rule uses fuel prices estimated using the Annual Energy Outlook (AEO) 2021 version of NEMS (
see https://www.eia.gov/outlooks/aeo/pdf/02%20AEO2021%20Petroleum.pdf
). (Accessed: February 16, 2022).

49
Information regarding GREET is available at
https://greet.es.anl.gov/index.php.
(Accessed: February 16, 2022) This final rule uses the 2021 version of GREET.

50
As part of the Argonne simulation effort, individual technology combinations simulated in Autonomie were paired with Argonne's BatPaC model to estimate the battery cost associated with each technology combination based on characteristics of the simulated vehicle and its level of electrification. Information regarding Argonne's BatPaC model is available at
https://www.anl.gov/cse/batpac-model-software.
(Accessed: February 16, 2022).

51
In addition, the impact of engine technologies on fuel consumption, torque, and other metrics was characterized using GT-POWER simulation modeling in combination with other engine modeling that was conducted by IAV Automotive Engineering, Inc. (IAV). The engine characterization “maps” resulting from this analysis were used as inputs for the Autonomie full-vehicle simulation modeling. Information regarding GT-POWER is available at
https://www.gtisoft.com/gt-suite-applications/propulsion-systems/gt-power-engine-simulation-software.
(Accessed: February 16, 2022).

To prepare for analysis supporting this final rule, DOT has refined and expanded the CAFE Model through ongoing development. Examples of such changes, some informed by past external comments, made since early 2020 include:

• Inclusion of 400- and 500-mile BEVs;

• Inclusion of high compression ratio (HCR) engines with cylinder deactivation;

• Accounting for manufacturers' responses to both CAFE and CO2 standards jointly (rather than only separately);

• Accounting for the ZEV mandates applicable in California and the “Section 177” states;

• Accounting for some vehicle manufacturers' (BMW, Ford, Honda, VW, and Volvo) voluntary agreement with the state of California to continued annual national-level reductions of vehicle greenhouse gas emissions through MY 2026, with greater rates of electrification than would have been required under the 2020 final rule;
52

52
For more information on the Framework Agreements for Clean Cars, including the specific agreements signed by individual manufacturers, see
https://ww2.arb.ca.gov/news/framework-agreements-clean-cars.
(Accessed: February 16, 2022).

• Inclusion of CAFE civil penalties in the “effective cost” metric used when simulating manufacturers' potential application of fuel-saving technologies;

• Refined procedures to estimate health effects and corresponding monetized damages attributable to criteria pollutant emissions;

• New procedures to estimate the impacts and corresponding monetized damages of highway vehicle crashes that do not result in fatalities;

• Procedures to ensure that modeled technology application and production volumes are the same across all regulatory alternatives in the earliest model years; and

• Procedures to more precisely focus application of the EPCA's “standard setting constraints” (
i.e.,
regarding the consideration of compliance credits and additional dedicated alternative fueled vehicles) to only those model years for which NHTSA is proposing or finalizing new standards.

These changes reflect DOT's long-standing commitment to ongoing refinement of its approach to estimating the potential impacts of new CAFE standards. Following the proposal preceding this document, NHTSA made several further changes to the CAFE Model, including:

• New options for applying a dynamic fleet share model (of the relative shares passenger cars and light trucks comprise of the total U.S. new vehicle market);

• Provisions allowing direct input of the number of miles to be included when valuing avoided fuel outlays in the models used to estimate impacts on the total sales of new vehicles and the scrappage of used vehicles;

• Expanded model output reporting to include all estimates (for this analysis) of the social cost of carbon dioxide emissions (
i.e.,
the SCC) when reporting total and net benefits to society;

• Procedures to calculate and report the value of miles reallocated between new and used vehicles (when holding overall travel demand before accounting for the rebound effect constant between regulatory alternatives);

• Adjustments to reduce exclude finance costs from reported incremental costs to consumers, and reduce reported insurance costs by 20 percent (to prevent double-counting of the costs to replace totaled vehicles); and

• Revisions to allow direct specification of total VMT even in years for which the CAFE Model estimates new vehicle sales (in particular, for this analysis, 2021, to account for VMT recovering rapidly following the decline in the early months of the COVID-19 pandemic.

The TSD accompanying this document elaborates on these changes to the CAFE Model, as well as changes to input to the model for this analysis.

NHTSA underscores that this analysis exercises the CAFE Model in a manner that explicitly accounts for the fact that in producing a single fleet of vehicles for sale in the United States, manufacturers face the
combination
of CAFE standards, EPA CO
2
standards,

and ZEV mandates, and for five manufacturers, the voluntary agreement with California to more stringent GHG reduction requirements (also applicable to these manufacturers' total production for the U.S. market) through MY 2026. These regulations and contracts have important structural and other differences that affect the strategy a manufacturer could use to comply with each of the above.

As explained, the analysis is designed to reflect a number of statutory and regulatory requirements applicable to CAFE and tailpipe CO
2
standard-setting. EPCA contains a number of requirements governing the scope and nature of CAFE standard setting. Among these, some have been in place since EPCA was first signed into law in 1975, and some were added in 2007, when Congress passed EISA and amended EPCA. EPCA/EISA requirements regarding the technical characteristics of CAFE standards and the analysis thereof include, but are not limited to, the following, and the analysis reflects these requirements as summarized:

Corporate Average Standards:
Section 32902 of 49 U.S.C. requires standards that apply to the average fuel economy levels achieved by each corporation's fleets of vehicles produced for sale in the U.S.
53

The CAFE Model calculates the CAFE and CO
2
levels of each manufacturer's fleets based on estimated production volumes and characteristics, including fuel economy levels, of distinct vehicle models that could be produced for sale in the U.S.

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

Separate Standards for Passenger Cars and Light Trucks:
Section 32902 of 49 U.S.C. requires the Secretary of Transportation to set CAFE standards separately for passenger cars and light trucks. The CAFE Model accounts separately for passenger cars and light trucks when it analyzes CAFE or CO
2
standards, including differentiated standards and compliance.

Attribute-Based Standards:
Section 32902 of 49 U.S.C. requires the Secretary of Transportation to define CAFE standards as mathematical functions expressed in terms of one or more vehicle attributes related to fuel economy. This means that for a given manufacturer's fleet of vehicles produced for sale in the U.S. in a given regulatory class and model year, the applicable minimum CAFE requirement (
i.e.,
the numerical value of the requirement) is computed based on the applicable mathematical function, and the mix and attributes of vehicles in the manufacturer's fleet. The CAFE Model accounts for such functions and vehicle attributes explicitly.

Separately Defined Standards for Each Model Year:
Section 32902 of 49 U.S.C. requires the Secretary to set CAFE standards (separately for passenger cars and light trucks
54

) at the maximum feasible levels in each model year. The CAFE Model represents each model year explicitly, and accounts for the production relationships between model years.
55

54
Chapter 329 of title 49 of the U.S. Code uses the term “non-passenger automobiles,” while NHTSA uses the term “light trucks” in its CAFE regulations. The terms' meanings are identical.

55
For example, a new engine first applied to given vehicle model/configuration in MY 2020 will most likely be “carried forward” to MY 2021 of that same vehicle model/configuration, in order to reflect the fact that manufacturers do not apply brand-new engines to a given vehicle model every single year. The CAFE Model is designed to account for these real-world factors.

Separate Compliance for Domestic and Imported Passenger Car Fleets:
Section 32904 of 49 U.S.C. requires the EPA Administrator to determine CAFE compliance separately for each manufacturers' fleets of domestic passenger cars and imported passenger cars, which manufacturers must consider as they decide how to improve the fuel economy of their passenger car fleets. The CAFE Model accounts explicitly for this requirement when simulating manufacturers' potential responses to CAFE standards, and combines any given manufacturer's domestic and imported cars into a single fleet when simulating that manufacturer's potential response to CO
2
standards (because EPA does not have separate standards for domestic and imported passenger cars).

Minimum CAFE Standards for Domestic Passenger Car Fleets:
Section 32902 of 49 U.S.C. requires that domestic passenger car fleets meet a minimum standard, which is calculated as 92 percent of the industry-wide average level required under the applicable attribute-based CAFE standard, as projected by the Secretary at the time the standard is promulgated. The CAFE Model accounts explicitly for this requirement for CAFE standards and sets this requirement aside for CO
2
standards.

Civil Penalties for Noncompliance:
Section 32912 of 49 U.S.C. (and implementing regulations) prescribes a rate (in dollars per tenth of a mpg) at which the Secretary is to levy civil penalties if a manufacturer fails to comply with a CAFE standard for a given fleet in a given model year, after considering available credits. Some manufacturers have historically demonstrated a willingness to pay civil penalties rather than achieving full numerical compliance across all fleets. The CAFE Model calculates civil penalties (adjusted for inflation) for CAFE shortfalls and provides means to estimate that a manufacturer might stop adding fuel-saving technologies once continuing to do so would be effectively more “expensive” (after accounting for fuel prices and buyers' willingness to pay for fuel economy) than paying civil penalties. The CAFE Model does not allow civil penalty payment as an option for CO
2
standards.

Dual-Fueled and Dedicated Alternative Fuel Vehicles:
For purposes of calculating CAFE levels used to determine compliance, 49 U.S.C. 32905 and 32906 specify methods for calculating the fuel economy levels of vehicles operating on alternative fuels to gasoline or diesel through MY 2020. After MY 2020, methods for calculating alternative fuel vehicle (AFV) fuel economy are governed by regulation. The CAFE Model is able to account for these requirements explicitly for each vehicle model. However, 49 U.S.C. 32902 prohibits consideration of the fuel economy of dedicated alternative fuel vehicle (AFV) models when NHTSA determines what levels of CAFE standards are maximum feasible. The CAFE Model therefore has an option to be run in a manner that excludes the additional application of dedicated AFV technologies in model years for which maximum feasible standards are under consideration. As allowed under NEPA for analysis appearing in EISs informing decisions regarding CAFE standards, the CAFE Model can also be run without this analytical constraint. The CAFE Model does account for dual- and alternative fuel vehicles when simulating manufacturers' potential responses to CO
2
standards. For natural gas vehicles, both dedicated and dual-fueled, EPA has a multiplier of 2.0 for MY 2022.
56

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

ZEV Mandates:
The CAFE Model can simulate manufacturers' compliance with ZEV mandates applicable in California and “Section 177”
57

states. The approach involves identifying specific vehicle model/configurations that could be replaced with PHEVs or BEVs, and immediately making these changes in each model year, before beginning to consider the potential that other technologies could be applied toward compliance with CAFE or CO
2
standards.

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

Creation and Use of Compliance Credits:
Section 32903 of 49 U.S.C. provides that manufacturers may earn CAFE “credits” by achieving a CAFE level beyond that required of a given fleet in a given model year, and specifies how these credits may be used to offset the amount by which a different fleet falls short of its corresponding requirement. These provisions allow credits to be “carried forward” and “carried back” between model years, transferred between regulated classes (domestic passenger cars, imported passenger cars, and light trucks), and traded between manufacturers. However, credit use is also subject to specific statutory limits. For example, CAFE compliance credits can be carried forward a maximum of five model years and carried back a maximum of three model years. Also, EPCA/EISA caps the amount of credit that can be transferred between passenger car and light truck fleets and prohibits manufacturers from applying traded or transferred credits to offset a failure to achieve the applicable minimum standard for domestic passenger cars. The CAFE Model explicitly simulates manufacturers' potential use of credits carried forward from prior model years or transferred from other fleets.
58

Section 32902 of 49 U.S.C. prohibits consideration of manufacturers' potential application of CAFE compliance credits when setting maximum feasible CAFE standards. The CAFE Model can be operated in a manner that excludes the application of CAFE credits for a given model year under consideration for standard setting. For modeling CO2 standards, the CAFE Model does not limit transfers. Insofar as the CAFE Model can be exercised in a manner that simulates trading of CO2 compliance credits, such simulations treat trading as unlimited.
59

58
The CAFE Model does not explicitly simulate the potential that manufacturers would carry CAFE or CO
2
credits back (
i.e.,
borrow) from future model years, or acquire and use CAFE compliance credits from other manufacturers. At the same time, because EPA has currently elected not to limit credit trading, the CAFE Model can be exercised in a manner that simulates unlimited (a.k.a. “perfect”) CO
2
compliance credit trading throughout the industry (or, potentially, within discrete trading “blocs”). NHTSA believes there is significant uncertainty in how manufacturers may choose to employ these particular flexibilities in the future: for example, while it is reasonably foreseeable that a manufacturer who over-complies in one year may “coast” through several subsequent years relying on those credits rather than continuing to make technology improvements, it is harder to assume with confidence that manufacturers will rely on future technology investments to offset prior-year shortfalls, or whether/how manufacturers will trade credits with market competitors rather than making their own technology investments. Historically, carry-back and trading have been much less utilized than carry-forward, for a variety of reasons including higher risk and preference not to `pay competitors to make fuel economy improvements we should be making' (to paraphrase one manufacturer), although NHTSA recognizes that carry-back and trading are used more frequently when standards increase in stringency more rapidly. Given the uncertainty just discussed, and given also the fact that the agency has yet to resolve some of the analytical challenges associated with simulating use of these flexibilities, the agency considers borrowing and trading to involve sufficient risk that it is prudent to support this final rule with analysis that sets aside the potential that manufacturers could come to depend widely on borrowing and trading. While compliance costs in real life may be somewhat different from what is modeled in this document as a result of this analytical decision, that is broadly true no matter what, and the agency does not believe that the difference would be so great that it would change the policy outcome. Furthermore, a manufacturer employing a trading strategy would presumably do so because it represents a lower-cost compliance option. Thus, the estimates derived from this modeling approach are likely to be conservative in this respect, with real-world compliance costs possibly being lower.

59
To avoid making judgments about possible future trading activity, the model simulates trading by combining all manufacturers into a single entity, so that the most cost-effective choices are made for the fleet as a whole.

Statutory Basis for Stringency:
Section 32902 of 49 U.S.C. requires the Secretary to set CAFE standards at the maximum feasible levels, considering technological feasibility, economic practicability, the need of the United States to conserve energy, and the impact of other motor vehicle standards of the Government on fuel economy. EPCA/EISA authorizes the Secretary to interpret these factors, and as the Department's interpretation has evolved, NHTSA has continued to expand and refine its qualitative and quantitative analysis to account for these statutory factors. For example, one of the ways that economic practicability considerations are incorporated into the analysis is through the technology effectiveness determinations: the Autonomie simulations reflect the agency's judgment that it would not be economically practicable for a manufacturer to “split” an engine shared among many vehicle model/configurations into myriad versions each optimized to a single vehicle model/configuration.

National Environmental Policy Act:
In addition, NEPA requires the Secretary to issue an EIS that documents the estimated impacts of regulatory alternatives under consideration. The Final SEIS accompanying this final rule documents changes in emission inventories as estimated using the CAFE Model, but also documents corresponding estimates—based on the application of other models documented in the Final SEIS, of impacts on the global climate, on tropospheric air quality, and on human health.

Other Aspects of Compliance:
Beyond these statutory requirements applicable to DOT, EPA, or both are a number of specific technical characteristics of CAFE and/or CO
2
regulations that are also relevant to the construction of this analysis. For example, EPA has defined procedures for calculating average CO
2
levels, and has revised procedures for calculating CAFE levels, to reflect manufacturers' application of “off-cycle” technologies that increase fuel economy (and reduce CO
2
emissions). Although too little information is available to account for these provisions explicitly in the same way that the agency has accounted for other technologies, the CAFE Model includes and makes use of inputs reflecting the agency's expectations regarding the extent to which manufacturers may earn such credits, along with estimates of corresponding costs. Similarly, the CAFE Model includes and makes use of inputs regarding credits EPA has elected to allow manufacturers to earn toward CO
2
levels (not CAFE) based on the use of air conditioner refrigerants with lower global warming potential (GWP), or on the application of technologies to reduce refrigerant leakage. In addition, the CAFE Model accounts for EPA “multipliers” for certain alternative fueled vehicles, based on current regulatory provisions or on alternative approaches. Although these are examples of regulatory provisions that arise from the exercise of discretion rather than specific statutory mandate, they can materially impact outcomes.

Besides the updates to the model described above, any analysis of regulatory actions that will be implemented several years in the future, and whose benefits and costs accrue over decades, requires a large number of assumptions. Over such time horizons, many, if not most, of the relevant assumptions in such an analysis are inevitably uncertain. Each successive CAFE analysis seeks to update assumptions to reflect better the current

state of the world and the best current estimates of future conditions.

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

What is NHTSA analyzing?

As in the CAFE and CO
2
rulemakings in 2010, 2012, and 2020, NHTSA is establishing attribute-based CAFE standards defined by a mathematical function of vehicle footprint, which has observable correlation with fuel economy. EPCA, as amended by EISA, expressly requires that CAFE standards for passenger cars and light trucks be based on one or more vehicle attributes related to fuel economy and be expressed in the form of a mathematical function.
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Thus, the final standards (and regulatory alternatives) take the form of fuel economy targets expressed as functions of vehicle footprint (the product of vehicle wheelbase and average track width) that are separate for passenger cars and light trucks. Chapter 1.2.3 of the TSD discusses in detail NHTSA's continued reliance on footprint as the relevant attribute on which these standards are based.

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49 U.S.C. 32902(a)(3)(A).

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

61
EPCA/EISA requires NHTSA and EPA to separate passenger cars into domestic and import passenger car fleets for CAFE compliance purposes (49 U.S.C. 32904(b)), whereas EPA combines all passenger cars into one fleet for GHG compliance purposes.

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As discussed in prior rulemakings, a manufacturer may have some vehicle models that exceed their target and some that are below their target. Compliance with a fleet average standard is determined by comparing the fleet average standard (based on the production-weighted average of the target levels for each model) with fleet average performance (based on the production-weighted average of the performance of each model).

For passenger cars, consistent with prior rulemakings, NHTSA is defining fuel economy targets as shown in Equation III-1.

BILLING CODE 4910-59-P

ER02MY22.048

Where:

TARGET
FE
is the fuel economy target (in mpg) applicable to a specific vehicle model type with a unique footprint combination,

a
is a minimum fuel economy target (in mpg),

b
is a maximum fuel economy target (in mpg),

c
is the slope (in gallons per mile per square foot, or gpm, per square foot) of a line relating fuel consumption (the inverse of fuel economy) to footprint, and

d
is an intercept (in gpm) of the same line.

Here,
MIN
and
MAX
are functions that take the minimum and maximum values, respectively, of the set of included values. For example,
MIN
[40, 35] = 35 and
MAX
(40, 25) = 40, such that
MIN
[
MAX
(40, 25), 35] = 35.

For the Preferred Alternative, this equation is represented graphically as the curves in Figure III-2.

ER02MY22.049

For light trucks, also consistent with prior rulemakings, NHTSA is defining fuel economy targets as shown in Equation III-2.

ER02MY22.050

Where:

TARGET
FE
is the fuel economy target (in mpg) applicable to a specific vehicle model type with a unique footprint combination,

a, b, c,
and
d
are as for passenger cars, but taking values specific to light trucks,

e
is a second minimum fuel economy target (in mpg),

f
is a second maximum fuel economy target (in mpg),

g
is the slope (in gpm per square foot) of a second line relating fuel consumption (the inverse of fuel economy) to footprint, and

h
is an intercept (in gpm) of the same second line.

For the Preferred Alternative, this equation is represented graphically as the curves in Figure III-3.

ER02MY22.051

Although the general model of the target function equation is the same for each vehicle category (passenger cars and light trucks) and each model year, the parameters of the function equation differ for cars and trucks. The actual parameters for both the Preferred Alternative and the other regulatory alternatives are presented in Section IV.B of this preamble.

As has been the case since NHTSA began establishing attribute-based standards, no vehicle need meet the specific applicable fuel economy target, because compliance with CAFE standards is determined based on corporate average fuel economy. In this respect, CAFE standards are unlike, for example, Federal Motor Vehicle Safety Standards (FMVSS) and certain vehicle criteria pollutant emissions standards where each car must meet the requirements. CAFE standards apply to the average fuel economy levels achieved by manufacturers' entire fleets of vehicles produced for sale in the U.S. Safety standards apply on a vehicle-by-vehicle basis, such that every single vehicle produced for sale in the U.S. must, on its

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-07200. Public record. Not legal advice.