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

Federal RegisterSep 28, 2009

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 86 and 600

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 531, 533, 537, and 538

[EPA-HQ-OAR-2009-0472; FRL-8959-4; NHTSA-2009-0059]

RIN 2060-AP58; RIN 2127-AK90

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

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

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

FOR FURTHER INFORMATION CONTACT:

Comments:

Comments must be received on or before November 27, 2009. Under the Paperwork Reduction Act, comments on the information collection provisions must be received by the Office of Management and Budget (OMB) on or before October 28, 2009. See the

SUPPLEMENTARY INFORMATION

section on “Public Participation” for more information about written comments.

Hearings:

NHTSA and EPA will jointly hold three public hearings on the following dates: October 21, 2009 in Detroit, Michigan; October 23, 2009 in New York, New York; and October 27, 2009 in Los Angeles, California. EPA and NHTSA will announce the addresses for each hearing location in a supplemental

Federal Register

Notice. The hearings will start at 9 a.m. local time and continue until everyone has had a chance to speak. See the

SUPPLEMENTARY INFORMATION

section on “Public Participation” for more information about the public hearings.

ADDRESSES:

Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2009-0472 and/or NHTSA-2009-0059, by one of the following methods:

•

www.regulations.gov:

Follow the on-line instructions for submitting comments.

•

E-mail: a-and-r-Docket@epa.gov

•

Fax:

EPA: (202) 566-1741; NHTSA: (202) 493-2251.

•

Mail:

○

EPA:

Environmental Protection Agency, EPA Docket Center (EPA/DC), Air and Radiation Docket, Mail Code 2822T, 1200 Pennsylvania Avenue, NW., Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR-2009-0472. In addition, please mail a copy of your comments on the information collection provisions to the Office of Information and Regulatory Affairs, Office of Management and Budget (OMB), Attn: Desk Officer for EPA, 725 17th St., NW., Washington, DC 20503.

○

NHTSA:

Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590.

•

Hand Delivery:

○

EPA:

Docket Center, (EPA/DC) EPA West, Room B102, 1301 Constitution Ave., NW., Washington, DC, Attention Docket ID No. EPA-HQ-OAR-2009-0472. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.

○

NHTSA:

West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m. Eastern Time, Monday through Friday, except Federal Holidays.

Instructions:

Direct your comments to Docket ID No. EPA-HQ-OAR-2009-0472 and/or NHTSA-2009-0059. See the

SUPPLEMENTARY INFORMATION

section on “Public Participation” for more information about submitting written comments.

Public Hearing:

Federal Register

Notice.

See

the

SUPPLEMENTARY INFORMATION

section on “Public Participation” for more information about the public hearings.

Docket:

All documents in the dockets are listed in the

www.regulations.gov

index. Although listed in the index, some information is not publicly available,

e.g.,

confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in

www.regulations.gov

or in hard copy at the following locations:

EPA:

EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744. NHTSA: Docket Management Facility, M-30, U.S. Department of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New Jersey Avenue, SE, Washington, DC 20590. The Docket Management Facility is open between 9 a.m. and 5 p.m. Eastern Time, Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT:

EPA:

Tad Wysor, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; telephone number: 734-214-4332; fax number: 734-214-4816; e-mail address:

wysor.tad@epa.gov,

or Assessment and Standards Division Hotline; telephone number (734) 214-4636; e-mail address

asdinfo@epa.gov. NHTSA:

Rebecca Yoon, Office of Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

A. Does This Action Apply to Me?

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

and passenger automobiles (passenger cars) and non-passenger automobiles (light trucks) as defined under NHTSA's CAFE regulations.

Regulated categories and entities include:

“Light-duty vehicle,” “light-duty truck,” and “medium-duty passenger vehicle” are defined in 40 CFR 86.1803-01. Generally, the term “light-duty

vehicle” means a passenger car, the term “light-duty truck” means a pick-up truck, sport-utility vehicle, or minivan of up to 8,500 lbs gross vehicle weight rating, and “medium-duty passenger vehicle” means a sport-utility vehicle or passenger van from 8,500 to 10,000 lbs gross vehicle weight rating. Medium-duty passenger vehicles do not include pick-up trucks.

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

Category

NAICS codes

Examples of potentially regulated entities

Industry

336111

Motor vehicle manufacturers.

336112

Industry

811112

Commercial Importers of Vehicles and Vehicle Components.

811198

541514

North American Industry Classification System (NAICS).

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

FOR FURTHER INFORMATION CONTACT

B. Public Participation

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

How Do I Prepare and Submit Comments?

In this joint proposal, there are many issues common to both EPA's and NHTSA's proposals. For the convenience of all parties, comments submitted to the EPA docket will be considered comments submitted to the NHTSA docket, and vice versa. An exception is that comments submitted to the NHTSA docket on the Draft Environmental Impact Statement will not be considered submitted to the EPA docket. Therefore, the public only needs to submit comments to either one of the two agency dockets. Comments that are submitted for consideration by one agency should be identified as such, and comments that are submitted for consideration by both agencies should be identified as such. Absent such identification, each agency will exercise its best judgment to determine whether a comment is submitted on its proposal.

Further instructions for submitting comments to either the EPA or NHTSA docket are described below.

EPA:

Direct your comments to Docket ID No EPA-HQ-OAR-2009-0472. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at

www.regulations.gov

, including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through

www.regulations.gov

or e-mail. The

www.regulations.gov

Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through

www.regulations.gov

your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at

http://www.epa.gov/epahome/dockets.htm

NHTSA:

Your comments must be written and in English. To ensure that your comments are correctly filed in the Docket, please include the Docket number NHTSA-2009-0059 in your comments. Your comments must not be more than 15 pages long.

NHTSA established this limit to encourage you to write your primary comments in a concise fashion. However, you may attach necessary additional documents to your comments. There is no limit on the length of the attachments. If you are submitting comments electronically as a PDF (Adobe) file, we ask that the documents submitted be scanned using the Optical Character Recognition (OCR) process, thus allowing the agencies to search and copy certain portions of your submissions.

Please note that pursuant to the Data Quality Act, in order for the substantive data to be relied upon and used by the agencies, it must meet the information quality standards set forth in the OMB and Department of Transportation (DOT) Data Quality Act guidelines. Accordingly, we encourage you to consult the guidelines in preparing your comments. OMB's guidelines may be accessed at

http://www.whitehouse.gov/omb/fedreg/reproducible.html

. DOT's guidelines may be accessed at

http://www.dot.gov/dataquality.htm

See

49 CFR 553.21.

Optical character recognition (OCR) is the process of converting an image of text, such as a scanned paper document or electronic fax file, into computer-editable text.

Tips for Preparing Your Comments

When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading,

Federal Register

date and page number).

• Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.

• Describe any assumptions and provide any technical information and/or data that you used.

• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns, and suggest alternatives.

• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

Make sure to submit your comments by the comment period deadline identified in the

DATES

section above.

How Can I Be Sure That My Comments Were Received?

NHTSA:

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

How Do I Submit Confidential Business Information?

Any confidential business information (CBI) submitted to one of the agencies will also be available to the other agency. However, as with all public comments, any CBI information only needs to be submitted to either one of the agencies' dockets and it will be available to the other. Following are specific instructions for submitting CBI to either agency.

EPA:

Do not submit CBI to EPA through

http://www.regulations.gov

or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

NHTSA:

If you wish to submit any information under a claim of confidentiality, you should submit three copies of your complete submission, including the information you claim to be confidential business information, to the Chief Counsel, NHTSA, at the address given above under

FOR FURTHER INFORMATION CONTACT

. When you send a comment containing confidential business information, you should include a cover letter setting forth the information specified in our confidential business information regulation.

See

49 CFR part 512.

In addition, you should submit a copy from which you have deleted the claimed confidential business information to the Docket by one of the methods set forth above.

Will the Agencies Consider Late Comments?

NHTSA and EPA will consider all comments received before the close of business on the comment closing date indicated above under

DATES

. To the extent practicable, we will also consider comments received after that date. If interested persons believe that any new information the agency places in the docket affects their comments, they may submit comments after the closing date concerning how the agency should consider that information for the final rule. However, the agencies' ability to consider any such late comments in this rulemaking will be limited due to the time frame for issuing a final rule.

If a comment is received too late for us to practicably consider in developing a final rule, we will consider that comment as an informal suggestion for future rulemaking action.

How Can I Read the Comments Submitted by Other People?

You may read the materials placed in the docket for this document (

e.g.,

the comments submitted in response to this document by other interested persons) at any time by going to

http://www.regulations.gov

. Follow the online instructions for accessing the dockets. You may also read the materials at the EPA Docket Center or NHTSA Docket Management Facility by going to the street addresses given above under

ADDRESSES

How Do I Participate in the Public Hearings?

NHTSA and EPA will jointly host three public hearings on the dates and locations described in the

DATES

and

ADDRESSES

sections above.

If you would like to present testimony at the public hearings, we ask that you notify the EPA and NHTSA contact persons listed under

FOR FURTHER INFORMATION CONTACT

at least ten days before the hearing. Once EPA and NHTSA learn how many people have registered to speak at the public hearing, we will allocate an appropriate amount of time to each participant, allowing time for lunch and necessary breaks throughout the day. For planning purposes, each speaker should anticipate speaking for approximately ten minutes, although we may need to adjust the time for each speaker if there is a large turnout. We suggest that you bring copies of your statement or other material for the EPA and NHTSA panels and the audience. It would also be helpful if you send us a copy of your statement or other materials before the hearing. To accommodate as many speakers as possible, we prefer that speakers not use technological aids (

e.g.

, audio-visuals, computer slideshows). However, if you plan to do so, you must notify the contact persons in the

FOR FURTHER INFORMATION CONTACT

section above. You also must make arrangements to provide your presentation or any other aids to NHTSA and EPA in advance of the hearing in order to facilitate set-up. In addition, we will reserve a block of time for anyone else in the audience who wants to give testimony.

The hearing will be held at a site accessible to individuals with disabilities. Individuals who require accommodations such as sign language interpreters should contact the persons listed under

FOR FURTHER INFORMATION CONTACT

section above no later than ten days before the date of the hearing.

NHTSA and EPA will conduct the hearing informally, and technical rules of evidence will not apply. We will arrange for a written transcript of the hearing and keep the official record of the hearing open for 30 days to allow you to submit supplementary information. You may make arrangements for copies of the transcript directly with the court reporter.

Table of Contents

I. Overview of Joint EPA/NHTSA National Program

A. Introduction

1. Building Blocks of the National Program

2. Joint Proposal for a National Program

B. Summary of the Joint Proposal

C. Background and Comparison of NHTSA and EPA Statutory Authority

1. NHTSA Statutory Authority

2. EPA Statutory Authority

3. Comparing the Agencies' Authority

D. Summary of the Proposed Standards for the National Program

1. Joint Analytical Approach

2. Level of the Standards

3. Form of the Standards

E. Summary of Costs and Benefits for the Joint Proposal

1. Summary of Costs and Benefits of Proposed NHTSA CAFE Standards

2. Summary of Costs and Benefits of Proposed EPA GHG Standards

F. Program Flexibilities for Achieving Compliance

1. CO

/CAFE Credits Generated Based on Fleet Average Performance

2. Air Conditioning Credits

3. Flex-Fuel and Alternative Fuel Vehicle Credits

4. Temporary Lead-time Allowance Alternative Standards

5. Additional Credit Opportunities Under the CAA

G. Coordinated Compliance

H. Conclusion

II. Joint Technical Work Completed for This Proposal

A. Introduction

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

1. Why Do the Agencies Establish a Baseline Vehicle Fleet?

2. How Do the Agencies Develop the Baseline Vehicle Fleet?

3. How Is the Development of the Baseline Fleet for this Proposal Different From NHTSA's Historical Approach, and Why is This Approach Preferable?

4. How Does Manufacturer Product Plan Data Factor Into the Baseline Used in This Proposal?

C. Development of Attribute-Based Curve Shapes

D. Relative Car-Truck Stringency

E. Joint Vehicle Technology Assumptions

1. What Technologies Do the Agencies Consider?

2. How Did the Agencies Determine the Costs and Effectiveness of Each of These Technologies?

F. Joint Economic Assumptions

III. EPA Proposal for Greenhouse Gas Vehicle Standards

A. Executive Overview of EPA Proposal

1. Introduction

2. Why Is EPA Proposing This Rule?

3. What Is EPA Proposing?

4. Basis for the Proposed GHG Standards Under Section 202(a)

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

1. What Fleet-Wide Emissions Levels Correspond to the CO

Standards?

2. What Are the CO

Attribute-Based Standards?

3. Overview of How EPA's Proposed CO

Standards Would Be Implemented for Individual Manufacturers

4. Averaging, Banking, and Trading Provisions for CO

Standards

5. CO

Temporary Lead-Time Allowance Alternative Standards

6. Proposed Nitrous Oxide and Methane Standards

7. Small Entity Deferment

C. Additional Credit Opportunities for CO

Fleet Average Program

1. Air Conditioning Related Credits

2. Flex Fuel and Alternative Fuel Vehicle Credits

3. Advanced Technology Vehicle Credits for Electric Vehicles, Plug-in Hybrids, and Fuel Cells

4. Off-cycle Technology Credits

5. Early Credit Options

D. Feasibility of the Proposed CO

Standards

1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating Further CO

Reductions?

2. What Are the Effectiveness and Costs of CO

-Reducing Technologies?

3. How Can Technologies Be Combined into “Packages” and What Is the Cost and Effectiveness of Packages?

4. Manufacturer's Application of Technology

5. How Is EPA Projecting That a Manufacturer Would Decide Between Options To Improve CO

Performance To Meet a Fleet Average Standard?

6. Why Are the Proposed CO

Standards Feasible?

7. What Other Fleet-Wide CO

Levels Were Considered?

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview

2. Compliance With Fleet-Average CO

Standards

3. Vehicle Certification

4. Useful Life Compliance

5. Credit Program Implementation

6. Enforcement

7. Prohibited Acts in the CAA

8. Other Certification Issues

9. Miscellaneous Revisions to Existing Regulations

10. Warranty, Defect Reporting, and Other Emission-related Components Provisions

11. Light Vehicles and Fuel Economy Labeling

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

1. Impact on GHG Emissions

2. Overview of Climate Change Impacts From GHG Emissions

3. Changes in Global Mean Temperature and Sea-Level Rise Associated With the Proposal's GHG Emissions Reductions

4. Weight Reduction and Potential Safety Impacts

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

1. Upstream Impacts of Program

2. Downstream Impacts of Program

3. Health Effects of Non-GHG Pollutants

4. Environmental Effects of Non-GHG Pollutants

5. Air Quality Impacts of Non-GHG Pollutants

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

Conceptual Framework for Evaluating Consumer Impacts

2. Costs Associated With the Vehicle Program

3. Cost per Ton of Emissions Reduced

4. Reduction in Fuel Consumption and Its Impacts

5. Impacts on U.S. Vehicle Sales and Payback Period

6. Benefits of Reducing GHG Emissions

7. Non-Greenhouse Gas Health and Environmental Impacts

8. Energy Security Impacts

9. Other Impacts

10. Summary of Costs and Benefits

I. Statutory and Executive Order Reviews

1. Executive Order 12866: Regulatory Planning and Review

2. Paperwork Reduction Act

3. Regulatory Flexibility Act

4. Unfunded Mandates Reform Act

5. Executive Order 13132 (Federalism)

6. Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments)

7. Executive Order 13045: “Protection of Children From Environmental Health Risks and Safety Risks”

8. Executive Order 13211 (Energy Effects)

9. National Technology Transfer Advancement Act

10. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

J. Statutory Provisions and Legal Authority

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

A. Executive Overview of NHTSA Proposal

1. Introduction

2. Role of Fuel Economy Improvements in Promoting Energy Independence, Energy Security, and a Low Carbon Economy

3. The National Program

4. Review of CAFE Standard Setting Methodology Per the President's January 26, 2009 Memorandum on CAFE Standards for MYs 2011 and Beyond

5. Summary of the Proposed MY 2012-2016 CAFE Standards

B. Background

1. Chronology of Events Since the National Academy of Sciences Called for Reforming and Increasing CAFE Standards

2. NHTSA Issues Final Rule Establishing Attribute-Based CAFE Standards for MY 2008-2011 Light Trucks (March 2006)

3. Ninth Circuit Issues Decision re Final Rule for MY 2008-2011 Light Trucks (November 2007)

4. Congress Enacts Energy Security and Independence Act of 2007 (December 2007)

5. NHTSA Proposes CAFE Standards for MYs 2011-2015 (April 2008)

6. Ninth Circuit Revises Its Decision re Final Rule for MY 2008-2011 Light Trucks (August 2008)

7. NHTSA Releases Final Environmental Impact Statement (October 2008)

8. Department of Transportation Decides not to Issue MY 2011-2015 final Rule (January 2009)

9. The President Requests NHTSA to Issue Final Rule for MY 2011 Only (January 2009)

10. NHTSA Issues Final Rule for MY 2011 (March 2009)

11. Energy Policy and Conservation Act, as Amended by the Energy Independence and Security Act

C. Development and Feasibility of the Proposed Standards

1. How Was the Baseline Vehicle Fleet Developed?

2. How were the Technology Inputs Developed?

3. How Did NHTSA Develop the Economic Assumption Inputs?

4. How Does NHTSA Use the Assumptions in Its Modeling Analysis?

5. How Did NHTSA Develop the Shape of the Target Curves for the Proposed Standards?

D. Statutory Requirements

1. EPCA, as Amended by EISA

2. Administrative Procedure Act

3. National Environmental Policy Act

E. What Are the Proposed CAFE Standards?

1. Form of the Standards

2. Passenger Car Standards for MYs 2012-2016

3. Minimum Domestic Passenger Car Standards

4. Light Truck Standards

F. How Do the Proposed Standards Fulfill NHTSA's Statutory Obligations?

G. Impacts of the Proposed CAFE Standards

1. How Would These Proposed Standards Improve Fuel Economy and Reduce GHG Emissions for MY 2012-2016 Vehicles?

2. How Would These Proposed Standards Improve Fleet-Wide Fuel Economy and Reduce GHG Emissions Beyond MY 2016?

3. How Would These Proposed Standards Impact Non-GHG Emissions and Their Associated Effects?

4. What Are the Estimated Costs and Benefits of These Proposed Standards?

5. How Would These Proposed Standards Impact Vehicle Sales?

6. What Are the Consumer Welfare Impacts of These Proposed Standards?

7. What Are the Estimated Safety Impacts of These Proposed Standards?

8. What Other Impacts (Quantitative and Unquantifiable) Will These Proposed Standards Have?

H. Vehicle Classification

I. Compliance and Enforcement

1. Overview

2. How Does NHTSA Determine Compliance?

3. What Compliance Flexibilities Are Available under the CAFE Program and How Do Manufacturers Use Them?

4. Other CAFE Enforcement Issues—Variations in Footprint

J. Other Near-Term Rulemakings Mandated by EISA

1. Commercial Medium- and Heavy-Duty On-Highway Vehicles and Work Trucks

2. Consumer Information

K. Regulatory Notices and Analyses

1. Executive Order 12866 and DOT Regulatory Policies and Procedures

2. National Environmental Policy Act

3. Regulatory Flexibility Act

4. Executive Order 13132 (Federalism)

5. Executive Order 12988 (Civil Justice Reform)

6. Unfunded Mandates Reform Act

7. Paperwork Reduction Act

8. Regulation Identifier Number

9. Executive Order 13045

10. National Technology Transfer and Advancement Act

11. Executive Order 13211

12. Department of Energy Review

13. Plain Language

14. Privacy Act

I. Overview of Joint EPA/NHTSA National Program

A. Introduction

The National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA) are each announcing proposed rules whose benefits would address the urgent and closely intertwined challenges of energy independence and security and global warming. These proposed rules call for a strong and coordinated

Federal

greenhouse gas and fuel economy program for passenger cars, light-duty-trucks, and medium-duty passenger vehicles (hereafter light-duty vehicles), referred to as the National Program. The proposed rules can achieve substantial reductions of greenhouse gas (GHG) emissions and improvements in fuel economy from the light-duty vehicle part of the transportation sector, based on technology that is already being commercially applied in most cases and that can be incorporated at a reasonable cost.

This joint notice is consistent with the President's announcement on May 19, 2009 of a National Fuel Efficiency Policy of establishing consistent, harmonized, and streamlined requirements that would reduce greenhouse gas emissions and improve fuel economy for all new cars and light-duty trucks sold in the United States.

The National Program holds out the promise of delivering additional environmental and energy benefits, cost savings, and administrative efficiencies on a nationwide basis that might not be available under a less coordinated approach. The proposed National Program also offers the prospect of regulatory convergence by making it possible for the standards of two different

Federal

agencies and the standards of California and other States to act in a unified fashion in providing these benefits. This would allow automakers to produce and sell a single fleet nationally. Thus, it may also help to mitigate the additional costs that manufacturers would otherwise face in having to comply with multiple sets of

Federal

and State standards. This joint notice is also consistent with the Notice of Upcoming Joint Rulemaking issued by DOT and EPA on May 19

and responds to the President's January 26, 2009 memorandum on CAFE standards for model years 2011 and beyond,

the details of which can be found in Section IV of this joint notice.

President Obama Announces National Fuel Efficiency Policy, The White House, May 19, 2009. Available at:

http://www.whitehouse.gov/the_press_office/President-Obama-Announces-National-Fuel-Efficiency-Policy/

(last accessed August 18, 2009). Remarks by the President on National Fuel Efficiency Standards, The White House, May 19, 2009. Available at:

http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-on-national-fuel-efficiency-standards/

(Last accessed August 18, 2009).

74 FR 24007 (May 22, 2009).

Available at:

http://www.whitehouse.gov/the_press_office/Presidential_Memorandum_Fuel_Economy/

(last accessed on August 18, 2009).

1. Building Blocks of the National Program

The National Program is both needed and possible because the relationship between improving fuel economy and reducing CO

tailpipe emissions is a very direct and close one. The amount of those CO

emissions is essentially constant per gallon combusted of a given type of fuel. Thus, the more fuel efficient a vehicle is, the less fuel it burns to travel a given distance. The less fuel it burns, the less CO

it emits in traveling that distance.

While there are emission control technologies that reduce the pollutants (

e.g.,

carbon monoxide) produced by imperfect combustion of fuel by capturing or destroying them, there is no such technology for CO

. Further, while some of those pollutants can also be reduced by achieving a more complete combustion of fuel, doing so only increases the tailpipe emissions of CO

. Thus, there is a single pool of technologies for addressing these twin problems,

i.e.,

those that reduce fuel consumption and thereby reduce CO

emissions as well.

Panel on Policy Implications of Greenhouse Warming, National Academy of Sciences, National Academy of Engineering, Institute of Medicine, “Policy Implications of Greenhouse Warming: Mitigation, Adaptation, and the Science Base,” National Academies Press, 1992. p. 287.

a. DOT's CAFE Program

In 1975, Congress enacted the Energy Policy and Conservation Act (EPCA), mandating that NHTSA establish and implement a regulatory program for motor vehicle fuel economy to meet the various facets of the need to conserve energy, including ones having energy independence and security, environmental and foreign policy implications. Fuel economy gains since 1975, due both to the standards and market factors, have resulted in saving billions of barrels of oil and avoiding billions of metric tons of CO

emissions. In December 2007, Congress enacted the Energy Independence and Securities Act (EISA), amending EPCA to require substantial, continuing increases in fuel economy standards.

The CAFE standards address most, but not all, of the real world CO

emissions because EPCA requires the use of 1975 passenger car test procedures under which vehicle air conditioners are not turned on during fuel economy testing.

Fuel economy is determined by measuring the amount of CO

and other carbon compounds emitted from the tailpipe, not by attempting to measure directly the amount of fuel consumed during a vehicle test, a difficult task to accomplish with precision. The carbon content of the test fuel

is then used to calculate the amount of fuel that had to be consumed per mile in order to

produce that amount of CO

Finally, that fuel consumption figure is converted into a miles-per-gallon figure. CAFE standards also do not address the 5-8 percent of GHG emissions that are not CO

i.e.,

nitrous oxide (N

O), and methane (CH

) as well as emissions of CO

and hydrofluorocarbons (HFCs) related to operation of the air conditioning system.

EPCA does not require the use of 1975 test procedures for light trucks.

This is the method that EPA uses to determine compliance with NHTSA's CAFE standards.

b. EPA's Greenhouse Gas Standards for Light-Duty Vehicles

Under the Clean Air Act EPA is responsible for addressing air pollutants from motor vehicles. On April 2, 2007, the U.S. Supreme Court issued its opinion in

Massachusetts

EPA,

a case involving a 2003 order of the Environmental Protection Agency (EPA) denying a petition for rulemaking to regulate greenhouse gas emissions from motor vehicles under section 202(a) of the Clean Air Act (CAA).

The Court held that greenhouse gases were air pollutants for purposes of the Clean Air Act and further held that the Administrator must determine whether or not emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. The Court further ruled that, in making these decisions, the EPA Administrator is required to follow the language of section 202(a) of the CAA. The Court rejected the argument that EPA cannot regulate CO

from motor vehicles because to do so would

de facto

tighten fuel economy standards, authority over which has been assigned by Congress to DOT. The Court stated that “[b]ut that DOT sets mileage standards in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public`s `health' and `welfare', a statutory obligation wholly independent of DOT's mandate to promote energy efficiency.” The Court concluded that “[t]he two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.”

The Court remanded the case back to the Agency for reconsideration in light of its findings.

549 U.S. 497 (2007).

68 FR 52922 (Sept. 8, 2003).

549 U.S. at 531-32.

For further information on

Massachusetts

EPA

see the July 30, 2008 Advance Notice of Proposed Rulemaking, “Regulating Greenhouse Gas Emissions under the Clean Air Act”, 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation's history, the Supreme Court's findings, and subsequent actions undertaken by the Bush Administration and the EPA from 2007-2008 in response to the Supreme Court remand.

EPA has since proposed to find that emissions of GHGs from new motor vehicles and motor vehicle engines cause or contribute to air pollution that may reasonably be anticipated to endanger public health and welfare.

This proposal represents the second phase of EPA's response to the Supreme Court's decision.

74 FR 18886 (Apr. 24, 2009).

c. California Air Resources Board Greenhouse Gas Program

In 2004, the California Air Resources Board approved standards for new light-duty vehicles, which regulate the emission of not only CO

, but also other GHGs. Since then, thirteen States and the District of Columbia, comprising approximately 40 percent of the light-duty vehicle market, have adopted California's standards. These standards apply to model years 2009 through 2016 and require CO

emissions for passenger cars and the smallest light trucks of 323 g/mi in 2009 and 205 g/mi in 2016, and for the remaining light trucks of 439 g/mi in 2009 and 332 g/mi in 2016. On June 30, 2009, EPA granted California's request for a waiver of preemption under the CAA.

The granting of the waiver permits California and the other States to proceed with implementing the California emission standards.

74 FR 32744 (July 8, 2009).

2. Joint Proposal for a National Program

On May 19, 2009, the Department of Transportation and the Environmental Protection Agency issued a Notice of Upcoming Joint Rulemaking to propose a strong and coordinated fuel economy and greenhouse gas National Program for Model Year (MY) 2012-2016 light duty vehicles.

B. Summary of the Joint Proposal

In this joint rulemaking, EPA is proposing GHG emissions standards under the Clean Air Act (CAA), and NHTSA is proposing Corporate Average Fuel Economy (CAFE) standards under the Energy Policy and Conservation Action of 1975 (EPCA), as amended by the Energy Independence and Security Act of 2007 (EISA). The intention of this joint rulemaking proposal is to set forth a carefully coordinated and harmonized approach to implementing these two statutes, in accordance with all substantive and procedural requirements imposed by law.

Climate change is widely viewed as the most significant long-term threat to the global environment. According to the Intergovernmental Panel on Climate Change, anthropogenic emissions of greenhouse gases are very likely (90 to 99 percent probability) the cause of most of the observed global warming over the last 50 years. The primary GHGs of concern are carbon dioxide (CO

), methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Mobile sources emitted 31.5 percent of all U.S. GHG in 2006, and have been the fastest-growing source of U.S. GHG since 1990. Light-duty vehicles emit four GHGs—CO

, methane, nitrous oxide, and hydrofluorocarbons—and are responsible for nearly 60 percent of all mobile source GHGs. For Light-duty vehicles, CO

emissions represent about 95 percent of all greenhouse emissions, and the CO

emissions measured over the EPA tests used for fuel economy compliance represent over 90 percent of total light-duty vehicle greenhouse gas emissions.

Improving energy security by reducing our dependence on foreign oil has been a national objective since the first oil price shocks in the 1970s. Net petroleum imports now account for approximately 60 percent of U.S. petroleum consumption. World crude oil production is highly concentrated, exacerbating the risks of supply disruptions and price shocks. Tight global oil markets led to prices over $100 per barrel in 2008, with gasoline reaching as high as $4 per gallon in many parts of the U.S., causing financial hardship for many families. The export of U.S. assets for oil imports continues to be an important component of the U.S.' historically unprecedented trade deficits. Transportation accounts for about two-thirds of U.S. petroleum consumption. Light-duty vehicles account for about 60 percent of transportation oil use, which means that they alone account for about 40 percent of all U.S. oil consumption.

NHTSA and EPA have coordinated closely and worked jointly in developing their respective proposals. This is reflected in many aspects of this joint proposal. For example, the agencies have developed a comprehensive joint Technical Support Document (TSD) that provides a solid technical underpinning for each agency's modeling and analysis used to support their proposed standards. Also, to the extent allowed by law, the agencies have harmonized many elements of program design, such as the form of the standard (the footprint-based attribute curves), and the definitions used for cars and trucks. They have developed the same or similar compliance flexibilities, to the extent allowed and appropriate under their

respective statutes, such as averaging, banking, and trading of credits, and have harmonized the compliance testing and test protocols used for purposes of the fleet average standards each agency is proposing. Finally, as discussed in Section I.C., under their respective statutes each agency is called upon to exercise its judgment and determine standards that are an appropriate balance of various relevant statutory factors. Given the common technical issues before each agency, the similarity of the factors each agency is to consider and balance, and the authority of each agency to take into consideration the standards of the other agency, both EPA and NHTSA are proposing standards that result in a harmonized National Program.

This joint proposal covers passenger cars, light-duty-trucks, and medium-duty passenger vehicles built in model years 2012 through 2016. These vehicle categories are responsible for almost 60 percent of all U.S. transportation-related GHG emissions. EPA and NHTSA expect that automobile manufacturers will meet these proposed standards by utilizing technologies that will reduce vehicle GHG emissions and improve fuel economy. Although many of these technologies are available today, the emissions reductions and fuel economy improvements proposed would involve more widespread use of these technologies across the light-duty vehicle fleet. These include improvements to engines, transmissions, and tires, increased use of start-stop technology, improvements in air conditioning systems (to the extent currently allowed by law), increased use of hybrid and other advanced technologies, and the initial commercialization of electric vehicles and plug-in hybrids.

The proposed National Program would result in approximately 950 million metric tons of total carbon dioxide equivalent emissions reductions and approximately 1.8 billion barrels of oil savings over the lifetime of vehicles sold in model years 2012 through 2016. In total, the combined EPA and NHTSA 2012-2016 standards would reduce GHG emissions from the U.S. light-duty fleet by approximately 21 percent by 2030 over the level that would occur in the absence of the National Program. These proposals also provide important energy security benefits, as light-duty vehicles are about 95 percent dependent on oil-based fuels. The benefits of the proposed National Program would total about $250 billion at a 3% discount rate, or $195 billion at a 7% discount rate. In the discussion that follows in Sections III and IV, each agency explains the related benefits for their individual standards.

Together, EPA and NHTSA estimate that the average cost increase for a model year 2016 vehicle due to the proposed National Program is less than $1,100. U.S. consumers who purchase their vehicle outright would save enough in lower fuel costs over the first three years to offset these higher vehicle costs. However, most U.S. consumers purchase a new vehicle using credit rather than paying cash and the typical car loan today is a five year, 60 month loan. These consumers would see immediate savings due to their vehicle's lower fuel consumption in the form of reduced monthly costs of $12-$14 per month throughout the duration of the loan (that is, the fuel savings outweigh the increase in loan payments by $12-$14 per month). Whether a consumer takes out a loan or purchases a new vehicle outright, over the lifetime of a model year 2016 vehicle, consumers would save more than $3,000 due to fuel savings. The average 2016 MY vehicle will emit 16 fewer metric tons of CO

emissions during its lifetime.

This joint proposal also offers the prospect of important regulatory convergence and certainty to automobile companies. Absent this proposal, there would be three separate Federal and State regimes independently regulating light-duty vehicles to reduce fuel consumption and GHG emissions: NHTSA's CAFE standards, EPA's GHG standards, and the GHG standards applicable in California and other States adopting the California standards. This joint proposal would allow automakers to meet both the NHTSA and EPA requirements with a single national fleet, greatly simplifying the industry's technology, investment and compliance strategies. In addition, in a letter dated May 18, 2009, California stated that it “recognizes the benefit for the country and California of a National Program to address greenhouse gases and fuel economy and the historic announcement of United States Environmental Protection Agency (EPA) and National Highway Transportation Safety Administration's (NHTSA) intent to jointly propose a rule to set standards for both. California fully supports proposal and adoption of such a National Program.” To promote the National Program, California announced its commitment to take several actions, including revising its program for MYs 2012-2016 such that compliance with the

Federal

GHG standards would be deemed to be compliance with California's GHG standards. This would allow the single national fleet used by automakers to meet the two Federal requirements and to meet California requirements as well. This commitment was conditioned on several points, including EPA GHG standards that are substantially similar to those described in the May 19, 2009 Notice of Upcoming Joint Rulemaking. Many automakers and trade associations also announced their support for the National Program announced that day.

The manufacturers conditioned their support on EPA and NHTSA standards substantially similar to those described in that Notice. NHTSA and EPA met with many vehicle manufacturers to discuss the feasibility of the National Program. EPA and NHTSA are confident that these proposed GHG and CAFE standards, if finalized, would successfully harmonize both the

Federal

and State programs for MYs 2012-2016 and would allow our country to achieve the increased benefits of a single, nationwide program to reduce light-duty vehicle GHG emissions and reduce the country's dependence on fossil fuels by improving these vehicles' fuel economy.

These letters are available at

http://www.epa.gov/otaq/climate/regulations.htm

A successful and sustainable automotive industry depends upon, among other things, continuous technology innovation in general, and low greenhouse gas emissions and high fuel economy vehicles in particular. In this respect, this proposal would help spark the investment in technology innovation necessary for automakers to successfully compete in both domestic and export markets, and thereby continue to support a strong economy.

While this proposal covers MYs 2012-2016, EPA and NHTSA anticipate the importance of seeking a strong, coordinated national program for light-duty vehicles in model years beyond 2016 in a future rulemaking.

Key elements of the proposal for a harmonized and coordinated program are the level and form of the GHG and CAFE standards, the available compliance mechanisms, and general implementation elements. These elements are outlined in the following sections.

C. Background and Comparison of NHTSA and EPA Statutory Authority

This section provides the agencies' respective statutory authorities under which CAFE and GHG standards are established.

1. NHTSA Statutory Authority

NHTSA establishes CAFE standards for passenger cars and light trucks for each model year under EPCA, as

amended by EISA. EPCA mandates a motor vehicle fuel economy regulatory program to meet the various facets of the need to conserve energy, including ones having environmental and foreign policy implications. EPCA allocates the responsibility for implementing the program between NHTSA and EPA as follows: NHTSA sets CAFE standards for passenger cars and light trucks; EPA establishes the procedures for testing, tests vehicles, collects and analyzes manufacturers' data, and calculates the average fuel economy of each manufacturer's passenger cars and light trucks; and NHTSA enforces the standards based on EPA's calculations.

a. Standard Setting

We have summarized below the most important aspects of standard setting under EPCA, as amended by EISA.

For each future model year, EPCA requires that NHTSA establish standards at “the maximum feasible average fuel economy level that it decides the manufacturers can achieve in that model year,” based on the agency's consideration of four statutory factors: technological feasibility, economic practicability, the effect of other standards of the Government on fuel economy, and the need of the nation to conserve energy. EPCA does not define these terms or specify what weight to give each concern in balancing them; thus, NHTSA defines them and determines the appropriate weighting based on the circumstances in each CAFE standard rulemaking.

See Center for Biological Diversity

NHTSA

, 538 F.3d. 1172, 1195 (9th Cir. 2008) (“The EPCA clearly requires the agency to consider these four factors, but it gives NHTSA discretion to decide how to balance the statutory factors—as long as NHTSA's balancing does not undermine the fundamental purpose of the EPCA: Energy conservation.”)

For MYs 2011-2020, EPCA further requires that separate standards for passenger cars and for light trucks be set at levels high enough to ensure that the CAFE of the industry-wide combined fleet of new passenger cars and light trucks reaches at least 35 mpg not later than MY 2020.

i. Factors That Must Be Considered in Deciding the Appropriate Stringency of CAFE Standards

(1) Technological Feasibility

“Technological feasibility” refers to whether a particular method of improving fuel economy can be available for commercial application in the model year for which a standard is being established. Thus, the agency is not limited in determining the level of new standards to technology that is already being commercially applied at the time of the rulemaking. NHTSA has historically considered all types of technologies that improve real-world fuel economy, except those whose effects are not reflected in fuel economy testing. Principal among them are technologies that improve air conditioner efficiency because the air conditioners are not turned on during testing under existing test procedures.

(2) Economic Practicability

“Economic practicability” refers to whether a standard is one “within the financial capability of the industry, but not so stringent as to” lead to “adverse economic consequences, such as a significant loss of jobs or the unreasonable elimination of consumer choice.”

This factor is especially important in the context of current events, where the automobile industry is facing significantly adverse economic conditions, as well as significant loss of jobs. In an attempt to ensure the economic practicability of attribute-based standards, NHTSA considers a variety of factors, including the annual rate at which manufacturers can increase the percentage of its fleet that employs a particular type of fuel-saving technology, and cost to consumers. Consumer acceptability is also an element of economic practicability, one which is particularly difficult to gauge during times of frequently-changing fuel prices. NHTSA believes this approach is reasonable for the MY 2012-2016 standards in view of the facts before it at this time. NHTSA is aware, however, that facts relating to a variety of key issues in CAFE rulemaking are steadily evolving and seeks comments on the balancing of these factors in light of the facts available during the comment period.

67 FR 77015, 77021 (Dec. 16, 2002).

At the same time, the law does not preclude a CAFE standard that poses considerable challenges to any individual manufacturer. The Conference Report for EPCA, as enacted in 1975, makes clear, and the case law affirms, “a determination of maximum feasible average fuel economy should not be keyed to the single manufacturer which might have the most difficulty achieving a given level of average fuel economy.”

Instead, NHTSA is compelled “to weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.”

Id.

The law permits CAFE standards exceeding the projected capability of any particular manufacturer as long as the standard is economically practicable for the industry as a whole. Thus, while a particular CAFE standard may pose difficulties for one manufacturer, it may also present opportunities for another. The CAFE program is not necessarily intended to maintain the competitive positioning of each particular company. Rather, it is intended to enhance fuel economy of the vehicle fleet on American roads, while protecting motor vehicle safety and being mindful of the risk of harm to the overall United States economy.

CEI-I

, 793 F.2d 1322, 1352 (D.C. Cir. 1986).

(3) The Effect of Other Motor Vehicle Standards of the Government on Fuel Economy

“The effect of other motor vehicle standards of the Government on fuel economy,” involves an analysis of the effects of compliance with emission,

safety, noise, or damageability standards on fuel economy capability and thus on average fuel economy. In previous CAFE rulemakings, the agency has said that pursuant to this provision, it considers the adverse effects of other motor vehicle standards on fuel economy. It said so because, from the CAFE program's earliest years

until present, the effects of such compliance on fuel economy capability over the history of the CAFE program have been negative ones. For example, safety standards that have the effect of increasing vehicle weight lower vehicle fuel economy capability and thus decrease the level of average fuel economy that the agency can determine to be feasible.

In the case of emission standards, this includes standards adopted by the Federal government and can include standards adopted by the States as well, since in certain circumstances the Clean Air Act allows States to adopt and enforce State standards different from the Federal ones.

42 FR 63184, 63188 (Dec. 15, 1977).

See

also 42 FR 33534, 33537 (Jun. 30, 1977).

In the wake of

Massachusetts

EPA

and of EPA's proposed endangerment finding, granting of a waiver to California for its motor vehicle GHG standards, and its own proposal of GHG standards, NHTSA is confronted with the issue of how to treat those standards under the “other motor vehicle standards” provision. To the extent the GHG standards result in increases in fuel economy, they would do so almost exclusively as a result of inducing manufacturers to install the same types of technologies used by manufacturers in complying with the CAFE standards. The primary exception would involve increases in the efficiency of air conditioners.

Comment is requested on whether and in what way the effects of the California and EPA standards should be

considered under the “other motor vehicle standards” provision or other provisions of EPCA in 49 U.S.C. 32902, consistent with NHTSA's independent obligation under EPCA/EISA to issue CAFE standards. The agency has already considered EPA's proposal and the harmonization benefits of the National Program in developing its own proposal.

(4) The Need of the United States To Conserve Energy

“The need of the United States to conserve energy” means “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.”

Environmental implications principally include reductions in emissions of criteria pollutants and carbon dioxide. Prime examples of foreign policy implications are energy independence and security concerns.

42 FR 63184, 63188 (1977).

(a) Fuel Prices and the Value of Saving Fuel

Projected future fuel prices are a critical input into the preliminary economic analysis of alternative CAFE standards, because they determine the value of fuel savings both to new vehicle buyers and to society. In this rule, NHTSA relies on fuel price projections from the U.S. Energy Information Administration's (EIA) Annual Energy Outlook (AEO) for this analysis. Federal government agencies generally use EIA's projections in their assessments of future energy-related policies.

(b) Petroleum Consumption and Import Externalities

U.S. consumption and imports of petroleum products impose costs on the domestic economy that are not reflected in the market price for crude petroleum, or in the prices paid by consumers of petroleum products such as gasoline. These costs include (1) higher prices for petroleum products resulting from the effect of U.S. oil import demand on the world oil price; (2) the risk of disruptions to the U.S. economy caused by sudden reductions in the supply of imported oil to the U.S.; and (3) expenses for maintaining a U.S. military presence to secure imported oil supplies from unstable regions, and for maintaining the strategic petroleum reserve (SPR) to provide a response option should a disruption in commercial oil supplies threaten the U.S. economy, to allow the United States to meet part of its International Energy Agency obligation to maintain emergency oil stocks, and to provide a national defense fuel reserve. Higher U.S. imports of crude oil or refined petroleum products increase the magnitude of these external economic costs, thus increasing the true economic cost of supplying transportation fuels above the resource costs of producing them. Conversely, reducing U.S. imports of crude petroleum or refined fuels or reducing fuel consumption can reduce these external costs.

While reductions in domestic fuel refining and distribution that result from lower fuel consumption will reduce U.S. emissions of various pollutants, additional vehicle use associated with the rebound effect

from higher fuel economy will increase emissions of these pollutants. Thus, the net effect of stricter CAFE standards on emissions of each pollutant depends on the relative magnitudes of its reduced emissions in fuel refining and distribution, and increases in its emissions from vehicle use.

The “rebound effect” refers to the tendency of drivers to drive their vehicles more as the cost of doing so goes down, as when fuel economy improves.

Fuel savings from stricter CAFE standards also result in lower emissions of CO

, the main greenhouse gas emitted as a result of refining, distribution, and use of transportation fuels. Lower fuel consumption reduces carbon dioxide emissions directly, because the primary source of transportation-related CO

emissions is fuel combustion in internal combustion engines.

NHTSA has considered environmental issues, both within the context of EPCA and the National Environmental Policy Act, in making decisions about the setting of standards from the earliest days of the CAFE program. As courts of appeal have noted in three decisions stretching over the last 20 years,

NHTSA defined the “need of the Nation to conserve energy” in the late 1970s as including “the consumer cost, national balance of payments, environmental, and foreign policy implications of our need for large quantities of petroleum, especially imported petroleum.”

Pursuant to that view, NHTSA declined in the past to include diesel engines in determining the appropriate level of standards for passenger cars and for light trucks because particulate emissions from diesels were then both a source of concern and unregulated.

In 1988, NHTSA included climate change concepts in its CAFE notices and prepared its first environmental assessment addressing that subject.

It cited concerns about climate change as one of its reasons for limiting the extent of its reduction of the CAFE standard for MY 1989 passenger cars.

Since then, NHTSA has considered the benefits of reducing tailpipe carbon dioxide emissions in its fuel economy rulemakings pursuant to the statutory requirement to consider the nation's need to conserve energy by reducing fuel consumption.

Center for Auto Safety

NHTSA

, 793 F.2d 1322, 1325 n. 12 (D.C. Cir. 1986);

Public Citizen

NHTSA

, 848 F.2d 256, 262-3 n. 27 (D.C. Cir. 1988) (noting that “NHTSA itself has interpreted the factors it must consider in setting CAFE standards as including environmental effects”); and

Center for Biological Diversity

NHTSA

, 538 F.3d 1172 (9th Cir. 2007).

42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).

For example, the final rules establishing CAFE standards for MY 1981-84 passenger cars, 42 FR 33533, 33540-1 and 33551 (Jun. 30, 1977), and for MY 1983-85 light trucks, 45 FR 81593, 81597 (Dec. 11, 1980).

53 FR 33080, 33096 (Aug. 29, 1988).

53 FR 39275, 39302 (Oct. 6, 1988).

ii. Other Factors Considered by NHTSA

NHTSA considers the potential for adverse safety consequences when in establishing CAFE standards. This practice is recognized approvingly in case law.

Under the universal or “flat” CAFE standards that NHTSA was previously authorized to establish, the primary risk to safety came from the possibility that manufacturers would respond to higher standards by building smaller, less safe vehicles in order to “balance out” the larger, safer vehicles that the public generally preferred to buy. Under the attribute-based standards being proposed in this action, that risk is reduced because building smaller vehicles tends to raise a manufacturer's overall CAFE obligation, rather than only raising its fleet average CAFE. However, even under attribute-based standards, there is still risk that manufacturers will rely on downweighting to improve their fuel economy (for a given vehicle at a given

footprint target) in ways that may reduce safety.

See,

e.g., Center for Auto Safety

NHTSA (CAS)

, 793 F.2d 1322 (D.C. Cir. 1986) (Administrator's consideration of market demand as component of economic practicability found to be reasonable); Public Citizen 848 F.2d 256 (Congress established broad guidelines in the fuel economy statute; agency's decision to set lower standard was a reasonable accommodation of conflicting policies). As the United States Court of Appeals pointed out in upholding NHTSA's exercise of judgment in setting the 1987-1989 passenger car standards, “NHTSA has always examined the safety consequences of the CAFE standards in its overall consideration of relevant factors since its earliest rulemaking under the CAFE program.”

Competitive Enterprise Institute

NHTSA (CEI I)

, 901 F.2d 107, 120 at n.11 (D.C. Cir. 1990).

In addition, the agency considers consumer demand in establishing new standards and in assessing whether already established standards remained feasible. In the 1980's, the agency relied in part on the unexpected drop in fuel prices and the resulting unexpected failure of consumer demand for small cars to develop in explaining the need to reduce CAFE standards for a several year period in order to give manufacturers time to develop alternative technology-based strategies for improving fuel economy.

iii. Factors That NHTSA Is Statutorily Prohibited From Considering in Setting Standards

EPCA provides that in determining the level at which it should set CAFE standards for a particular model year, NHTSA may not consider the ability of manufacturers to take advantage of several EPCA provisions that facilitate compliance with the CAFE standards and thereby reduce the costs of compliance.

As noted below in Section IV, manufacturers can earn compliance credits by exceeding the CAFE standards and then use those credits to achieve compliance in years in which their measured average fuel economy falls below the standards. Manufacturers can also increase their CAFE levels through MY 2019 by producing alternative fuel vehicles. EPCA provides an incentive for producing these vehicles by specifying that their fuel economy is to be determined using a special calculation procedure that results in those vehicles being assigned a high fuel economy level.

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

iv. Weighing and Balancing of Factors

NHTSA has broad discretion in balancing the above factors in determining the average fuel economy level that the manufacturers can achieve. Congress “specifically delegated the process of setting * * * fuel economy standards with

broad

guidelines concerning the factors that the agency must consider.” The breadth of those guidelines, the absence of any statutorily prescribed formula for balancing the factors, the fact that the relative weight to be given to the various factors may change from rulemaking to rulemaking as the underlying facts change, and the fact that the factors may often be conflicting with respect to whether they militate toward higher or lower standards give NHTSA discretion to decide what weight to give each of the competing policies and concerns and then determine how to balance them—as long as NHTSA's balancing does not undermine the fundamental purpose of the EPCA: Energy conservation, and as long as that balancing reasonably accommodates “conflicting policies that were committed to the agency's care by the statute.”

Thus, EPCA does not mandate that any particular number be adopted when NHTSA determines the level of CAFE standards. Rather, any number within a zone of reasonableness may be, in NHTSA's assessment, the level of stringency that manufacturers can achieve. See,

e.g., Hercules Inc.

EPA,

598 F.2d 91, 106 (D.C. Cir. 1978) (“In reviewing a numerical standard we must ask whether the agency's numbers are within a zone of reasonableness, not whether its numbers are precisely right”).

v. Other Requirements Related to Standard Setting

The standards for passenger cars and those for light trucks must increase ratably each year. This statutory requirement is interpreted, in combination with the requirement to set the standards for each model year at the level determined to be the maximum feasible level that manufacturers can achieve for that model year, to mean that the annual increases should not be disproportionately large or small in relation to each other.

The standards for passenger cars and light trucks must be based on one or more vehicle attributes, like size or weight, that correlate with fuel economy and must be expressed in terms of a mathematical function. Fuel economy targets are set for individual vehicles and increase as the attribute decreases and vice versa. For example, size-based (

i.e.,

size-indexed) standards assign higher fuel economy targets to smaller (and generally, but not necessarily, lighter) vehicles and lower ones to larger (and generally, but not necessarily, heavier) vehicles. The fleet-wide average fuel economy that a particular manufacturer is required to achieve depends on the size mix of its fleet,

i.e.,

the proportion of the fleet that is small-, medium- or large-sized.

This approach can be used to require virtually all manufacturers to increase significantly the fuel economy of a broad range of both passenger cars and light trucks,

i.e.,

the manufacturer must improve the fuel economy of all the vehicles in its fleet. Further, this approach can do so without creating an incentive for manufacturers to make small vehicles smaller or large vehicles larger, with attendant implications for safety.

b. Test Procedures for Measuring Fuel Economy

EPCA provides EPA with the responsibility for establishing CAFE test procedures. Current test procedures measure the effects of nearly all fuel saving technologies. The principal exception is improvements in air conditioning efficiency. By statutory law in the case of passenger cars and by administrative regulation in the case of light trucks, air conditioners are not turned on during fuel economy testing. See Section I.C.2 for details.

The fuel economy test procedures for light trucks could be amended through rulemaking to provide for air conditioner operation during testing and to take other steps for improving the accuracy and representativeness of fuel economy measurements. Comment is sought by the agencies regarding implementing such amendments beginning in MY 2017 and also on the more immediate interim alternative step of providing CAFE program credits under the authority of 49 U.S.C. 32904(c) for light trucks equipped with relatively efficient air conditioners for MYs 2012-2016. These CAFE credits would be earned by manufacturers on the same terms and under the same conditions as EPA is proposing to provide them under the CAA, and additional detail is on this request for comment for early CAFE credits is contained in Section IV of this preamble. Modernizing the passenger car test procedures, or even providing similar credits, would not be possible under EPCA as currently written.

c. Enforcement and Compliance Flexibility

EPA is responsible for measuring automobile manufacturers' CAFE so that NHTSA can determine compliance with the CAFE standards. When NHTSA finds that a manufacturer is not in compliance, it notifies the manufacturer. Surplus credits generated from the five previous years can be used to make up the deficit. The amount of credit earned is determined by multiplying the number of tenths of a mpg by which a manufacturer exceeds a standard for a particular category of automobiles by the total volume of automobiles of that category manufactured by the manufacturer for a given model year. If there are no (or not enough) credits available, then the manufacturer can either pay the fine, or submit a carry back plan to NHTSA. A carry back plan describes what the manufacturer plans to do in the

following three model years to earn enough credits to make up for the deficit. NHTSA must examine and determine whether to approve the plan.

In the event that a manufacturer does not comply with a CAFE standard, even after the consideration of credits, EPCA provides for the assessing of civil penalties, unless, as provided below, the manufacturer has earned credits for exceeding a standard in an earlier year or expects to earn credits in a later year.

The Act specifies a precise formula for determining the amount of civil penalties for such a noncompliance. The penalty, as adjusted for inflation by law, is $5.50 for each tenth of a mpg that a manufacturer's average fuel economy falls short of the standard for a given model year multiplied by the total volume of those vehicles in the affected fleet (

i.e.,

import or domestic passenger car, or light truck), manufactured for that model year. The amount of the penalty may not be reduced except under the unusual or extreme circumstances specified in the statute.

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

Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does not provide for recall and remedy in the event of a noncompliance. The presence of recall and remedy provisions

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

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

In contrast, a CAFE standard applies to a manufacturer's entire fleet for a model year. It does not require that a particular individual vehicle be equipped with any particular equipment or feature or meet a particular level of fuel economy. It does require that the manufacturer's fleet, as a whole, comply. Further, although under the attribute-based approach to setting CAFE standards fuel economy targets are established for individual vehicles based on their footprints, the vehicles are not required to comply with those targets. However, as a practical matter, if a manufacturer chooses to design some vehicles that fall below their target levels of fuel economy, it will need to design other vehicles that exceed their targets if the manufacturer's overall fleet average is to meet the applicable standard.

Thus, under EPCA, there is no such thing as a noncompliant vehicle, only a noncompliant fleet. No particular vehicle in a noncompliant fleet is any more, or less, noncompliant than any other vehicle in the fleet.

2. EPA Statutory Authority

Title II of the Clean Air Act (CAA) provides for comprehensive regulation of mobile sources, authorizing EPA to regulate emissions of air pollutants from all mobile source categories. Pursuant to these sweeping grants of authority, EPA considers such issues as technology effectiveness, its cost (both per vehicle, per manufacturer, and per consumer), the lead time necessary to implement the technology, and based on this the feasibility and practicability of potential standards; the impacts of potential standards on emissions reductions of both GHGs and non-GHGs; the impacts of standards on oil conservation and energy security; the impacts of standards on fuel savings by consumers; the impacts of standards on the auto industry; other energy impacts; as well as other relevant factors such as impacts on safety.

This proposal implements a specific provision from Title II, section 202(a).

Section 202(a)(1) of the Clean Air Act (CAA) states that “the Administrator shall by regulation prescribe (and from time to time revise) * * * standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles * * *, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” If EPA makes the appropriate endangerment and cause or contribute findings, then section 202(a) authorizes EPA to issue standards applicable to emissions of those pollutants.

42 U.S.C. 7521(a).

Any standards under CAA section 202(a)(1) “shall be applicable to such vehicles * * * for their useful life.” Emission standards set by the EPA under CAA section 202(a)(1) are technology-based, as the levels chosen must be premised on a finding of technological feasibility. Thus, standards promulgated under CAA section 202(a) are to take effect only “after providing such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate consideration to the cost of compliance within such period” (section 202(a)(2); see also

NRDC

EPA,

655 F.2d 318, 322 (D.C. Cir. 1981)). EPA is afforded considerable discretion under section 202(a) when assessing issues of technical feasibility and availability of lead time to implement new technology. Such determinations are “subject to the restraints of reasonableness”, which “does not open the door to `crystal ball' inquiry.”

NRDC,

655 F.2d at 328, quoting

International Harvester Co.

Ruckelshaus,

478 F.2d 615, 629 (D.C. Cir. 1973). However, “EPA is not obliged to provide detailed solutions to every engineering problem posed in the perfection of the trap-oxidizer. In the absence of theoretical objections to the technology, the agency need only identify the major steps necessary for development of the device, and give plausible reasons for its belief that the industry will be able to solve those problems in the time remaining. The EPA is not required to rebut all speculation that unspecified factors may hinder `real world' emission control.” NRDC, 655 F.2d at 333-34. In developing such technology-based standards, EPA has the discretion to consider different standards for appropriate groupings of vehicles (“class or classes of new motor vehicles”), or a single standard for a larger grouping of motor vehicles (NRDC, 655 F.2d at 338).

Although standards under CAA section 202(a)(1) are technology-based, they are not based exclusively on technological capability. EPA has the discretion to consider and weigh various factors along with technological feasibility, such as the cost of compliance (see section 202(a)(2)), lead time necessary for compliance (section 202(a)(2)), safety (see

NRDC,

655 F.2d at 336 n. 31) and other impacts on consumers, and energy impacts associated with use of the technology. See

George E. Warren Corp.

EPA,

159 F.3d 616, 623-624 (D.C. Cir. 1998) (ordinarily permissible for EPA to consider factors not specifically enumerated in the Act).

See

also

Entergy Corp.

Riverkeeper, Inc.,

129 S.Ct. 1498, 1508-09 (2009) (congressional silence did not bar EPA from employing cost-benefit analysis under Clean Water Act absent some other clear indication that such analysis was prohibited; rather, silence indicated discretion to use or not use such an approach as the agency deems appropriate).

In addition, EPA has clear authority to set standards under CAA section 202(a) that are technology forcing when EPA considers that to be appropriate, but is

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

While the statutory language of section 231 is not identical to other provisions in title II of the CAA that direct EPA to establish technology-based standards for various types of engines, EPA interprets its authority under section 231 to be somewhat similar to those provisions that require us to identify a reasonable balance of specified emissions reduction, cost, safety, noise, and other factors.

See, e.g.,

Husqvarna AB

EPA,

254 F.3d 195 (DC Cir. 2001) (upholding EPA's promulgation of technology-based standards for small non-road engines under section 213(a)(3) of the CAA). However, EPA is not compelled under section 231 to obtain the “greatest degree of emission reduction achievable” as per sections 213 and 202 of the CAA, and so EPA does not interpret the Act as requiring the agency to give subordinate status to factors such as cost, safety, and noise in determining what standards are reasonable for aircraft engines. Rather, EPA has greater flexibility under section 231 in determining what standard is most reasonable for aircraft engines, and is not required to achieve a “technology forcing” result.

70 FR 69664, 69676, November 17, 2005.

This interpretation was upheld as reasonable in

NACAA

EPA,

(489 F.3d 1221, 1230 (D.C. Cir. 2007)). CAA section 202(a) does not specify the degree of weight to apply to each factor, and EPA accordingly has discretion in choosing an appropriate balance among factors.

See Sierra Club

EPA,

325 F.3d 374, 378 (D.C. Cir. 2003) (even where a provision is technology-forcing, the provision “does not resolve how the Administrator should weigh all [the statutory] factors in the process of finding the 'greatest emission reduction achievable’ ”). Also

see Husqvarna AB

EPA,

254 F. 3d 195, 200 (D.C. Cir. 2001) (great discretion to balance statutory factors in considering level of technology-based standard, and statutory requirement “to [give appropriate] consideration to the cost of applying * * * technology” does not mandate a specific method of cost analysis);

see

also

Hercules Inc.

EPA,

598 F. 2d 91, 106 (D.C. Cir. 1978) (“In reviewing a numerical standard we must ask whether the agency's numbers are within a zone of reasonableness, not whether its numbers are precisely right”);

Permian Basin Area Rate Cases,

390 U.S. 747, 797 (1968) (same);

Federal Power Commission

Conway Corp.,

426 U.S. 271, 278 (1976) (same);

Exxon Mobil Gas Marketing Co.

FERC,

297 F. 3d 1071, 1084 (D.C. Cir. 2002) (same).

a. EPA's Testing Authority

Under section 203 of the CAA, sales of vehicles are prohibited unless the vehicle is covered by a certificate of conformity. EPA issues certificates of conformity pursuant to section 206 of the Act, based on (necessarily) pre-sale testing conducted either by EPA or by the manufacturer. The Federal Test Procedure (FTP or “city” test) and the Highway Fuel Economy Test (HFET or “highway” test) are used for this purpose. Compliance with standards is required not only at certification but throughout a vehicle's useful life, so that testing requirements may continue post-certification. Useful life standards may apply an adjustment factor to account for vehicle emission control deterioration or variability in use (section 206(a)).

Pursuant to EPCA, EPA is required to measure fuel economy for each model and to calculate each manufacturer's average fuel economy.

EPA uses the same tests—the FTP and HFET—for fuel economy testing. EPA established the FTP for emissions measurement in the early 1970s. In 1976, in response to the Energy Policy and Conservation Act (EPCA) statute, EPA extended the use of the FTP to fuel economy measurement and added the HFET.

The provisions in the 1976 regulation, effective with the 1977 model year, established procedures to calculate fuel economy values both for labeling and for CAFE purposes. Under EPCA, EPA is required to use these procedures (or procedures which yield comparable results) for measuring fuel economy for cars for CAFE purposes, but not for labeling purposes.

EPCA does not pose this restriction on CAFE test procedures for light trucks, but EPA does use the FTP and HFET for this purpose. EPA determines fuel economy by measuring the amount of CO

and all other carbon compounds (

e.g.

total hydrocarbons (THC) and carbon monoxide (CO)), and then, by mass balance, calculating the amount of fuel consumed.

See

49 U.S.C. 32904(c).

See

41 FR 38674 (Sept. 10, 1976), which is codified at 40 CFR part 600.

See

49 U.S.C. 32904(c).

b. EPA Enforcement Authority

Section 207 of the CAA grants EPA broad authority to require manufacturers to remedy vehicles if EPA determines there are a substantial number of noncomplying vehicles. In addition, section 205 of the CAA authorizes EPA to assess penalties of up to $37,500 per vehicle for violations of various prohibited acts specified in the CAA. In determining the appropriate penalty, EPA must consider a variety of factors such as the gravity of the violation, the economic impact of the violation, the violator's history of compliance, and “such other matters as justice may require.” Unlike EPCA, the CAA does not authorize vehicle manufacturers to pay fines in lieu of meeting emission standards.

3. Comparing the Agencies' Authority

As the above discussion makes clear, there are both important differences between the statutes under which each agency is acting as well as several important areas of similarity. One important difference is that EPA's authority addresses various GHGs, while NHTSA's authority addresses fuel economy as measured under specified test procedures. This difference is reflected in this rulemaking in the scope of the two standards: EPA's proposal takes into account air conditioning related reductions, as well as proposed standards for methane and N

O, but NHTSA's does not. A second important difference is that EPA is proposing certain compliance flexibilities, and takes those flexibilities into account in its technical analysis and modeling supporting its proposal. EPCA places certain limits on compliance flexibilities for CAFE, and expressly prohibits NHTSA from considering the impacts of the compliance flexibilities in setting the CAFE standard so that the manufacturers' election to avail themselves of the permitted flexibilities remains strictly voluntary.

The Clean Air Act, on the other hand, contains no such prohibition. These considerations result in some differences in the technical analysis and modeling used to support EPA's and NHTSA's proposed standards.

74 FR 24009 (May 22, 2009).

These differences, however, do not change the fact that in many critical ways the two agencies are charged with addressing the same basic issue of reducing GHG emissions and improving fuel economy. Given the direct relationship between emissions of CO

and fuel economy levels, both agencies are looking at the same set of control technologies (with the exception of the air conditioning related technologies). The standards set by each agency will drive the kind and degree of penetration of this set of technologies across the vehicle fleet. As a result, each agency is trying to answer the same basic question—what kind and degree of technology penetration is necessary to achieve the agencies' objectives in the rulemaking time frame, given the

agencies' respective statutory authorities?

In making the determination of what standards are appropriate under the CAA and EPCA, each agency is to exercise its judgment and balance many similar factors, such as the availability of technologies, the appropriate lead time for introduction of technology, and based on this the feasibility and practicability of their standards; the impacts of their standards on emissions reductions (of both GHGs and non-GHGs); the impacts of their standards on oil conservation; the impacts of their standards on fuel savings by consumers; the impacts of their standards on the auto industry; as well as other relevant factors such as impacts on safety. Conceptually, therefore, each agency is considering and balancing many of the same factors, and each agency is making a decision that at its core is answering the same basic question of what kind and degree of technology penetration is it appropriate to call for in light of all of the relevant factors. Finally, each agency has the authority to take into consideration impacts of the standards of the other agency. EPCA calls for NHTSA to take into consideration the effects of EPA's emissions standards on fuel economy capability (

see

49 U.S.C. 32902 (f)), and EPA has the discretion to take into consideration NHTSA's CAFE standards in determining appropriate action under section 202(a). This is consistent with the Supreme Court's statement that EPA's mandate to protect public health and welfare is wholly independent from NHTSA's mandate to promote energy efficiency, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.

Massachusetts

EPA

, 549 U.S. 497, 532 (2007).

In this context, it is in the Nation's interest for the two agencies to work together in developing their respective proposed standards, and they have done so. For example, the agencies have committed considerable effort to develop a joint Technical Support Document that provides a technical basis underlying each agency's analyses. The agencies also have worked closely together in developing and reviewing their respective modeling, to develop the best analysis and to promote technical consistency. The agencies have developed a common set of attribute-based curves that each agency supports as appropriate both technically and from a policy perspective. The agencies have also worked closely to ensure that their respective programs will work in a coordinated fashion, and will provide regulatory compatibility that allows auto manufacturers to build a single national light-duty fleet that would comply with both the GHG and the CAFE standards. The resulting overall close coordination of the proposed GHG and CAFE standards should not be surprising, however, as each agency is using a jointly developed technical basis to address the closely intertwined challenges of energy security and climate change. As discussed above, in determining the standards to propose the agencies are called upon to weigh and balance various factors that are relevant under their respective statutory provisions. Each agency is to exercise its judgment and balance many similar factors, such as the availability of technologies, the appropriate lead time for introduction of technology, and based on this, the feasibility and practicability of their standards; and the impacts of their standards on the following: Emissions reductions (of both GHGs and non-GHGs); oil conservation; fuel savings by consumers; the auto industry; as well as other relevant factors such as safety. Conceptually, each agency is considering and balancing many of the same factors, and each agency is making a decision that at its core is answering the same basic question of what kind and degree of technology penetration is appropriate and required in light of all of the relevant factors. Each Administrator is called upon to exercise judgment and propose standards that the Administrator determines are a reasonable balance of these relevant factors.

As set out in detail in Sections III and IV of this notice, both EPA and NHTSA believe the agencies' proposals are fully justified under their respective statutory criteria. The proposed standards can be achieved within the lead time provided, based on a projected increased use of various technologies which in most cases are already in commercial application in the fleet to varying degrees. Detailed modeling of the technologies that could be employed by each manufacturer supports this initial conclusion. The agencies also carefully assessed the costs of the proposed rules, both for the industry as a whole and per manufacturer, as well as the costs per vehicle, and consider these costs to be reasonable and recoverable (from fuel savings). The agencies recognize the significant increase in the application of technology that the proposed standards would require across a high percentage of vehicles, which will require the manufacturers to devote considerable engineering and development resources before 2012 laying the critical foundation for the widespread deployment of upgraded technology across a high percentage of the 2012-2016 fleet. This clearly will be challenging for automotive manufacturers and their suppliers, especially in the current economic climate. However, based on all of the analyses performed by the agencies, our judgment is that it is a challenge that can reasonably be met.

The agencies also evaluated the impacts of these standards with respect to the expected reductions in GHGs and oil consumption and, found them to be very significant in magnitude. The agencies considered other factors such as the impacts on noise, energy, and vehicular congestion. The impact on safety was also given careful consideration. Moreover, the agencies quantified the various costs and benefits of the proposed standards, to the extent practicable. The agencies' analyses to date indicate that the overall quantified benefits of the proposed standards far outweigh the projected costs. All of these factors support the reasonableness of the proposed standards.

The agencies also evaluated alternatives which were less and more stringent than those proposed. Less stringent standards, however, would forego important GHG emission reductions and fuel savings that are technically achievable at reasonable cost in the lead time provided. In addition, less stringent GHG standards would not result in a harmonized National Program for the country. Based on California's letter of May 18, 2009, the GHG emission standards would not result in the State of California revising its regulations such that compliance with EPA's GHG standards would be deemed to be compliance with California's GHG standards for these model years. The substantial cost advantages associated with a single national program discussed at the outset of this section would then be foregone.

The agencies are not proposing any of the more stringent alternatives analyzed largely due to concerns over lead time and economic practicability. The proposed standards already require aggressive application of technologies, and more stringent standards which would require more widespread use (including more substantial implementation of advanced technologies such as strong hybrids) raise serious issues of adequacy of lead time, not only to meet the standards but to coordinate such significant changes with manufacturers' redesign cycles. At a time when the entire industry remains in an economically critical state, the agencies believe that it would be

unreasonable to propose more stringent standards. Even in a case where economic factors were not a consideration, there are real-world time constraints which must be considered due to the short lead time available for the early years of this program, in particular for model years 2012 and 2013. The physical processes which the automotive industry must follow in order to introduce reliable, high quality products require certain minimums of time during the product development process. These include time needed for durability testing which requires significant mileage accumulation under a range of conditions (

e.g.

, high and low temperatures, high altitude,

etc.

) in both real-world and laboratory conditions. In addition, the product development cycle includes a number of pre-production gateways on the manufacturing side at both the supplier level and at the automotive manufacturer level that are constrained by time. Thus adequate lead-time is an important factor that the agencies have taken into consideration in evaluating the proposed standards as well as the alternative standards.

As noted, both agencies also considered the overall costs of their respective proposed standards in relation to the projected benefits. The fact that the benefits are estimated to considerably exceed their costs supports the view that the proposed standards represent a reasonable balance of the relevant statutory factors. In drawing this conclusion, the agencies acknowledge the uncertainties and limitations of the analyses. For example, the analysis of the benefits is highly dependent on the estimated price of fuel projected out many years into the future. There is also significant uncertainty in the potential range of values that could be assigned to the social cost of carbon. There are a variety of impacts that the agencies are unable to quantify, such as non-market damages, extreme weather, socially contingent effects, or the potential for longer-term catastrophic events, or the impact on consumer choice. The agencies also note the need to consider factors such as the availability of technology within the lead time provided and many of the other factors discussed above. The cost-benefit analyses are one of the important things the agencies consider in making a judgment as to the appropriate standards to propose under their respective statutes. Consideration of the results of the cost-benefit analyses by the agencies, however, includes careful consideration of the limitations discussed above.

One important area where the two agencies' authorities are similar but not identical involves the transfer of credits between a single firm's car and truck fleets. EISA revised EPCA to allow for such credit transfers, but with a cap on the amount of CAFE credits which can be transferred between the car and truck fleets. 49 U.S.C. 32903(g)(3). Under CAA section 202(a), EPA is proposing to allow CO

credit transfers between a single manufacturer's car and truck fleets, with no corresponding limits on such transfers. In general, the EPCA limit on CAFE credit transfers is not expected to have the practical effect of limiting the amount of CO

emission credits manufacturers may be able to transfer under the CAA program, recognizing that manufacturers must comply with both the proposed CAFE standards and the proposed EPA standards. However, it is possible that in some specific circumstances the EPCA limit on CAFE credit transfers could constrain the ability of a manufacturer to achieve cost savings through unlimited use of GHG emissions credit transfers under the CAA program.

The agencies request comment on the impact of the EISA credit transfer caps on the implementation of the proposed CAFE and GHG standards, including whether it would impose such a constraint and the impacts of a constraint on costs, emissions, and fuel economy. In addition, the agencies invite comment on approaches that could assist in addressing this issue, recognizing the importance the agencies place on harmonization, and that would be consistent with their respective statutes. For example, any approach must be consistent with both the EISA transfer caps and the EPCA requirement to set annual CAFE standards at the maximum feasible average fuel economy level that NHTSA decides the manufacturers can achieve in that model year, based on the agency's consideration of the four statutory factors. Manufacturers should submit publicly available evidence supporting their position on this issue so that a well informed decision can be made and explained to the public.

D. Summary of the Proposed Standards for the National Program

1. Joint Analytical Approach

NHTSA and EPA have worked closely together on nearly every aspect of this joint proposal. The extent and results of this collaboration is reflected in the elements of the respective NHTSA and EPA proposals, as well as the analytical work contained in the Joint Technical Support Document (Joint TSD). The Joint TSD, in particular, describes important details of the analytical work that are shared, as well as any differences in approach. These includes the build up of the baseline and reference fleets, the derivation of the shape of the curve that defines the standards, a detailed description of the costs and effectiveness of the technology choices that are available to vehicle manufacturers, a summary of the computer models used to estimate how technologies might be added to vehicles, and finally the economic inputs used to calculate the impacts and benefits of the rules, where practicable. Some of these are highlighted below.

EPA and NHTSA have jointly developed attribute curve shapes that each agency is using for its proposed standards. Both agencies reviewed the shape of the attribute-based curve used for the model year 2011 CAFE standards. After a new and thorough analysis of current vehicle data and the comments received from previous two CAFE rules, the two agencies improved upon the constrained logistic curve and developed a similarly shaped piece-wise linear function. Further details of these functions can be found in Sections III and IV of this preamble as well as Chapter 2 of the Joint TSD.

A critical technical underpinning of each agency's proposal is the cost and effectiveness of the various control technologies. These are used to analyze the feasibility and cost of potential GHG and CAFE standards. The technical work reflected in the joint TSD is the culmination of over 3 years of literature research, consultation with experts, detailed computer simulations, vehicle tear-downs and engineering review, all of which will continue into the future as more data becomes available. To promote transparency, the vast majority of this information is collected from publically available sources, and can be found in the docket of this rule. Non-public (

i.e.,

confidential manufacturer) information was used only to the limited extent it was needed to fill a data void. A detailed description of all of the technology information considered can be found in Chapter 3 of the Joint TSD (and for A/C, Chapter 2 of the EPA RIA).

This detailed technology data forms the inputs to computer models that each agency uses to project how vehicle manufacturers may add those technologies in order to comply with new standards. These are the OMEGA and Volpe models for EPA and NHTSA respectively. The Volpe model is

tailored for NHTSA's EPCA and EISA needs, while the OMEGA model is tailored for EPA's CAA needs. In developing the National Program, EPA and NHTSA have worked closely to ensure that consistent and reasonable results are achieved from both models. This fruitful collaboration has resulted in the improvement of both approaches and now, far from being redundant, these models serve the purposes of the respective agencies while also maintaining an important validating role. The models and their inputs can also be found in the docket. Further description of the model and outputs can be found in Sections II and IV of this preamble, and Chapter 3 of the Joint TSD.

This comprehensive joint analytical approach has provided a sound and consistent technical basis for each agency in developing its proposed standards, which are summarized in the sections below.

2. Level of the Standards

In this notice, EPA and NHTSA are proposing two separate sets of standards, each under its respective statutory authorities. EPA is proposing national CO

emissions standards for light-duty vehicles under section 202 (a) of the Clean Air Act. These standards would require these vehicles to meet an estimated combined average emissions level of 250 grams/mile of CO

in model year 2016. NHTSA is proposing CAFE standards for passenger cars and light trucks under 49 U.S.C. 32902. These standards would require them to meet an estimated combined average fuel economy level of 34.1 mpg in model year 2016. The proposed standards for both agencies begin with the 2012 model year, with standards increasing in stringency through model year 2016. They represent a harmonized approach that will allow industry to build a single national fleet that will satisfy both the GHG requirements under the CAA and CAFE requirements under EPCA/EISA.

Given differences in their respective statutory authorities, however, the agencies' proposed standards include some important differences. Under the CO

fleet average standard proposed under CAA section 202(a), EPA expects manufacturers to take advantage of the option to generate CO

-equivalent credits by reducing emissions of hydrofluorocarbons (HFCs) and CO

through improvements in their air conditioner systems. EPA accounted for these reductions in developing its proposed CO

standard. EPCA does not allow vehicle manufacturers to use air conditioning credits in complying with CAFE standards for passenger cars.

emissions due to air conditioning operation are not measured by the test procedure mandated by statute for use in establishing and enforcing CAFE standards for passenger cars. As a result, improvements in the efficiency of passenger car air conditioners would not be considered as a possible control technology for purposes of CAFE.

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

These differences regarding the treatment of air conditioning improvements (related to CO

and HFC reductions) affect the relative stringency of the EPA standard and NHTSA standard. The 250 grams per mile of CO

equivalent emissions limit is equivalent to 35.5 mpg

if the automotive industry were to meet this CO

level all through fuel economy improvements. As a consequence of the prohibition against NHTSA's allowing credits for air conditioning improvements for purposes of passenger car CAFE compliance, NHTSA is proposing fuel economy standards that are estimated to require a combined (passenger car and light truck) average fuel economy level of 34.1 mpg by MY 2016.

The agencies are using a common conversion factor between fuel economy in units of miles per gallon and CO

emissions in units of grams per mile. This conversion factor is 8,887 grams CO

per gallon gasoline fuel. Diesel fuel has a conversion factor of 10,180 grams CO

per gallon diesel fuel though for the purposes of this calculation, we are assuming 100% gasoline fuel.

NHTSA and EPA's proposed standards, like the standards NHTSA promulgated in March 2009 for model year 2011 (MY 2011), are expressed as mathematical functions depending on vehicle footprint. Footprint is one measure of vehicle size, and is determined by multiplying the vehicle's wheelbase by the vehicle's average track width.

The standards that must be met by the fleet of each manufacturer would be determined by computing the sales-weighted harmonic average of the targets applicable to each of the manufacturer's passenger cars and light trucks. Under these proposed footprint-based standards, the levels required of individual manufacturers depend, as noted above, on the mix of vehicles sold. NHTSA and EPA's respective proposed standards are shown in the tables below. It is important to note that the standards are the attribute-based curves proposed by each agency. The values in the tables below reflect the agencies' projection of the corresponding fleet levels that would result from these attribute-based curves.

See

49 CFR 523.2 for the exact definition of “footprint.”

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

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

Table I.D.2-1—Average Required Fuel Economy (mpg) Under Proposed CAFE Standards

2011-base

2012

2013

2014

2015

2016

Passenger Cars

30.2

33.6

34.4

35.2

36.4

38.0

Light Trucks

24.1

25.0

25.6

26.2

27.1

28.3

Combined Cars & Trucks

27.3

29.8

30.6

31.4

32.6

34.1

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

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

Table I.D.2-2—Projected Fleet-Wide Achieved CAFE Levels Under the Proposed Footprint-Based CAFE Standards (mpg)

2012

2013

2014

2015

2016

Passenger Cars

32.5

33.4

34.3

35.3

36.5

Light Trucks

24.1

24.6

25.3

26.3

27.0

Combined Cars & Trucks

28.7

29.6

30.4

31.6

32.7

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

49 U.S.C. 32902(b)(4).

Based on NHTSA's current market forecast, the agency's estimates of these minimum standards under the proposed MY 2012-2016 CAFE standards (and, for comparison, the final MY 2011 standard) are summarized below in Table I.D.2-3.

For eventual compliance calculations, the final calculated minimum standards will be updated to reflect any changes in the average fuel economy level required under the final standards.

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

Table I.D.2-3—Estimated Minimum Standard for Domestically Manufactured Passenger Cars Under Final MY 2011 and Proposed MY 2012-2016 CAFE Standards for Passenger Cars (mpg)

2011

2012

2013

2014

2015

2016

28.0

30.9

31.6

32.4

33.5

34.9

EPA is proposing GHG emissions standards, and Table I.D.2-4 provides EPA's estimates of their projected overall fleet-wide CO

equivalent emission levels.

The g/mi values are CO

equivalent values because they include the projected use of A/C credits by manufacturers.

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

Table I.D.2-4—Projected Fleet-Wide Emissions Compliance Levels Under the Proposed Footprint-Based CO

Standards (g/mi)

2012

2013

2014

2015

2016

Passenger Cars

261

253

246

235

224

Light Trucks

352

341

332

317

302

Combined Cars & Trucks

295

286

276

263

250

As shown in Table I.D.2-4, projected fleet-wide CO

emission level requirements for cars under the proposed approach are projected to increase in stringency from 261 to 224 grams per mile between MY 2012 and MY 2016. Similarly, fleet-wide CO

equivalent emission level requirements for trucks are projected to increase in stringency from 352 to 302 grams per mile. As shown, the overall fleet average CO

level requirements are projected to be 250 g/mile in 2016.

EPA anticipates that manufacturers will take advantage of program flexibilities such as flex fueled vehicle credits, and car/truck credit trading. Due to the credit trading between cars and trucks, the estimated improvements in CO

emissions are distributed differently than shown in Table I.D 2-4, where full manufacturer compliance is assumed. Table I.D.2-5 shows EPA projection of the achieved emission levels of the fleet for MY 2012 through 2016, which does consider the impact of car/truck credit transfer and the increase in emissions due to program flexibilities including flex fueled vehicle credits and the temporary leadtime allowance alternative standards. The use of optional air conditioning credits is considered both in this analysis of achieved levels and of the projected levels described above.. As can be seen in Table I.D.2-5, the projected achieved levels are slightly higher for model years 2012-2015 due to the projected use of the proposed flexibilities, but in model

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

Table I.D.2-5—Projected Fleet-Wide Achieved Emission Levels Under the Proposed Footprint-Based CO

Standards (g/mi)

2012

2013

2014

2015

2016

Passenger Cars

264

254

245

232

220

Light Trucks

365

355

346

332

311

Combined Cars & Trucks

302

291

281

267

250

NHTSA's and EPA's technology assessment indicates there is a wide range of technologies available for manufacturers to consider in upgrading vehicles to reduce GHG emissions and improve fuel economy.

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

The close relationship between emissions of CO

—the most prevalent greenhouse gas emitted by motor vehicles—and fuel consumption, means that the technologies to control CO

emissions and to improve fuel economy overlap to a great degree

With respect to the practicability of the standards in terms of lead time, during MYs 2012-2016 manufacturers are expected to go through the normal automotive business cycle of redesigning and upgrading their light-duty vehicle products, and in some cases introducing entirely new vehicles not on the market today. This proposal would allow manufacturers the time needed to incorporate technology to achieve GHG reductions and improve fuel economy during the vehicle redesign process. This is an important aspect of the proposal, as it avoids the much higher costs that would occur if manufacturers needed to add or change technology at times other than their scheduled redesigns. This time period would also provide manufacturers the opportunity to plan for compliance using a multi-year time frame, again consistent with normal business practice. Over these five model years, there would be an opportunity for manufacturers to evaluate almost every one of their vehicle model platforms and add technology in a cost effective way to control GHG emissions and improve fuel economy. This includes redesign of the air conditioner systems in ways that will further reduce GHG emissions.

Both agencies considered other standards as part of the rulemaking analyses, both more and less stringent than those proposed. EPA's and NHTSA's analysis of alternative standards are contained in Sections III and IV of this notice, respectively.

The CAFE and GHG standards described above are based on determining emissions and fuel economy using the city and highway test procedures that are currently used in the CAFE program. Both agencies recognize that these test procedures are not fully representative of real world driving conditions. For example EPA has adopted more representative test procedures that are used in determining compliance with emissions standards for pollutants other than GHGs. These test procedures are also used in EPA's fuel economy labeling program. However, as discussed in Section III, the current information on effectiveness of the individual emissions control technologies is based on performance over the two CAFE test procedures. For that reason EPA is proposing to use the current CAFE test procedures for the proposed CO

standards and is not proposing to change those test procedures in this rulemaking. NHTSA, as discussed above, is limited by statute in what test procedures can be used for purposes of passenger car testing; however there is no such statutory limitation with respect to test procedures for trucks. However, the same reasons for not changing the truck test procedures apply for CAFE as well.

Both EPA and NHTSA are interested in developing programs that employ test procedures that are more representative of real world driving conditions, to the extent authorized under their respective statutes. This is an important issue, and the agencies intend to address it in the context of a future rulemaking to address standards for model year 2017 and thereafter. This could include a range of test procedure changes to better represent real-world driving conditions in terms of speed, acceleration, deceleration, ambient temperatures, use of air conditioners, and the like. With respect to air conditioner operation, EPA discusses the procedures it intends to use for determining emissions credits for controls on air conditioners in Section III. Comment is also invited in Section IV on the issue of providing air conditioner credits under 49 U.S.C. 32902 and/or 32904 for light-trucks in the model years covered by this proposal.

Finally, based on the information EPA developed in its recent rulemaking that updated its fuel economy labeling program to better reflect average real-world fuel economy, the calculation of fuel savings and CO

emissions reductions obtained by the proposed CAFE and GHG standards includes adjustments to account for the difference between the fuel economy level measured in the CAFE test procedure and the fuel economy actually achieved on average under real world driving conditions. These adjustments are industry averages for the vehicles' performance as a whole, however, and are not a substitute for the information on effectiveness of individual control technologies that will be explored for purposes of a future GHG and CAFE rulemaking.

3. Form of the Standards

In this rule, NHTSA and EPA are proposing attribute-based standards for passenger cars and light trucks. NHTSA adopted an attribute standard based on vehicle footprint in its Reformed CAFE program for light trucks for model years 2008-2011,

and recently extended this approach to passenger cars in the CAFE rule for MY 2011 as required by EISA.

EPA and NHTSA are proposing vehicle footprint as the attribute for the GHG

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

71 FR 17566 (Apr. 6, 2006).

74 FR 14196 (Mar. 30, 2009).

Under the proposed footprint-based standards, each manufacturer would have a GHG and CAFE target unique to its fleet, depending on the footprints of the vehicle models produced by that manufacturer. A manufacturer would have separate footprint-based standards for cars and for trucks. Generally, larger vehicles (

i.e.

, vehicles with larger footprints) would be subject to less stringent standards (

i.e.

, higher CO

grams/mile standards and lower CAFE standards) than smaller vehicles. This is because, generally speaking, smaller vehicles are more capable of achieving higher standards than larger vehicles. While a manufacturer's fleet average standard could be estimated throughout the model year based on projected production volume of its vehicle fleet, the standard to which the manufacturer must comply would be based on its final model year production figures. A manufacturer's calculation of fleet average emissions at the end of the model year would thus be based on the production-weighted average emissions of each model in its fleet.

In designing the footprint-based standards, the agencies built upon the footprint standard curves for passenger cars and light trucks used in the CAFE rule for MY 2011.

EPA and NHTSA worked together to design car and truck footprint curves that followed from logistic curves used in that rule. The agencies started by addressing two main concerns regarding the car curve. The first concern was that the 2011 car curve was relatively steep near the inflection point thus causing concern that small variations in footprint could produce relatively large changes in fuel economy targets. A curve that was directionally less steep would reduce the potential for gaming. The second issue was that the inflection point of the logistic curve was not centered on the distribution of vehicle footprints across the industries' fleet, thus resulting in a flat (universal or unreformed) standard for over half the fleet. The proposed car curve has been shifted and made less steep compared to the car curve adopted by NHTSA for 2011, such that it better aligns the sloped region with higher production volume vehicle models. Finally, both the car and truck curves are defined in terms of a constrained linear function for fuel consumption and, equivalently, a piece-wise linear function for CO

. NHTSA and EPA include a full discussion of the development of these curves in the joint TSD and a summary is found in Section II below. In addition, a full discussion of the equations and coefficients that define the curves is included in Section III for the CO

curves and Section IV for the mpg curves. The following figures illustrate the standards. First Figure I.D.3-1 shows the fuel economy (mpg) car standard curve.

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

Under an attribute-based standard, every vehicle model has a performance target (fuel economy for the CAFE standards, and CO

g/mile for the GHG emissions standards), the level of which depends on the vehicle's attribute (for this proposal, footprint). The manufacturers' fleet average performance is determined by the production-weighed

average (for CAFE, harmonic average) of those targets. NHTSA and EPA are proposing CAFE and CO

emissions standards defined by constrained linear functions and, equivalently, piecewise linear functions.

As a possible option for future rulemakings, the constrained linear form was introduced by NHTSA in the 2007 NPRM proposing CAFE standards for MY 2011-2015.

Production for sale in the United States.

The equations are equivalent but are specified differently due to differences in the agencies' respective models.

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

BILLING CODE 4910-59-P

EP28SE09.000

EP28SE09.001

EPA is proposing the attribute curves below for assigning a CO

level to an individual vehicle's footprint value, for model years 2012 through 2016. These CO

values would be production weighted to determine each manufacturer's fleet average standard for cars and trucks. Although the general model of the equation is the same for each vehicle category and each year, the parameters of the equation differ for cars and trucks. Each parameter also changes on an annual basis, resulting in the yearly increases in stringency. Figure I.D.3-3 below illustrates the CO

car standard curves for model years 2012 through 2016 while Figure I.D.3-4 shows the CO

truck standard curves for Model Years 2012-2016.

EP28SE09.002

EP28SE09.003

BILLING CODE 4910-59-C

NHTSA and EPA propose to use the same vehicle category definitions for determining which vehicles are subject to the car footprint curves versus the truck curve standards. In other words, a vehicle classified as a car under the NHTSA CAFE program would also be classified as a car under the EPA GHG program, and likewise for trucks. EPA and NHTSA are proposing to employ the same car and truck definitions for the MY 2012-2016 CAFE and GHG standards as those used in the CAFE program for the 2011 model year standards.

This proposed approach of using CAFE definitions allows EPA's

proposed CO

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

49 CFR part 523.

Generally speaking, a smaller footprint vehicle will have lower CO

emissions relative to a larger footprint vehicle. A footprint-based CO

standard can be relatively neutral with respect to vehicle size and consumer choice. All vehicles, whether smaller or larger, must make improvements to reduce CO

emissions, and therefore all vehicles will be relatively more expensive. With the footprint-based standard approach, EPA and NHTSA believe there should be no significant effect on the relative distribution of different vehicle sizes in the fleet, which means that consumers will still be able to purchase the size of vehicle that meets their needs. Table I.D.3-1 illustrates the fact that different vehicle sizes will have varying CO

emissions and fuel economy targets under the proposed standards.

Table I.D.3-1—Model Year 2016 CO

and Fuel Economy Targets for Various MY 2008 Vehicle Types

Vehicle type

Example models

Example model footprint (sq. ft.)

emissions target

(g/mi)

Fuel economy target

(mpg)

Example Passenger Cars

Compact car

Honda Fit

214

41.4

Midsize car

Ford Fusion

237

37.3

Fullsize car

Chrysler 300

270

32.8

Example Light-Duty Trucks

Small SUV

4WD Ford Escape

269

32.8

Midsize crossover

Nissan Murano

289

30.6

Minivan

Toyota Sienna

313

28.2

Large pickup truck

Chevy Silverado

358

24.7

E. Summary of Costs and Benefits for the Joint Proposal

This section summarizes the projected costs and benefits of the proposed CAFE and GHG emissions standards. These projections helped inform the agencies' choices among the alternatives considered and provide further confirmation that proposed standards fall within the spectrum of choices allowable under their respective statutory criteria. The costs and benefits projected by NHTSA to result from NHTSA's proposed CAFE standards are presented first, followed by those from EPA's analysis of the proposed GHG emissions standards.

The agencies recognize that there are uncertainties regarding the benefit and cost values presented in this proposal. Some benefits and costs are not quantified. The values of other benefits and costs could be too low or too high.

For several reasons, the estimates for costs and benefits presented by NHTSA and EPA, while consistent, are not directly comparable, and thus should not be expected to be identical. Most important, NHTSA and EPA's proposed standards would require slightly different fuel efficiency improvements. EPA's proposed GHG standard is more stringent in part due to its assumptions about manufacturers' use of air conditioning credits, which result from reductions in air conditioning-related emissions of HFCs and CO

. In addition, the proposed CAFE and GHG standards offer different program flexibilities, and the agencies' analyses differ in their accounting for these flexibilities (for example, FFVs

etc

.), primarily because NHTSA is statutorily prohibited from considering some flexibilities when establishing CAFE standards, while EPA is not. These differences contribute to differences in the agencies' respective estimates of costs and benefits resulting from the new standards.

Because EPCA prohibits NHTSA from considering the use of FFV credits when

establishing

CAFE standards, the agency's primary analysis of costs, fuel savings, and related benefits from imposing higher CAFE standards does not include them. However, EPCA does not prohibit NHTSA from considering the fact that manufacturers may pay civil penalties rather than complying with CAFE standards, and NHTSA's primary analysis accounts for some manufacturers' tendency to do so. In addition, NHTSA performed a supplemental analysis of the effect of FFV credits on benefits and costs from its proposed CAFE standards, to demonstrate the real-world impacts of FFVs, and the summary estimates presented in Section IV include these effects. Including the use of FFV credits reduces estimated per-vehicle compliance costs of the program. However, as shown below, including FFV credits does not significantly change the projected fuel savings and CO

reductions, because FFV credits reduce the fuel economy levels that manufacturers achieve not only under the proposed standards, but also under the baseline MY 2011 CAFE standards.

Also, EPCA, as amended by EISA, allows manufacturers to transfer credits between their passenger car and light truck fleets. However, EPCA also prohibits NHTSA from considering manufacturers' ability to use CAFE credits when determining the stringency of the CAFE standards. Because of this prohibition, NHTSA's primary analysis does not account for the extent to which credit transfers might actually occur. For purposes of its supplemental analysis, NHTSA considered accounting for the fact that EPCA allows some transfer of CAFE credits between the passenger car and light truck fleets, but determined that in NHTSA's year-by-year analysis, manufacturers' likely credit transfers cannot be reasonably estimated at this time.

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

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

EPA made explicit assumptions about manufacturers' use of FFV credits under both the baseline and control alternatives, and its estimates of costs and benefits from the proposed GHG standards reflect these assumptions. However, under the proposed GHG standards, FFV credits would be available through MY 2015; starting in MY 2016, EPA proposes to allow FFV credits only based on a manfucturers's demonstration that the alternative fuel is actually being used in the vehicles and the actual GHG performance for the vehicle run on that alternative fuel.

EPA's analysis also assumes that manufacturers would transfer credits between their car and truck fleets in the MY 2011 baseline subject to the maximum value allowed by EPCA, and that unlimited car-truck credit transfers would occur under the proposed GHG standards. Including these assumptions in EPA's analysis increases the resulting estimates of fuel savings and reductions in GHG emissions, while reducing EPA's estimates of program compliance costs.

Finally, under the proposed EPA GHG program, there is no ability for a manufacturer to intentionally pay fines in lieu of meeting the standard. Under EPCA, however, vehicle manufacturers are allowed to pay fines as an alternative to compliance with applicable CAFE standards. NHTSA's analysis explicitly estimates the level of voluntary fine payment by individual manufacturers, which reduces NHTSA's estimates of both the costs and benefits of its proposed CAFE standards. In contrast, the CAA does not allow for fine payment in lieu of compliance with emission standards, and EPA's analysis of costs and benefits from its proposed standard thus assumes full compliance. This assumption results in higher estimates of fuel savings, reductions in GHG emissions, and manufacturers' compliance costs to sell fleets that comply with both NHTSA's proposed CAFE program and EPA's proposed GHG program.

In summary, the projected costs and benefits presented by NHTSA and EPA are not directly comparable, because the levels being proposed by EPA include air conditioning-related improvements in equivalent fuel efficiency and HFC reductions, because the assumptions incorporated in EPA's analysis regarding car-truck credit transfers, and because of the projection by EPA of complete compliance with the proposed GHG standards. It should also be expected that overall EPA's estimates of GHG reductions and fuel savings achieved by the proposed GHG standards will be slightly higher than those projected by NHTSA only for the CAFE standards because of the reasons described above. For the same reasons, EPA's estimates of manufacturers' costs for complying with the proposed passenger car and light trucks GHG standards are slightly higher than NHTSA's estimates for complying with the proposed CAFE standards.

1. Summary of Costs and Benefits of Proposed NHTSA CAFE Standards

Without accounting for the compliance flexibilities that NHTSA is prohibited from considering when determining the level of new CAFE standards, since manufacturers' decisions to use those flexibilities are voluntary, NHTSA estimates that these fuel economy increases would lead to fuel savings totaling 62 billion gallons throughout the useful lives of vehicles sold in MYs 2012-2016. At a 3% discount rate, the present value of the economic benefits resulting from those fuel savings is $158 billion.

The agency further estimates that these new CAFE standards would lead to corresponding reductions in CO

emissions totaling 656 million metric tons (mmt) during the useful lives of vehicles sold in MYs 2012-2016. The present value of the economic benefits from avoiding those emissions is $16.4 billion, based on a global social cost of carbon value of $20 per metric ton,

although NHTSA estimated the benefits associated with five different values of a one ton GHG reduction ($5, $10, $20, $34, $56).

See

Section II for a more detailed discussion of the social cost of carbon. It is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO

emissions reductions. The two agencies' standards together comprise the National Program, and this discussion of costs and benefits of NHTSA's CAFE standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

We have developed two interim estimates of the global social cost of carbon (SCC) ($/tCO

in 2007 (2006$)): $33 per tCO

at a 3% discount rate, and $5 per tCO

with a 5% discount rate. The 3% and 5% estimates have independent appeal and at this time a clear preference for one over the other is not warranted. Thus, we have also included—and centered our current attention on—the average of the estimates associated with these discount rates, which is $19 (in 2006$) per ton of CO

emissions. When converted to 2007$ for consistency with other economic values used in the agency's analysis, this figure corresponds to $20 per metric ton of CO

emissions occurring in 2007. This value is assumed to increase at 3% annually for emissions occurring after 2007.

The $10 and $56 figures are alternative interim estimates based on uncertainty about interest rates of long periods of time. They are based on an approach that models discount rate uncertainty as something that evolves over time; in contrast, the preferred approach mentioned in the immediately preceding paragraph assumes that there is a single discount rate with equal probability of 3% and 5%.

Table I.E.1-1—NHTSA Fuel Saved (Billion Gallons) and CO

Emissions Avoided (mmt) Under Proposed CAFE Standards (Without FFV Credits)

2012

2013

2014

2015

2016

Total

Fuel (b. gal.)

(mmt)

137

173

206

656

Considering manufacturers' ability to earn credit toward compliance by selling FFVs, NHTSA estimates very little change in incremental fuel savings and avoided CO

emissions, assuming FFV credits would be used toward both the baseline and proposed standards:

Table I.E.1-2—NHTSA Fuel Saved (Billion Gallons) and CO

Emissions Avoided (mmt) Under Proposed CAFE Standards (With FFV Credits)

2012

2013

2014

2015

2016

Total

Fuel (b. gal.)

(mmt)

129

167

204

639

NHTSA estimates that these fuel economy increases would produce other benefits both to drivers (

e.g.,

reduced time spent refueling) and to the U.S. (

e.g.,

reductions in the costs of petroleum imports

beyond

the direct savings from reduced oil purchases, as well as some disbenefits (

e.g.,

increase traffic congestion) caused by drivers' tendency to travel more when the cost of driving declines (as it does when fuel economy increases). NHTSA has estimated the total monetary value to society of these benefits and disbenefits, and estimates that the proposed standards will produce significant net benefits to society. Using a 3% discount rate, NHTSA estimates that the present value of these benefits would total more than $200 billion over the useful lives of vehicles sold during MYs 2012-2016. More discussion regarding monetized benefits can be found in Section IV of this notice and in NHTSA's Regulatory Impact Analysis.

Table I.E.1-3—NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (Before FFV Credits, Using 3 Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars

7.6

17.0

24.4

31.2

38.7

119.1

Light Trucks

5.5

11.6

17.3

22.2

26.0

82.6

Combined

13.1

28.7

41.8

53.4

64.7

201.7

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

Table I.E.1-4—NHTSA Discounted Benefits ($Billion) Under Proposed Standards (Before FFV Credits, Using 7 Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars

6.0

13.6

19.5

25.0

31.1

95.3

Light Trucks

4.3

9.1

13.5

17.4

20.4

64.6

Combined

10.3

22.6

33.1

42.4

51.5

159.8

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

Table I.E.1-5

—NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 3 Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars

7.8

15.9

22.5

28.6

37.1

111.9

Light Trucks

6.1

10.2

15.9

22.1

26.3

80.5

Combined

13.9

26.1

38.4

50.7

63.3

192.5

Table I.E.1-5

—NHTSA Discounted Benefits ($Billion) Under Proposed CAFE Standards (With FFV Credits, Using a 7 Percent Discount Rate)

2012

2013

2014

2015

2016

Total

Passenger Cars

6.2

12.7

18.0

23.0

29.8

89.6

Light Trucks

4.7

7.9

12.4

17.3

20.6

63.0

Combined

10.9

20.6

20.4

40.3

50.4

152.5

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

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

Table I.E.1-6—Summary of Benefits Fuel Savings and CO

Emissions Reduction Due to the Proposed Rule (Before FFV Credits)

Amount

Monetized value (discounted)

3% Discount rate

7% Discount rate

Fuel savings

61.6 billion gallons

$158.0 billion

$125.3 billion.

emissions reductions

656 million metric tons (mmt)

$16.4 billion

$12.8 billion.

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

i.e.,

during MYs 2012-2016).

Table I.E.1-7—NHTSA Incremental Technology Outlays ($Billion) Under Proposed CAFE Standards (Before FFV Credits)

2012

2013

2014

2015

2016

Total

Passenger Cars

4.1

6.5

8.4

9.9

11.8

40.8

Light Trucks

1.5

2.8

4.0

5.2

5.9

19.4

Combined

5.7

9.3

12.5

15.1

17.6

60.2

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

Table I.E.1-8—NHTSA Incremental Technology Outlays ($Billion) Under Proposed CAFE Standards (With FFV Credits)

2012

2013

2014

2015

2016

Total

Passenger Cars

2.5

4.4

6.1

7.4

9.3

29.6

Light Trucks

1.3

2.0

3.1

4.3

5.0

15.6

Combined

3.7

6.3

9.2

11.7

14.2

45.2

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

Table I.E.1-9—NHTSA Incremental Increases in Average New Vehicle Costs ($) Under Proposed CAFE Standards (Before FFV Credits)

2012

2013

2014

2015

2016

Passenger Cars

591

735

877

979

1,127

Light Trucks

283

460

678

882

1,020

Combined

476

635

806

945

1,091

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

Table I.E.1-10—NHTSA Incremental Increases in Average New Vehicle Costs ($) Under Proposed CAFE Standards (With FFV Credits)

2012

2013

2014

2015

2016

Passenger Cars

295

448

591

695

851

Light Trucks

231

347

533

758

895

Combined

271

411

571

716

866

NHTSA estimates, therefore, that the total benefits of these proposed standards would be more than three times the magnitude of the corresponding costs. As a consequence, its proposed standards would produce net benefits of $142 billion at a 3 percent discount rate (with FFV credits, $147 billion) or $100 billion at a 7 percent discount rate over the useful lives of vehicles sold during MYs 2012-2016.

2. Summary of Costs and Benefits of Proposed EPA GHG Standards

EPA has conducted a preliminary assessment of the costs and benefits of the proposed GHG standards. Table I.E.2-1 shows EPA's estimated lifetime fuel savings and CO

equivalent emission reductions for all vehicles sold in the model years 2012-2016. The values in Table I.E.2-1 are projected lifetime totals for each model year and are not discounted. As documented in DRIA Chapter 5, the potential credit transfer between cars and trucks may change the distribution of the fuel savings and GHG emission impacts between cars and trucks. As discussed above with respect to NHTSA's CAFE standards, it is important to note that NHTSA's CAFE standards and EPA's GHG standards will both be in effect, and each will lead to increases in average fuel economy and CO

emissions reductions. The two agency's standards together comprise the National Program, and this discussion of costs and benefits of EPA's GHG standards does not change the fact that both the CAFE and GHG standards, jointly, are the source of the benefits and costs of the National Program.

Table I.E.2-1—EPA's Estimated 2012-2016 Model Year Lifetime Fuel Saved and GHG Emissions Avoided

2012

2013

2014

2015

2016

Total

Cars

Fuel (billion gallons)

Fuel (billion barrels)

0.1

0.2

0.3

1.0

EQ (mmt)

137

179

539

Light Trucks

Fuel (billion gallons)

Fuel (billion barrels)

0.1

0.2

0.3

0.8

EQ (mmt)

107

143

408

Combined

Fuel (billion gallons)

Fuel (billion barrels)

0.2

0.3

0.5

0.6

1.8

EQ (mmt)

125

174

244

323

947

Table I.E.2-2 shows EPA's estimated lifetime discounted benefits for all vehicles sold in model years 2012-2016. Although EPA estimated the benefits associated with five different values of a one ton GHG reduction ($5, $10, $20, $34, $56), for the purposes of this overview presentation of estimated benefits EPA is showing the benefits associated with one of these marginal values, $20 per ton of CO

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

Table I.E.2-2—EPA's Estimated 2012-2016 Model Year Lifetime Discounted Benefits Assuming the $20/Ton SCC Value

[$Billions of 2007 dollars]

Discount rate

Model year

2012

2013

2014

2015

2016

Total

$20.4

$31.7

$44.9

$63.7

$87.2

$248

15.8

24.7

34.9

49.3

67.7

193

The benefits include all benefits considered by EPA such as fuel savings, GHG reductions, PM benefits, energy security and other externalities such as reduced refueling and accidents, congestion and noise.

Table I.E.2-3 shows EPA's estimated lifetime fuel savings, lifetime CO

emission reductions, and the monetized net present values of those fuel savings and CO

emission reductions. The gallons of fuel and CO

emission reductions are projected lifetime values for all vehicles sold in the model years 2012-2016. The estimated fuel savings in billions of barrels and the GHG reductions in million metric tons of CO

shown in Table I.E.2-3 are totals for the five model years throughout their projected lifetime and are not discounted. The monetized values shown in Table I.E.2-3 are the summed values of the discounted monetized-fuel savings and monetized-CO

reductions for the five model years 2012-2016 throughout their lifetimes. The monetized values in Table I.E.2-3 reflect both a 3 percent and a 7 percent discount rate as noted.

Table I.E.2-3—EPA's Estimated 2012-2016 Model Year Lifetime Fuel Savings, CO

Emission Reductions, and Discounted Monetized Benefits at a 3% Discount Rate

[Monetized values in 2007 dollars]

Amount

$ value

(billions)

Fuel savings

1.8 billion barrels

$193, 3% discount rate.

$151, 7% discount rate.

emission reductions (valued assuming $20/ton CO

in 2007)

947 MMT CO

$21.0, 3% discount rate.

$15.0, 7% discount rate.

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

Table I.E.2-4—EPA's Estimated Incremental Technology Outlays

[$Billions of 2007 dollars]

2012

2013

2014

2015

2016

Total

Cars

$3.5

$5.3

$7.0

$8.9

$10.7

$35.3

Trucks

2.0

3.1

4.0

5.1

6.8

20.9

Combined

5.4

8.4

10.9

13.9

17.5

56.1

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

Table I.E.2-5—EPA's Estimated Incremental Increase in Average New Vehicle Cost

[2007 Dollars per unit]

2012

2013

2014

2015

2016

Cars

$374

$531

$663

$813

$968

Trucks

358

539

682

886

1,213

Combined

368

534

670

838

1,050

F. Program Flexibilities for Achieving Compliance

EPA's and NHTSA's proposed programs provide compliance flexibility to manufacturers, especially in the early years of the National Program. This flexibility is expected to provide sufficient lead time for manufacturers to make necessary technological improvements and reduce the overall cost of the program, without compromising overall environmental and fuel economy objectives. The broad goal of harmonizing the two agencies' proposed standards includes preserving manufacturers' flexibilities in meeting the standards, to the extent appropriate and required by law. The following section provides an overview of the flexibility provisions the agencies are proposing.

1. CO

/CAFE Credits Generated Based on Fleet Average Performance

Under the NHTSA and EPA proposal the fleet average standards that apply to a manufacturer's car and truck fleets would be based on the applicable footprint-based curves. At the end of each model year, when production of the model year is complete, a production-weighted fleet average would be calculated for each averaging set (cars and trucks). Under this approach, a manufacturer's car and/or truck fleet that achieves a fleet average CO

/CAFE level better than the standard would generate credits. Conversely, if the fleet average CO

/CAFE level does not meet the standard the fleet would generate debits (also referred to as a shortfall).

Under the proposed program, a manufacturer whose fleet generates credits in a given model year would have several options for using those credits, including credit carry-back, credit carry-forward, credit transfers,

and credit trading. These provisions exist in the MY 2011 CAFE program under EPCA and EISA, and similar provisions are part of EPA's Tier 2 program for light duty vehicle criteria pollutant emissions, as well as many other mobile source standards issued by EPA under the CAA. EPA is proposing that the manufacturer would be able to carry-back credits to offset any deficit that had accrued in a prior model year and was subsequently carried over to the current model year. EPCA already provides for this. EPCA restricts the carry-back of CAFE credits to three years and EPA is proposing the same limitation, in keeping with the goal of harmonizing both sets of proposed standards.

After satisfying any need to offset pre-existing deficits, remaining credits could be saved (banked) for use in future years. Under the CAFE program, EISA allows manufacturers to apply credits earned in a model year to compliance in any of the five subsequent model years.

EPA is also proposing, under the GHG program, to allow manufacturers to use these banked credits in the five years after the year in which they were generated (

i.e.,

five years carry-forward).

49 U.S.C. 32903(a)(2).

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

These and other statutory limits would continue to apply to the determination of compliance with the CAFE standard.

49 U.S.C. 32903(g)(4).

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

49 U.S.C. 32903(f)(2).

2. Air Conditioning Credits

Air conditioning (A/C) systems contribute to GHG emissions in two ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHG pollutants, can leak from the A/C system. Operation of the A/C system also places an additional load on the engine, which results in additional CO

tailpipe emissions. EPA is proposing an approach that allows manufacturers to generate credits by reducing GHG emissions related to A/C systems. Specifically, EPA is proposing a test procedure and method to calculate CO

equivalent reductions for the full useful life on a grams/mile basis that can be used as credits in meeting the fleet average CO

standards. EPA's analysis indicates this approach provides manufacturers with a highly cost-effective way to achieve a portion of GHG emissions reductions under the EPA program. EPA is estimating that manufacturers will on average take advantage of 11 g/mi GHG credit toward meeting the 250 g/mi by 2016 (though some compani

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