Average Fuel Economy Standards Passenger Cars and Light Trucks Model Year 2011

Federal RegisterMar 30, 2009

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 523, 531, 533, 534, 536 and 537

[Docket No. NHTSA-2009-0062]

RIN 2127-AK29

Average Fuel Economy Standards Passenger Cars and Light Trucks Model Year 2011

AGENCY:

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

ACTION:

Final rule; record of decision.

SUMMARY:

The future of this country's economy, security, and environment are linked to one key challenge: energy. To reduce fuel consumption, NHTSA has been issuing Corporate Average Fuel Economy (CAFE) standards since the late 1970's under the Energy Policy and Conservation Act (EPCA). However, the principal effects of these standards are broader than their statutory purpose. Reducing fuel consumption conserves petroleum, a non-renewable energy source, saves consumers money, and promotes energy independence and security by reducing dependence on foreign oil. It also directly reduces the motor vehicle tailpipe emissions of carbon dioxide (CO

), which is the principal greenhouse gas emitted by motor vehicles.

The Energy Independence and Security Act (EISA) amended EPCA by mandating that the model year (MY) 2011-2020 CAFE standards be set sufficiently high to ensure that the industry-wide average of all new passenger cars and light trucks, combined, is not less than 35 miles per gallon by MY 2020. This is a minimum requirement, as NHTSA must set standards at the maximum feasible level in each model year. NHTSA will determine, based on all of the relevant circumstances, whether that additional requirement calls for establishing standards that reach the 35 mpg goal earlier than MY 2020.

NHTSA published a proposal in May 2008 to begin implementing EISA by establishing CAFE standards for MYs 2011-2015. A draft final rule for those model years was completed, but not issued.

In the context of his calls for the development of new national policies to prompt sustained domestic and international actions to address the closely intertwined issues of energy independence, energy security and climate change, the President issued a memorandum on January 26, 2009, requesting NHTSA to divide its rulemaking into two parts. First, he requested the agency to issue a final rule adopting CAFE standards for MY 2011 only. Given the substantial time and analytical effort involved in developing CAFE standards and the limited amount of time before the statutory deadline of March 30, 2009 for establishing the MY 2011 standards, the agency has necessarily based this one year final rule almost wholly on the information available to it and the analysis performed by it in support of the draft final rule completed last fall.

Second, the President requested NHTSA to establish standards for MY 2012 and later after considering the appropriate legal factors, the comments filed in response to the May 2008 proposal, the relevant technological and scientific considerations, and, to the extent feasible, a forthcoming report by the National Academy of Sciences, mandated under section 107 of EISA, assessing existing and potential automotive technologies and costs that can practicably be used to improve fuel economy. The deferral of action on standards for the later model years provides the agency with an opportunity to review its approach to CAFE standard setting, including its methodologies, economic and technological inputs and decisionmaking criteria, so as to ensure that it will produce standards that contribute, to the maximum extent possible within the limits of EPCA/EISA, to meeting the energy and environmental challenges and goals outlined by the President.

NHTSA estimates that the MY 2011 standards will raise the industry-wide combined average to 27.3 mpg, save 887 million gallons of fuel over the lifetime of the MY 2011 cars and light trucks, and reduce CO

emissions by 8.3 million metric tons during that period.

DATES:

This final rule is effective May 29, 2009.

Petitions for reconsideration must be received by May 14, 2009.

ADDRESSES:

Petitions for reconsideration must be submitted to: Administrator, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT:

For policy and technical issues: Ms. Julie Abraham or Mr. Peter Feather, Office of Rulemaking, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590. Telephone: Ms. Abraham (202) 366-1455; Mr. Feather (202) 366-0846.

For legal issues: Mr. Stephen Wood or Ms. Rebecca Yoon, Office of the Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive overview

A. The President's January 26, 2009 Memorandum on CAFE Standards for Model Years 2011 and Beyond

1. Rulemaking Background

2. Requests in the President's Memorandum

(a) CAFE Standards for Model Year 2011

(b) CAFE Standards for Model Years 2012 and Beyond

3. Implementing the President's Memorandum

B. Energy Independence and Security Act of 2007

C. Notice of Proposed Rulemaking for MYs 2011-2015 and Request for New Product Plans

1. Key Economic Values for Benefits Computations and Standard Setting

2. Standards

(a) Classification of Vehicles

(b) Stringency

(i) Benefits

(ii) Costs

(d) Effect of Flexibilities on Benefits and Costs

3. Credits

4. Preemption

D. Brief Summary of Public Comments on the NPRM

E. New Information Received or Developed by NHTSA Between the NPRM and Final Rule

1. New Manufacturer Product Plans

2. Revised Assessment of Technology Effectiveness and Costs

3. Final Environmental Impact Statement

F. Final Rule for MY 2011

1. Introduction

2. Key Economic Values for Benefits Computations

3. Standards

(a) Classification

(b) Stringency

(i) Benefits

(ii) Costs

(d) Flexibilities

4. Credits

5. Preemption

II. Background

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

B. Contributions of Fuel Economy Improvements to CO

Tailpipe Emission Reductions Since 1975

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

1. National Academy of Sciences Issues Report on Future of CAFE Program (February 2002)

(a) Significantly Increasing CAFE Standards Without Making Them

Attribute-Based Would Adversely Affect Safety

(b) Climate Change and Other Externalities Justify Increasing the CAFE Standards

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

3. Supreme Court Issues Decision in

Massachusetts

EPA

(April 2007)

4. NHTSA and EPA Coordinate on Development of Rulemaking Proposals (Summer-Fall 2007)

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

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

7. NHTSA Proposes CAFE Standards for MYs 2011-2015 and Requests New Product Plans for Those Years (April 2008)

8. NHTSA Contracts With ICF International To Conduct Climate Modeling and Other Analyses in Support of Draft and Final Environmental Impact Statements (May 2008)

9. Manufacturers Submit New Product Plans (June 2008)

10. NHTSA Contracts With Ricardo To Aid in Assessing Public Comments On Cost and Effectiveness of Fuel Saving Technologies (June 2008)

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

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

13. Office of Information and Regulatory Affairs Completes Review of a Draft MY 2011-2015 Final Rule (November 2008)

14. Department of Treasury Extends Loans to General Motors and Chrysler (December 2008)

15. Department of Transportation Decides Not To Issue MY 2011-2015 Final Rule (January 2009)

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

17. General Motors and Chrysler Submit Restructuring Reports to Department of Treasury (February 2009)

D. Energy Policy and Conservation Act, as Amended

1. Vehicles Subject to Standards for Automobiles

2. Mandate To Set Standards for Automobiles

3. Attribute-Based Standards

4. Factors Considered in the Setting of Standards

(a) Factors That Must Be Considered

(i) Technological Feasibility

(ii) Economic Practicability

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

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

1. Fuel Prices and the Value of Saving Fuel

2. Petroleum Consumption and Import Externalities

3. Air Pollutant Emissions

(v) Other Factors—Safety

(b) Factors That Cannot Be Considered

5. Consultation in Setting Standards

6. Test Procedures for Measuring Fuel Economy

7. Enforcement and Compliance Flexibility

III. The Anticipated Vehicles in the MY 2011 Fleets and NHTSA's Baseline Market Forecast

A. Why does NHTSA establish a baseline market forecast?

B. How does NHTSA develop the baseline market forecast?

1. NHTSA first asks manufacturers for updated product plan data

(a) Why does NHTSA use manufacturer product plans to develop the baseline?

(b) What product plan data did NHTSA use in the NPRM?

(d) How is the product plan data received for the final rule different from what the agency used in the NPRM analysis, and how does it impact the baseline?

2. Once NHTSA has the product plans, how does it develop the baseline?

3. How does NHTSA's market forecast reflect current market conditions?

IV. Fuel Economy-Improving Technologies

A. NHTSA Analyzes What Technologies Can Be Applied Beyond Those in the Manufacturers' Product Plans

B How NHTSA Decides Which Technologies To Include

1. How NHTSA Did This Historically, and How for the NPRM

2. NHTSA's Contract With Ricardo for the Final Rule

C. What technology assumptions has NHTSA used for the final rule?

1. How do NHTSA's technology assumptions in the final rule differ from those used in the NPRM?

2. How are the technologies applied in the model?

3. Technology Application Decision Trees

4. Division of Vehicles Into Subclasses Based on Technology Applicability, Cost and Effectiveness

5. How did NHTSA develop technology cost and effectiveness estimates for the final rule?

6. Learning Curves

7. Technology Synergies

8. How does NHTSA use full vehicle simulation?

9. Refresh and Redesign Schedule

10. Phase-In Caps

D. Specific Technologies Considered for Application and NHTSA's Estimates of Their Incremental Costs and Effectiveness

1. What data sources did NHTSA evaluate?

2. Individual Technology Descriptions and Cost/Effectiveness Estimates

(a) Gasoline Engine Technologies

(i) Overview

(ii) Low Friction Lubricants (LUB)

(iii) Engine Friction Reduction (EFR)

(iv) Variable Valve Timing (VVT)

1. Intake Cam Phasing (ICP)

2. Coupled Cam Phasing (CCPS and CCPO)

3. Dual Cam Phasing (DCP)

(v) Discrete Variable Valve Lift (DVVLS, DVVLD, DVVLO)

(vi) Continuously Variable Valve Lift (CVVL)

(vii) Cylinder Deactivation (DEACS, DEACD, DEACO)

(viii) Conversion to Double Overhead Camshaft Engine With Dual Cam Phasing (CDOHC)

(ix) Stoichiometric Gasoline Direct Injection (SGDI)

(x) Combustion Restart (CBRST)

(xi) Turbocharging and Downsizing (TRBDS)

(xii) Cooled Exhaust Gas Recirculation Boost (EGRB)

(b) Diesel Engine Technologies

(i) Diesel Engine With Lean NO

Trap (LNT) Catalyst After-Treatment

(ii) Diesel Engine With Selective Catalytic Reduction (SCR) After-Treatment

(i) Improved Transmission Controls and Externals (IATC)

(ii) Automatic 6-, 7- and 8-Speed Transmissions (NAUTO)

(iii) Dual Clutch Transmissions/Automated Manual Transmissions (DCTAM)

(iv) Continuously Variable Transmission (CVT)

(v) 6-Speed Manual Transmissions (6MAN)

(d) Hybrid and Electrification/Accessory Technologies

(i) Overview

(ii) Hybrid System Sizing and Cost Estimating Methodology

(iii) Electrical Power Steering (EPS)

(iv) Improved Accessories (IACC)

(v) 12V Micro Hybrid (MHEV)

(vi) High Voltage/Improved Alternator (HVIA)

(vii) Integrated Starter Generator (ISG)

(viii) Power Split Hybrid

(ix) 2-Mode Hybrid

(x) Plug-In Hybrid

(e) Vehicle Technologies

(i) Material Substitution (MS1, MS2, MS5)

(ii) Low Drag Brakes (LDB)

(iii) Low Rolling Resistance Tires (ROLL)

(iv) Front or Secondary Axle Disconnect for Four-Wheel Drive Systems (SAX)

(v) Aerodynamic Drag Reduction (AERO)

(f) Technologies Considered But Not Included in the Final Rule Analysis

(i) Camless Valve Actuation

(ii) Lean-Burn Gasoline Direct Injection Technology

(iii) Homogeneous Charge Compression Ignition

(iv) Electric Assist Turbocharging

E. Cost and Effectiveness Tables

V. Economic Assumptions Used in NHTSA's Analysis

A. Introduction: How NHTSA Uses the Economic Assumptions in Its Analysis

B. What economic assumptions does NHTSA use in its analysis?

1. Determining Retail Price Equivalent

2. Potential Opportunity Costs of Improved Fuel Economy

3. The On-Road Fuel Economy ‘Gap’

4. Fuel Prices and the Value of Saving Fuel

5. Consumer Valuation of Fuel Economy and Payback Period

6. Vehicle Survival and Use Assumptions

7. Growth in Total Vehicle Use

8. Accounting for the Rebound Effect of Higher Fuel Economy

9. Benefits From Increased Vehicle Use

10. Added Costs From Congestion, Crashes, and Noise

11. Petroleum Consumption and Import Externalities

12. Air Pollutant Emissions

(a) Impacts on Criteria Pollutant Emissions

(b) Reductions in CO

Emissions

13. The Value of Increased Driving Range

14. Discounting Future Benefits and Costs

15. Accounting for Uncertainty in Benefits and Costs

VI. How NHTSA Sets the CAFE Standards

A. Which attributes does NHTSA use to determine the standards?

B. Which mathematical function does NHTSA use to set the standards?

C. What other types of standards did commenters propose?

D. How does NHTSA fit the curve and estimate the stringency that maximizes net benefits to society?

E. Why has NHTSA used the Volpe model to support its analysis?

VII. Determining the Appropriate Level of the Standards

A. Analyzing the Preferred Alternative

B. Alternative Levels of Stringency Considered for Establishment as the Maximum Feasible Level of Average Fuel Economy

C. EPCA Provisions Relevant to the Selection of the Final Standards

1. 35 in 2020

2. Annual Ratable Increase

3. Maximum Feasibility and the Four Underlying EPCA Considerations

(a) Technological Feasibility

(b) Economic Practicability

(d) Need of the United States To Conserve Energy

(i) Consumer Cost

(ii) National Balance of Payments

(iii) Environmental Implications

(iv) Foreign Policy Considerations

4. Comparison of Alternatives

5. Other Considerations Under EPCA

(a) Safety

(b) AMFA Credits

D. Analysis of Environmental Consequences in Selecting the Final Standards

E. Picking the Final Standards

1. Eliminating the Alternatives Facially Inconsistent With EPCA

(a) No-Action Alternative

(b) Technology Exhaustion Alternative

2. Choosing Among the Remaining Alternatives

(a) Difficulty and Importance of Achieving a Reasonable Balancing of the Factors

(b) The Correct Balancing of the Factors for Setting the MY 2011 Standards Is To Maximize Societal Net Benefits

VIII. Safety

A. Summary of NHTSA's Approach in This Final Rule

B. Background

1. NHTSA's Early Studies

2. The 2002 National Academy of Sciences Study

3. NHTSA's updated 2003 Study

4. Summary of Studies Prior to This Rulemaking

B. Response to Comments in This Rulemaking on Safety and Vehicle

Weight

1. Views of Other Government Agencies

2. Comments From Other Parties

C. Comments on Other Issues Related to Safety

1. Vehicle Compatibility Design Issues

2. Whether Manufacturers Downweight in Response to Increased CAFE Stringency

3. Whether Flat Standards Are More or Less Harmful to Safety Than Footprint-Based Standards

4. Whether NHTSA Should Set Identical Targets for Passenger Cars and Light Trucks for Safety Reasons

5. Whether NHTSA Should Have Considered the 2002 NAS Report Dissent in Deciding Not To Apply Material Substitution for Vehicles Under 5,000 Pounds

IX. The Final Fuel Economy Standards for MY 2011

A. Final Passenger Car Standard

B. Final Light Truck Standard

C. Energy and Environmental Backstop

D. Combined Fleet Performance

E. Costs and Benefits of Final Standards

1. Benefits

2. Costs

F. Environmental Impacts of Final Standards

X. Other Fuel Economy Standards Required by EISA

XI. Vehicle Classification

A. Summary of Comments

B. Response to Comments

1. This Rule Substantially Tightens NHTSA's Vehicle Classification Definitions

(a) Under § 523.5(b), Only Vehicles That Actually Have 4WD Will Be Classified as 4WD Vehicles

(b) The Final Rule Amends § 523.5(a)(4) To Prevent Gaming That Might Jeopardize Fuel Savings Created by NHTSA's Clarified Position on 2WD Vehicles

2. Especially as Tightened by This Rule, NHTSA's Classification Definitions Are More Difficult to Game Than Commenters Suggest

3. Additional Changes in NHTSA's Classification Definitions Would Not Result in Greater Fuel Savings and Lower CO

Emissions

4. The Vehicle Classification Definitions Embodied in This Final Rule Are Consistent With NHTSA's Statutory Authority and Respond to the Ninth Circuit's Opinion

XII. Flexibility Mechanisms and Enforcement

A. NHTSA's Request for Comment Regarding Whether the Agency Should Consider Raising the Civil Penalty for CAFE Non-Compliance

B. CAFE Credits

C. Extension and Phasing Out of Flexible-Fuel Incentive Program

XIII. Test Procedure for Measuring Wheelbase and Track Width and Calculating Footprint

A. Test Procedure Execution

B. Measured Value Tolerances

C. Administrative and Editorial Issues

XIV. Sensitivity and Monte Carlo Analysis

XV. NHTSA's Record of Decision

XVI. Regulatory Notices and Analyses

A. Executive Order 12866 and DOT Regulatory Policies and Procedures

B. National Environmental Policy Act

1. Clean Air Act (CAA)

2. National Historic Preservation Act (NHPA)

3. Executive Order 12898 (Environmental Justice)

4. Fish and Wildlife Conservation Act (FWCA)

5. Coastal Zone Management Act (CZMA)

6. Endangered Species Act (ESA)

7. Floodplain Management (Executive Order 11988 & DOT Order 5650.2)

8. Preservation of the Nation's Wetlands (Executive Order 11990 & DOT Order 5660.1a)

9. Migratory Bird Treaty Act (MBTA), Bald and Golden Eagle Protection Act (BGEPA), Executive Order 13186

10. Department of Transportation Act (Section 4(f))

C. Regulatory Flexibility Act

D. Executive Order 13132 (Federalism)

E. Executive Order 12988 (Civil Justice Reform)

F. Unfunded Mandates Reform Act

G. Paperwork Reduction Act

H. Regulation Identifier Number (RIN)

J. Executive Order 13045

K. National Technology Transfer and Advancement Act

L. Executive Order 13211

M. Department of Energy Review

N. Privacy Act

XVII. Regulatory Text

I. Executive Overview

A. The President's January 26, 2009 Memorandum on CAFE Standards for Model Years 2011 and Beyond

1. Rulemaking Background

On May 2, 2008, NHTSA published a Notice of Proposed Rulemaking entitled Average Fuel Economy Standards, Passenger Cars and Light Trucks; Model Years 2011-2015, 73 FR 24352. In mid-October, the agency completed and released a final environmental impact statement in anticipation of issuing standards for those years. Based on its consideration of the public comments and other available information, including information on the financial condition of the automotive industry, the agency adjusted its analysis and the standards and prepared a final rule for MYs 2011-2015. On November 14, the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget cleared the rule as consistent with the Order.

However, issuance of the final rule was held in abeyance. On January 7, 2009,

the Department of Transportation announced that the final rule would not be issued, saying:

Record of OIRA's action can be found at

http://www.reginfo.gov/public/do/eoHistReviewSearch

(last visited March 8, 2009). To find the report on the clearance of the draft final rule, select “Department of Transportation” under “Economically Significant Reviews Completed” and select “2008” under “Select Calendar Year.”

The Bush Administration will not finalize its rulemaking on Corporate Fuel Economy Standards. The recent financial difficulties of the automobile industry will require the next administration to conduct a thorough review of matters affecting the industry, including how to effectively implement the Energy Independence and Security Act of 2007 (EISA). The National Highway Traffic Safety Administration has done significant work that will position the next Transportation Secretary to finalize a rule before the April 1, 2009 deadline.

The statement can be found at

http://www.dot.gov/affairs/dot0109.htm

(last accessed February 11, 2009).

2. Requests in the President's Memorandum

In light of the requirement to prescribe standards for MY 2011 by March 30, 2009 and in order to provide additional time to consider issues concerning the analysis used to determine the appropriate level of standards for MYs 2012 and beyond, the President issued a memorandum on January 26, 2009, requesting the Secretary of Transportation and Administrator

of the National Highway Traffic Safety Administration NHTSA to divide the rulemaking into two parts: (1) MY 2011 standards, and (2) standards for MY 2012 and beyond.

Currently, the National Highway Traffic Safety Administration does not have an Administrator. Ronald L. Medford is the Acting Deputy Administrator.

(a) CAFE Standards for Model Year 2011

The request that the final rule establishing CAFE standards for MY 2011 passenger cars and light trucks be prescribed by March 30, 2009 was based on several factors. One was the requirement that the final rule regarding fuel economy standards for a given model year must be adopted at least 18 months before the beginning of that model year (49 U.S.C. 32902(g)(2)). The other was that the beginning of MY 2011 is considered for the purposes of CAFE standard setting to be October 1, 2010. As part of that final rule, the President requested that NHTSA consider whether any provisions regarding preemption are consistent with the EISA, the Supreme Court's decision in Massachusetts v. EPA and other relevant provisions of law and the policies underlying them.

(b) CAFE Standards for Model Years 2012 and Beyond

The President requested that, before promulgating a final rule concerning the model years after model year 2011, NHTSA

[C]onsider the appropriate legal factors under the EISA, the comments filed in response to the Notice of Proposed Rulemaking, the relevant technological and scientific considerations, and to the extent feasible, the forthcoming report by the National Academy of Sciences mandated under section 107 of EISA.

In addition, the President requested that NHTSA further consider whether any provisions regarding preemption are appropriate under applicable law and policy.

3. Implementing the President's Memorandum

In keeping with the President's remarks on January 26 for new national policies to address the closely intertwined issues of energy independence, energy security and climate change, and for the initiation of serious and sustained domestic and international action to address them, NHTSA will develop CAFE standards for MY 2012 and beyond only after collecting new information, conducting a careful review of technical and economic inputs and assumptions, and standard setting methodology, and completing new analyses.

For MY 2011, however, time limitations precluded the adoption of this approach. As noted above, EPCA requires that standards for that model year be established by the end of March of this year. Thus, immediate decisions had to be made about the establishment of the MY 2011 standards. There was insufficient time between the issuance of the President's memorandum in late January and the end of March to revisit and, if and as appropriate, revise the extensive and complex analysis in any substantively significant way. This is particularly so given the requirement under EPCA to consult with the Environmental Protection Agency and the Department of Energy on these complicated and important technical matters. Decisions regarding those matters potentially affect not just NHTSA's CAFE rulemaking, but also programs of other departments and agencies. Accordingly, the methodologies, economic and technological inputs and decisionmaking criteria used in this rule are necessarily largely those developed by NHTSA in the fall of 2008.

In looking ahead to the next CAFE rulemaking, the agency emphasizes that while the methodologies, economic and technological inputs and decisionmaking criteria used in this rule were well-supported choices for the purposes of the MY 2011 rulemaking, they were not the only reasonable choices that the agency could have made for that purpose. Many of the key aspects of this rulemaking reflect decisions among several reasonable alternatives. The choices made in the context of last fall may or may not be the choices that will be made in the context of the follow-on rulemaking.

The deferral of action on the CAFE standards for the years after MY 2011 provides the agency with an opportunity to review its approach to CAFE standard setting, including its methodologies, economic and technological inputs, and decisionmaking criteria. It is reasonable to anticipate that this process may lead to changes, given the further review and analysis that will be conducted pursuant to the President's request, and given the steady and potentially substantial evolution in technical and policy factors relevant to the next CAFE rulemaking. These factors include, but are not limited to, energy and climate change needs and policy choices regarding goals and approaches to achieving them, developments in domestic legislation and international negotiations regarding those goals and approaches, the financial health of the industry, technologies for reducing fuel consumption, fuel prices, and climate change science and damage valuation.

The goal of the review and re-evaluation will be to ensure that the approach used for MY 2012 and thereafter produces standards that contribute, to the maximum extent possible under EPCA/EISA, to meeting the energy and environmental challenges and goals outlined by the President. We will seek to craft our program with the goal of creating the maximum incentives for innovation, providing flexibility to the regulated parties, and meeting the goal of making substantial and continuing reductions in the consumption of fuel. To that end, we are committed to ensuring that the CAFE program for beyond MY 2011 is based on the best scientific, technical, and economic information available, and that such information is developed in close coordination with other federal agencies and our stakeholders, including the states and the vehicle manufacturers.

We will also re-examine EPCA, as amended by EISA, to consider whether additional opportunities exist for achieving the President's goals. For example, EPCA authorizes, within relatively narrow limits and subject to making specified findings, for increasing the amount of civil penalties

for violating the CAFE standards.

Further, while EPCA prohibits updating the test procedures used for measuring passenger car fuel economy, it places no such limitation on the test procedures for light trucks.

If the test procedures used for light trucks were revised to provide for the operation of air conditioning during fuel economy testing, vehicle manufacturers would have a regulatory incentive to increase the efficiency and reduce the weight of air conditioning systems, thereby reducing fuel consumption and tailpipe emissions of CO

Under 49 U.S.C. 32904(c), EPA must “use the same procedures for passenger automobiles the Administrator used for model year 1975 (weighted 55 percent urban cycle and 45 percent highway cycle), or procedures that give comparable results.”

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

In response to the President's request that NHTSA consider whether any provisions regarding preemption are consistent with EISA, the Supreme Court's decision in

Massachusetts

EPA

and other relevant provisions of law and the policies underlying them, NHTSA has decided not to include any provisions addressing preemption in the Code of Federal Regulations at this time. The agency will re-examine the issue of preemption in the content of its forthcoming rulemaking to establish Corporate Average Fuel Economy standards for 2012 and later model years.

B. Energy Independence and Security Act of 2007

The mandates in the Energy Independence and Security Act of 2007 (EISA)

for reducing fuel consumption by motor vehicles and expanding the production of renewable fuels represent major steps forward in promoting energy independence and security and in addressing climate change risks by reducing CO

emissions. EISA requires the first statutory increase in fuel economy standards for passenger automobiles (referred to below as “passenger cars”) since those standards were originally mandated in 1975. It also includes an important reform—switching to “attribute-based standards.” This switch will help to ensure that increased fuel efficiency does not come at the expense of automotive safety.

Public Law 110-140, 121 Stat. 1492 (Dec. 18, 2007).

More specifically, EISA made a number of important changes to EPCA. EISA:

• Establishes a statutory mandate to establish passenger car standards for each model year at the maximum feasible level and eliminates the old statutory default standard of 27.5 mpg for passenger cars and the provision giving us discretion to amend that default standard. Thus, given that there will no longer be a default standard, the agency must act affirmatively to establish a new passenger car standard for each model year.

• Retains the requirement to establish separate standards for passenger cars and light trucks and to set them at the maximum feasible level, but sets forth special requirements for the MY 2011-2020 standards.

• The standards must increase ratably each year and, at a minimum, be set sufficiently high to ensure that the average fuel economy of the combined industry-wide fleet of all new passenger cars and light trucks sold in the United States during MY 2020 is at least 35 mpg.

Although NHTSA previously established an attribute-based standard for MY 2011 light trucks in its 2006 final rule, EISA mandates a new rulemaking, reflecting new statutory considerations and a new administrative record, and consistent with EPCA as amended by EISA, to establish the standard for those light trucks.

• Mandates the reforming of CAFE standards for passenger cars by requiring that all CAFE standards be based on one or more vehicle attributes related to fuel economy (like size or weight). 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 vehicles and lower ones to larger vehicles. Use of this approach helps to ensure that the improvements in fuel economy do not come at the expense of safety. NHTSA pioneered that approach in its last rulemaking on CAFE standards for light trucks.

• Requires that for each model year, beginning with MY 2011, each manufacturer's domestically-manufactured passenger car fleet must achieve a measured average fuel economy that is not less than 92 percent of the average fuel economy of the combined industry-wide fleet of domestic and non-domestic passenger cars sold in the United States in that model year.

• Limits to five the number of model years for which standards can be established in a single rulemaking.

• Provides greater flexibility for automobile manufacturers by (a) increasing from three to five the number of years that a manufacturer can carry forward the compliance credits it earns by exceeding CAFE standards, (b) allowing a manufacturer to transfer the credits it has earned from one of its compliance categories of automobiles to another class, and (c) authorizing the trading of credits between manufacturers.

C. Notice of Proposed Rulemaking for MYs 2011-2015 and Request for New Product Plans

1. Key Economic Values for Benefits Computations and Standard Setting

NHTSA's analysis of the proposed and alternative CAFE standards in the Notice of Proposed Rulemaking (NPRM)

relied on a range of information, economic estimates, and input parameters. These economic assumptions play a role in the determination of the level of the standards, with some having greater impacts than others. The cost of technologies, the price of gasoline, and discount rate used for discounting future benefits had the greatest influence over the level of the standards. In order of impact, the full list of the economic assumptions is as follows: (1) Technology cost; (2) fuel prices; (3) discount rate; (4) oil import externalities; (5) rebound effect; (6) criteria air pollutant damage costs; (7) carbon costs. The table below shows the NPRM assumptions on which the agency received the most extensive public comment.

73 FR 24352, May 2, 2008. In a separate notice published on the same day, the agency requested automobile manufacturers to submit new product plans for MYs 2011-15. 73 FR 24190.

Although Table V-3 Economic Values for Benefits Computations in the NPRM indicated that all of the values in that table were 2006$, several values were actually in 2005$. Thus, the monopsony component, which was shown in that table as $0.176, should have been shown as $0.182. Likewise, the price shock component should have been $0.113, instead of $0.109. The sum of those two values should have been $0.295, not $0.285.

Table I-1—NPRM Key Economic Values for Benefits Computations (2006$)

Fuel Prices (average retail gasoline price per gallon, 2011-30)

$2.34

Discount Rate Applied to Future Benefits

Economic Costs of Oil Imports ($/gallon):

“Monopsony” Component

$0.182

Price Shock Component

$0.113

Military Security Component

Total Economic Costs

$0.295

Emission Damage Costs:

Carbon Dioxide ($/metric ton)

$7.00

Annual Increase in CO

Damage Cost

2.4%

2. Standards

(a) Classification of Vehicles

In the NPRM, the agency classified the vehicles subject to the proposed standards as passenger cars or as light trucks in the same way that the vehicles had been traditionally classified under the CAFE program. In particular, sport utility vehicles (SUVs), mini-vans and pickup trucks were classified as light trucks. However, the agency raised the possibility of reclassifying many of the two-wheel drive SUVs as passenger cars for the purposes of the final rule.

(b) Stringency

We proposed setting separate attribute-based fuel economy standards for passenger cars and light trucks consistent with the size-based approach that NHTSA used in establishing the light truck standards for MY 2008-2011 light trucks.

Compared to the April 2006 final rule that established those attribute-based standards, the NPRM more thoroughly evaluated the value of the costs and benefits of setting CAFE standards. This was important because assumptions regarding projected gasoline prices, along with assumptions about the value of reducing the negative externalities (economic and environmental) from producing and consuming fuel, were based on changed economic, environmental, and energy security conditions. These environmental externalities include, among other things, an estimation of the value of reducing tailpipe emissions of CO

The externalities included in our analysis do not, however, include those associated with the reduction of the other GHG emitted by automobiles, i.e., methane (CH

), nitrous oxide (N

O), and hydroflurocarbons (HFCs). Actual air conditioner operation is not included in the test procedures used to obtain both (1) emission rates for purposes of determining compliance with EPA criteria pollutant emission standards and (2) fuel economy values for purposes of determining compliance with NHTSA CAFE standards, although air conditioner operation is included in “supplemental” federal test procedures used to determine compliance with corresponding and separate EPA criteria pollutant emission standards. As noted above, EPCA precludes basing passenger car standards on those other test procedures, but places no such limit on the test procedures used as the basis for light truck standards.

In light of EISA and the need to balance the statutory considerations in a way that reflects the current need of the nation to conserve energy, including the current assessment of climate change risks, the agency revisited the various assumptions used to determine the level of the standards. Specifically, the agency used higher gasoline prices and higher estimates for energy security values ($0.29 per gallon instead of $0.09 per gallon). The agency also monetized carbon dioxide (at $7.00/ton), which it did not do in the previous rulemaking, and expanded the list of technologies it used in assessing the capability of manufacturers to improve fuel economy. In addition, the agency used cost estimates that reflect economies of scale and estimated “learning”-driven reductions in the cost of technologies as well as quicker penetration rates for advanced technologies.

The agency could not set out the exact level of CAFE that each manufacturer would be required to meet for each model year under the passenger car or light truck standards since the levels would depend on information that would not be available until the end of each of the model years, i.e., the final actual production figures for each of those years. The agency could, however, project what the industry-wide level of average fuel economy would be for passenger cars and for light trucks if each manufacturer produced its expected mix of automobiles and just met its obligations under the proposed “optimized” standards for each model year. Adjacent to each average fuel economy figure in the NPRM was the estimated associated level of tailpipe emissions of CO

that would be achieved.

Given the contributions made by CAFE standards to addressing not only energy independence and security, but also to reducing tailpipe emissions of CO

, fleet performance was stated in the above discussion both in terms of fuel economy and the associated reductions in tailpipe emissions of CO

since the CAFE standards would have the practical effect of limiting those emissions approximately to the indicated levels during the official CAFE test procedures established by EPA. The relationship between fuel consumption and carbon dioxide emissions is discussed ubiquitously, such as at

www.fueleconomy.gov,

a fuel economy-related web site managed by DOE and EPA (see

http://www.fueleconomy.gov/feg/contentIncludes/co2_inc.htm

, which provides a rounded value of 20 pounds of CO

per gallon of gasoline). (Last accessed March 8, 2009.) The CO

emission rates shown were based on gasoline characteristics. Because diesel fuel contains more carbon (per gallon) than gasoline, the presence of diesel engines in the fleet—which NHTSA expects to increase in response to the proposed CAFE standards—will cause the actual CO

emission rate corresponding to any given CAFE level to be slightly higher than shown here. (The agency projected that 4 percent of the MY 2015 passenger car fleet and 10 percent of the MY 2015 light truck fleet would have diesel engines.) Conversely (and hypothetically), applying the same CO

emission standard to both gasoline and diesel vehicles would discourage manufacturers from improving diesel engines, which show considerable promise as a means to improve fuel economy.

For passenger cars:

MY 2011: 31.2 mpg (285 g/mi of tailpipe emissions of CO

)

MY 2012: 32.8 mpg (271 g/mi of tailpipe emissions of CO

)

MY 2013: 34.0 mpg (261 g/mi of tailpipe emissions of CO

)

MY 2014: 34.8 mpg (255 g/mi of tailpipe emissions of CO

)

MY 2015: 35.7 mpg (249 g/mi of tailpipe emissions of CO

)

For light trucks:

MY 2011: 25.0 mpg (355 g/mi of tailpipe emissions of CO

)

MY 2012: 26.4 mpg (337 g/mi of tailpipe emissions of CO

)

MY 2013: 27.8 mpg (320 g/mi of tailpipe emissions of CO

)

MY 2014: 28.2 mpg (315 g/mi of tailpipe emissions of CO

)

MY 2015: 28.6 mpg (310 g/mi of tailpipe emissions of CO

)

The combined industry-wide average fuel economy (in miles per gallon, or mpg) levels (in grams per mile, or g/mi) for both cars and light trucks, if each manufacturer just met its obligations under the proposed “optimized” standards for each model year, would be as follows:

MY 2011: 27.8 mpg (2.5 mpg increase above MY 2010; 320 g/mi CO

)

MY 2012: 29.2 mpg (1.4 mpg increase above MY 2011; 304 g/mi CO

)

MY 2013: 30.5 mpg (1.3 mpg increase above MY 2012; 291 g/mi CO

)

MY 2014: 31.0 mpg (0.5 mpg increase above MY 2013; 287 g/mi CO

)

MY 2015: 31.6 mpg (0.6 mpg increase above MY 2014; 281 g/mi CO

)

The annual average increase during this five year period was approximately

4.5 percent. Due to the uneven distribution of new model introductions during this period and to the fact that significant technological changes could be most readily made in conjunction with those introductions, the annual percentage increases were greater in the early years in this period.

(i) Benefits

We estimated that the proposed standards for the five-year period would save approximately 54.7 billion gallons of fuel (18.7 billion gallons for passenger cars and 36 billion gallons for light trucks) and reduce tailpipe CO

emissions by 521 million metric tons (178 million metric tons for passenger cars and 343 million metric tons for light trucks) over the lifetime of the vehicles sold during those model years, compared to the fuel use and emissions reductions that would occur if the standards remained at the adjusted baseline (i.e., the higher of manufacturer's plans and the manufacturer's required level of average fuel economy for MY 2010).

We estimated that the value of the total benefits of the proposed standards would be approximately $88 billion ($31 billion for passenger cars and $57 billion for light trucks) over the lifetime of the vehicles sold during those model years.

(ii) Costs

The total costs for manufacturers to comply with the standards for the five-year period would be approximately $47 billion ($16 billion for passenger cars and $31 for light trucks) compared to the costs they would incur if the standards remained at the adjusted baseline.

(d) Effect of Flexibilities on Benefits and Costs

The above benefit and cost estimates did not reflect the availability and use of flexibility mechanisms, such as compliance credits and credit trading, because EPCA prohibits NHTSA from considering the effects of those mechanisms in setting CAFE standards. However, the agency noted that, in reality, manufacturers were likely to rely to some extent on flexibility mechanisms provided by EPCA and would thereby reduce the cost of complying with the proposed standards to a meaningful extent.

3. Credits

NHTSA also proposed a new Part 536 on trading and transferring “credits” earned for exceeding applicable CAFE standards.

Under the proposed Part 536, credit holders (including, but not limited to, manufacturers) would have credit accounts with NHTSA, and would be able to hold credits, apply them to compliance with CAFE standards, transfer them to another “compliance category” for application to compliance there, or trade them. Traded credits would be subject to an “adjustment factor” to ensure total oil savings are preserved, as required by EISA. EISA also prohibits credits earned before MY 2011 from being transferred, so NHTSA developed several regulatory restrictions on trading and transferring to facilitate Congress' intent in this regard.

Congress required that DOT establish a credit “transferring” regulation, to allow individual manufacturers to move credits from one of their fleets to another (e.g., using a credit earned for exceeding the light truck standard for compliance in the domestic passenger car standard). Congress allowed DOT to establish a credit “trading” regulation, so that credits may be bought and sold between manufacturers and other parties.

4. Preemption

In the proposal, the agency continued its discussion, conducted in a series of rulemaking proposals and final rules spanning a six-year period, of the issue of preemption of state regulations regulating tailpipe emissions of GHGs, especially carbon dioxide.

D. Brief Summary of Public Comments on the NPRM

Standard stringency

: Automobile manufacturers argued that the standards, especially those for light trucks in the early years, should be lower. Environmental and consumer groups and states wanted higher standards throughout the five-year period.

Footprint attribute

: Commenters generally supported the agency's choice of footprint as an attribute, although several urged consideration of additional attributes and a few argued for different attributes.

Setting standards at levels at which net benefits are projected to be maximized (optimized standards) vs. using other decision-making formulae:

A consumer group urged setting standards at the optimized + 50% alternative level, while some environmental groups favored setting them at levels at which total benefits equal total costs. Manufacturers contended that the optimized approach does not assure economic practicability, especially for manufacturers needing to borrow at high interest rates to finance design changes. A manufacturer association and other commenters said agency did not assess the ability of the manufacturers to raise the capital necessary to develop and implement sufficient technologies.

Front-loading/ratable increase:

Some commenters, especially the manufacturers, argued that the statutory requirement for “ratable” increases in standards means that the increases must be proportional or at least must not be disproportionately large or small in relation to one another. They did not discuss how that requirement is to be read together with either the statutory requirement to set standards for each model year at the level that is the maximum feasible level for that model year, or the separate statutory requirement for the overall fleet to achieve at least 35 mpg.

Key economic and other assumptions affecting stringency

—

•

Technology costs and effectiveness

—The manufacturers said that NHTSA underestimated the costs. A manufacturer association submitted a study by Sierra Research challenging the cost and effectiveness estimates developed by NHTSA and EPA for the NPRM.

•

Fuel prices

—A manufacturer association and dealer associations said that Energy Information Administration's (EIA) reference case should be used. Environmental and consumer groups, states and some members of Congress said NHTSA should use at least the EIA high price case. The EIA Administrator stated at a June 2008 Congressional hearing that the then current prices were at or above EIA's high case and that he would use that case in the CAFE rulemaking.

•

Discount rate

—The manufacturers said the rate should be at least 7%, while environmental and consumer groups and states said it should not be greater than 3 percent.

•

Military costs

—Many commenters argued that NHTSA should place a value other than zero on military security externalities.

•

Social cost of carbon

—Some commenters said the domestic value of reducing CO

emissions should be lower than the NPRM value of $7; environmental and consumer groups and states said it should be much higher. The former tended to favor a value reflecting damage to the U.S. only, while the latter favored a global value.

•

Weight reduction

—States and environmental and consumer groups said that NHTSA should consider downweighting for vehicles under 5,000 lbs; an insurance safety research group supported the proposal not to consider that.

Rate of application of advanced technologies (diesels and hybrids):

Manufacturers argued that NHTSA was overly optimistic; environmental/consumer groups and states argued that NHTSA relied too much on manufacturer product plans and should require manufacturers to improve fuel economy more quickly.

Fitting of standard curve to data:

A manufacturer association and two manufacturers questioned the empirical and technical bases for the shape of the curves.

Steepness of car standard curve:

The two manufacturer associations and several environmental groups said that the proposed car curves were too steep: manufacturers did so because of impracticability; environmental groups, because of what they saw as an incentive to increase vehicle size.

Backstop standard:

Environmental and consumer groups argued that NHTSA must establish absolute backstop standards for all vehicles. Manufacturers argued that anti-backsliding features of the attribute-based standards function as a backstop.

“

SUV loophole

”: In general, manufacturers agreed with the agency's decision to reclassify 2 WD SUVs from the light truck fleet to the passenger car fleet, as long as this change would take effect after MY 2010. Environmental and consumer groups argued that the classification system should be further revised to address “gaming” and did not address the agency's justification for the proposed revisions.

Credits:

Manufacturers argued that earned carry forward/back credits, as long as they were not acquired by transfer or trade, should be available to meet the minimum standard for domestic cars. Manufacturers also requested flexibility to manage their own credit shortfalls, instead of having the agency automatically decide upon and implement plans for them. One manufacturer asked that the new statutory provision giving credits a 5 year life be applied to all existing credits, instead of only those credits earned in model year 2009 or thereafter.

Impact on small/limited-line manufacturers:

Small/limited-line manufacturers argued that the proposed standards impact them more than full-line manufacturers, and requested either that the car standards be set based on the plans of all car manufacturers, instead of just the seven largest, or that some alternative form of standard be set for them.

Preemption:

Manufacturers argued that the effects of state regulation of CO

emissions are “related to” the regulation of fuel economy within the meaning of section 32919(a) of EPCA; environmental and consumer groups and states argued that the purpose of regulating CO

emissions may overlap with, but is different from the purpose of regulating fuel economy

E. New Information Received or Developed by NHTSA Between the NPRM and Final Rule

There were a number of changes after the NPRM that made possible analytical improvements for the final rule. These changes also caused the CAFE levels, fuel savings, and CO

emissions that are attributable to each alternative and scenario examined for this final rule to differ from those presented in the NPRM.

1. New Manufacturer Product Plans

As discussed in the NPRM, the agency requested new product plans from manufacturers to aid in determining appropriate standards for the final rule. The product plans submitted in May 2007 naturally did not take into consideration the later passage of EISA and its minimum 35 mpg combined fleet requirement by 2020. In addition, during that time, the fuel prices rose substantially.

The new product plans submitted in the summer of 2008 in response to the NPRM reflect those new realities in a couple of ways. First, companies provided product plans that reflected the manufacturers' implementation of some of the cost-effective technologies that the agency had projected in the NPRM. This increased the baseline against which the fuel saving from the standards are calculated. As a result, some of the savings and CO

emission reductions that were attributed in the NPRM to the rulemaking action are now attributed to actions taken “independently by the manufacturers, as reflected in the improved product plans. Second, the size of the overall fleet had declined from the time of the NPRM to the final rule, resulting in fewer vehicle miles traveled.

2. Revised Assessment of Technology Effectiveness and Costs

With the aid of an expert consulting firm, NHTSA revised the technology assumptions in the NPRM based on comments and new information received during the comment period and used those revised assumptions for analyzing alternatives and scenarios for the Final Environmental Impact Assessment (FEIS) and final rule. In several cases, the agency concluded on the basis of analysis of that additional information that the costs in the NPRM and Draft EIS were underestimated and benefits overestimated, and in most cases, these estimates were not well differentiated by vehicle class. The agency also revised its phase-in schedule of the technologies to account more fully for needed lead time.

3. Final Environmental Impact Statement

With the aid of an expert consulting firm, the agency completed a final environmental impact statement (FEIS), the first FEIS prepared by a federal agency to examine climate change issues comprehensively.

The FEIS examines the climate change and other environmental effects of the changes in emissions of greenhouse gases and criteria air pollutants resulting from a wide variety of alternative standards. For this purpose, the agency relied extensively on the 2007 reports of the Intergovernmental Panel on Climate Change and contracted with ICF International to perform climate modeling. That impact statement also carefully assesses the cumulative impacts of past, present and future CAFE rulemakings.

The Final Environmental Impact Statement can be found on the NHTSA website at

http://www.nhtsa.gov/staticfiles/DOT/NHTSA/Rulemaking/Rules/Associated%20Files/CAFE%20FEIS.pdf

(last accessed March 8, 2009).

F. Final Rule for MY 2011

1. Introduction

As discussed above, and at length later in this rule, NHTSA's review and analysis of comments on its proposal have led the agency to make many changes to its methods for analyzing potential MY 2011 CAFE standards, as well as to the data and other information to which the agency has applied these methods. The following are some of the more prominent changes:

• After receiving, reviewing, and integrating updated product plans from vehicle manufacturers, NHTSA has revised its forecast of the future light vehicle market.

• NHTSA has changed the methods and inputs it uses to represent the applicability, availability, cost, and effectiveness of future fuel-saving technologies.

• NHTSA has based its fuel price forecast on the AEO 2008 High Case price scenario instead of the AEO 2008 Reference Case.

• NHTSA has reduced mileage accumulation estimates (i.e., vehicle miles traveled) to levels consistent with this increased fuel price forecast.

• NHTSA has applied increased estimates for the value of oil import externalities.

• NHTSA has now included all manufacturers—not just the largest

seven—in the process used to fit the curve and estimate the stringency at which societal net benefits are maximized.

• NHTSA has tightened its application of the definition of “nonpassenger automobiles,” causing a reassigning of over one million vehicles from the light truck fleet to the passenger car fleet.

• NHTSA has now fitted the shape of the curve based on “exhaustion” of available technologies instead of on manufacturer-level optimization of CAFE levels.

These changes affected both the shape and stringency of the attribute-based standards. Taken together, the last three of the above changes reduced the steepness of the curves defining fuel economy targets for passenger cars, and also less significantly reduced the steepness of the light truck curves.

NHTSA recognizes that, when considered in isolation, some of the above changes might, on an “intuitive” basis, be expected to result in higher average required fuel economy levels. For example, setting aside other changes, the increase in estimated fuel prices and oil import externalities might be expected to result in higher average fuel economy requirements. On the other hand, again setting aside other changes, the updated characterization of fuel-saving technologies, the reassignment of over one million vehicles to the passenger car fleet, the reduction in mileage accumulation, and the inclusion of all manufacturers in the standard setting process might intuitively be expected to result in lower average fuel economy requirements.

However, there are theoretical reasons for which even such isolated expectations might not be met. For example, if a change in inputs caused societal net benefits to increase equally at all stringencies, the level of stringency that maximized societal net benefits would remain unchanged, although it would produce greater net benefits after the change in inputs. Further, some of the changes listed above are interdependent, making it difficult, if not impossible, to isolate the effect attributable to every change. For example, NHTSA applied the reduced mileage accumulation, which reduces the benefits of adding technology, in conjunction with applying increased fuel prices, which increase the benefits of adding technology.

There is no obvious way to determine reliably the net effect of all these (and other) changes short of applying all of the revised values to the model and looking at the results. We devote a good deal of the preamble discussion to these changes and their net implications for the standards in this rule.

The final rule reflects the combined effect of all of these changes, as well as minor changes not listed above.

2. Key Economic Values for Benefits Computations

NHTSA's analysis of the final standards and alternative CAFE standards for MYs 2011 relied on an expanded range of information and revised economic estimates and input parameters. These economic assumptions played a role in the determination of the level of the standards, with some having greater impacts than others. The agency, following discussions with other agencies of the U.S. government, updated its estimate of the global value of the social cost of carbon (i.e., the value of reducing CO

emissions) and developed a domestic value, as well as updated its estimates for other externalities based on comments and updated information received during the comment period. Specifically, the final standards are based the following revised economic assumptions:

Table I-2—Final Rule Key Economic Values for Benefits Computations (2007$)

Fuel Prices (average retail gasoline price per gallon, 2011-30)

$3.33

Discount Rates Applied to Future Benefits:

Reductions in CO

Emissions

Other Benefits

Economic Costs of Oil Imports ($/gallon):

“Monopsony” Component

$0.27

Price Shock Component

$0.12

Military Security Component

Total Economic Costs

$0.39

Emission Damage Costs:

Carbon Dioxide ($/metric ton):

(U.S. domestic value)

$2.00

(Mean global value from Tol (2008))

$33.00

(One standard deviation above mean global value)

$80.00

Annual Increase in CO

Damage Cost

2.4%

3. Standards

(a) Classification

the NPRM, the two-wheel drive sport-utility vehicles (2WD SUVs) were classified in the same way they were classified by their manufacturers in their May 2007 product plans. For the purposes of this final rule, however, they were reclassified in accordance with the discussion in the NPRM of the proper classification of those vehicles. This resulted in the shifting of over one million two-wheel drive vehicles from the truck fleet to the car fleet. This shift had the effect of lowering the average fuel economy for cars due to the inclusion of vehicles previously categorized as trucks, and lowered average fuel economy for trucks because the truck category now has a larger proportion of heavier trucks. Following our careful consideration of the public comments on that discussion, we reaffirm the reasoning and conclusions of that discussion.

Derived from NHTSA's $33 per metric ton estimate of the global value of reducing CO

emissions.

(b) Stringency

This final rule establishes footprint-based fuel economy standards for MY 2011 passenger cars and light trucks.

Each vehicle manufacturer's required level of CAFE is based on target levels of average fuel economy set for vehicles of different sizes and on the distribution of that manufacturer's vehicles among those sizes. Size is defined by vehicle footprint. The curves defining the performance target at each footprint reflect the technological and economic capabilities of the industry. The target for each footprint is the same for all

manufacturers, regardless of differences in their overall fleet mix. Compliance will be determined by comparing a manufacturer's harmonically averaged fleet fuel economy levels in a model year with a required fuel economy level calculated using the manufacturer's actual production levels and the targets for each footprint of the vehicles that it produces.

The standards were developed with the aid of a computer model (known as the “Volpe Model”). NHTSA uses the Volpe model as a tool to inform its consideration of potential CAFE standards for MY 2011. The Volpe model requires the following types of information as inputs: (1) A forecast of the future vehicle market, (2) estimates of the availability, applicability, and incremental effectiveness and cost of fuel-saving technologies, (3) estimates of vehicle survival and mileage accumulation patterns, the rebound effect, future fuel prices, the social cost of carbon, and many other economic factors, (4) fuel characteristics and vehicular emissions rates, and (5) coefficients defining the shape and level of CAFE curves to be examined. These inputs are selected by the agency based on best available information and data.

The agency analyzed seven regulatory alternatives, one of which maximizes net benefits within the limits of available information and is known as the “optimized standards.” The optimized standards are set at levels, such that, considering all of the manufacturers together, no other alternative is estimated to produce greater net benefits to society. Those net benefits reflect the difference between (1) the present value of all monetized benefits of the standards, and (2) the total costs of all technologies applied in response to the standards. Many of the other alternative standards exceed the level at which the estimated net benefits are maximized, including one alternative in which standards are set at a level at which total costs equal total benefits and another alternative set at a level of maximum technology application without regard to cost. For each alternative, the model estimates the costs associated with additional technology utilization, as well as accompanying changes in travel demand, fuel consumption, fuel outlays, emissions, and economic externalities related to petroleum consumption and other factors. These comprehensive analyses, which also included scenarios with different economic input assumptions as presented in the Final Environmental Impact Statement (FEIS) and the Final Regulatory Impact Analysis (FRIA), informed and contributed to the agency's consideration of the “need of the United States to conserve energy,” as well as the other statutory factors in 49 U.S.C. 32902(f), and safety impacts. In addition, they informed the agency's consideration of environmental impacts under NEPA. The agency identified the optimized standards as its preferred alternative in the FEIS.

NHTSA considered the results of analyses conducted on alternative standards for MY 2011 by the Volpe model and analyses conducted outside of the Volpe model, including analysis of the impacts of emissions of carbon dioxide and criteria pollutants, and analysis of which technologies are available now and which will not be available until the longer term, and analysis of the extent to which changes in vehicle prices and fuel economy might affect vehicle production and sales. Further, NHTSA considered whether it could expedite the entry of any technologies into the market through these standards. Using all of this information, the agency considered the governing statutory factors, along with environmental issues and other relevant societal issues such as safety, and is promulgating the maximum feasible standards based on its best judgment on how to balance these factors.

Upon a considered analysis of all information available, including all information submitted to NHTSA in comments, the agency is adopting the “optimized standard” alternative as the final standards for MY 2011.

We note that we used the Volpe Model in the last two light truck rulemakings and that we adopted “optimized standards” in the last light truck rulemaking. We believe that use of the Volpe model is a valid and objective way to establish attribute-based standards under EPCA. Further, by limiting the standards to levels that can be achieved using technologies each of which are estimated to provide benefits that at least equal its costs, the net benefit maximization approach helps to assure the marketability of the manufacturers' vehicles and thus economic practicability of the standards.

The agency notes, for NEPA purposes, that the “optimized standard” alternative adopted as the final standards corresponds to the “Optimized Mid-2” scenario described in Section 2.2.2 of the FEIS.

Providing this assurance assumes increased importance in view of current and anticipated conditions in the industry in particular and the economy in general. As has been widely reported in the public domain throughout this rulemaking, and as shown in public comments, the national and global economies raise serious concerns. Even before those recent developments, the automobile manufacturers were already facing substantial difficulties. Together, these problems have made NHTSA's economic practicability analysis particularly important and challenging in this rulemaking.

The agency cannot set out the exact level of CAFE that each manufacturer will be required to meet for MY 2011 under the passenger car or light truck standards because the levels will depend on information that will not be available until the end of that model year, i.e., the final actual production figures for that year. The agency can, however, project what the industry-wide level of average fuel economy will be for passenger cars and for light trucks if each manufacturer produced its expected mix of automobiles and just met its obligations under the “optimized” standards. Adjacent to each average fuel economy figure is the estimated associated level of tailpipe emissions of CO

that will be achieved.

See supra

note 6.

MY 2011 passenger cars: 30.2 mpg (294 g/mi of tailpipe emissions of CO

)

MY 2011 light trucks: 24.1 mpg (369 g/mi of tailpipe emissions of CO

)

MY 2011: 27.3 mpg (2.0 mpg increase above MY 2010; 326 g/mi CO

)

In addition, per EISA, each manufacturer's domestic passenger fleet is required in MY 2011 to achieve 27.5 mpg or 92 percent of the CAFE of the industry-wide combined fleet of domestic and non-domestic passenger cars

for that model year, whichever is higher. This requirement results in the following alternative minimum standard (not attribute-based) for domestic passenger cars:

Those numbers set out several paragraphs above.

MY 2011: 27.8 mpg (320 g/mi of tailpipe emissions of CO

)

(i) Benefits

We estimate that the MY 2011 standards will save approximately 887 million gallons of fuel and reduce tailpipe emissions of CO

by 8.3 million metric tons.

For passenger cars, the standards will save approximately 463 million gallons of fuel and reduce tailpipe CO

emissions by 4.3 million metric tons over the lifetime of the MY 2011 passenger cars, compared to the fuel savings and emissions reductions that would occur if the standards remained at the adjusted baseline (i.e., the higher of manufacturer's plans and the manufacturer's required level of average fuel economy for MY 2010). The value of the total benefits of the passenger car standards are estimated to be slight over $1 billion

over the lifetime of the MY 2011 cars. This estimate of societal benefits includes direct impacts from lower fuel consumption as well as externalities and also reflects offsetting societal costs resulting from the rebound effect.

The slightly over $1 billion estimate is based on a 7 percent discount rate for valuing future impacts.

We estimate that the standards for light trucks will save approximately 424 million gallons of fuel and prevent the tailpipe emission of 4.0 million metric tons of CO

over the lifetime of the light trucks sold during those model years, compared to the fuel savings and emissions reductions that would occur if the standards remained at the adjusted baseline. The value of the total benefits of the light truck standards will be approximately $921 million

over the lifetime of the MY 2011 light trucks. This estimate of societal benefits includes direct impacts from lower fuel consumption as well as externalities and also reflects offsetting societal costs resulting from the rebound effect.

The $921 million estimate is based on a 7 percent discount rate for valuing future impacts.

(ii) Costs

NHTSA estimates that, as a result of the final standards for MY 2011, manufacturers will incur costs of approximately $1.460 billion for additional fuel-saving technologies, compared to the costs they would incur if the standards remained at MY 2010 levels.

For passenger cars, we estimate that manufacturers will incur costs of approximately $595 million for additional fuel-saving technologies, compared to the costs they would incur if the standards remained at MY 2010 levels. Our estimate is that the resulting vehicle price increases to buyers of MY 2011 passenger cars will be recovered or paid back

in additional fuel savings in an average of 4.4 years (53 months), assuming fuel prices ranging from $2.95 per gallon in 2011 to $3.62 per gallon in 2030.

See Section V.B.5 below for discussion of payback period.

The fuel prices (shown here in 2007 dollars) used to calculate the length of the payback period are those projected (Annual Energy Outlook 2008) by the Energy Information Administration over the life of the MY 2011 light trucks, not current fuel prices.

The agency further estimates that, in response to the final standards for MY 2011 light trucks, manufacturers will incur costs of approximately $865 million for additional fuel-saving technologies, compared to the costs they would incur if the standards remained at MY 2010 levels. We estimate that the resulting vehicle price increases to buyers of MY 2011 light trucks will be paid back in additional fuel savings in an average of 7.7 years (92 months), assuming the same fuel prices as mentioned above.

(d) Flexibilities

Manufacturers are likely to rely extensively on flexibility mechanisms provided by EPCA (as described in Section XII) and will thereby reduce the costs (and benefits) of complying with the standards to a meaningful extent. However, the benefit and compliance cost estimates used by the agency in determining the maximum feasible level of the CAFE standards and shown above assume that manufacturers will rely solely on the installation of fuel economy technology to achieve compliance with the standards. The estimates do not reflect the availability and use of flexibility mechanisms, such as compliance credits and credit trading. The reason for this is because EPCA prohibits NHTSA from considering the effects of those mechanisms in setting CAFE standards. EPCA has precluded consideration of the FFV adjustments ever since it was amended to provide for those adjustments. The prohibition against considering compliance credits was added by EISA.

4. Credits

NHTSA is also adopting a new Part 536 on use of “credits” earned for exceeding applicable CAFE standards. Part 536 will implement the provisions in EISA authorizing NHTSA to establish by regulation a credit trading program and directing it to establish by regulation a credit transfer program.

Since its enactment, EPCA has permitted manufacturers to earn credits for exceeding the standards and to apply those credits to compliance obligations in years other than the model year in which it was earned. EISA extended the “carry-forward” period to five model years, and left the “carry-back” period at three model years. Under Part 536, credit holders (including, but not limited to, manufacturers) will have credit accounts with NHTSA, and will be able to hold credits, apply them to compliance with CAFE standards, transfer them to another “compliance category” for application to compliance there, or trade them. A credit may also be cancelled before its expiry date, if the credit holder so chooses. Traded and transferred credits will be subject to an “adjustment factor” to ensure total oil savings are preserved, as required by EISA. EISA also prohibits credits earned before MY 2011 from being transferred, so NHTSA has developed several regulatory restrictions on trading and transferring to facilitate Congress' intent in this regard. Additional information on Part 536 is available in Section XII below.

Congress required that DOT establish a credit “transferring” regulation, to allow individual manufacturers to move credits from one of their fleets to another (

e.g

., using a credit earned for exceeding the light truck standard for compliance with the domestic passenger car standard). Congress allowed DOT to establish a credit “trading” regulation, so that credits may be bought and sold between manufacturers and other parties.

5. Preemption

As noted above, NHTSA has decided not to include any preemption provisions in the regulatory text at this time and will re-examine the issue of preemption in the context of the rulemaking for MY 2012 and later years.

II. Background

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

Improving vehicle fuel economy has been long and widely recognized as one of the key ways of achieving energy independence, energy security, and a low carbon economy.

Most recently,

the United Nations Environment Programme, International Energy Agency, International Transport Forum and FIA Foundation released a report

in March 2009 calling for a 50 percent increase in fuel economy in response to predictions by the IEA that fuel consumption and CO

emissions from the global light duty fleet will otherwise roughly double between 2000 and 2050.

Among the reports and studies noting this point are the following:

John Podesta, Todd Stern and Kim Batten, “Capturing the Energy Opportunity; Creating a Low-Carbon Economy,” Center for American Progress (November 2007), pp. 2, 6, 8, and 24-29,

Available at: http://www.americanprogress.org/issues/2007/11/pdf/energy_chapter.pdf

(last accessed March 8, 2009).

Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Frank Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, “A Roadmap for a Secure, Low-Carbon Energy Economy; Balancing Energy Security and Climate Change,” World Resources Institute and Center for Strategic and International Studies (January 2009), pp. 21-22;

Available at: http://pdf.wri.org/secure_low_carbon_energy_economy_roadmap.pdf

. (last accessed March 7, 2009).

Alliance to Save Energy et al., “Reducing the Cost of Addressing Climate Change Through Energy Efficiency (2009).

Available at: http://Aceee.org/energy/climate/leg.htm

. (last accessed March 7, 2009).

John DeCicco and Freda Fung, “Global Warming on the Road; The Climate Impact of America's Automobiles,” Environmental Defense (2006) pp. iv-vii;

available at: http://www.edf.org/documents/5301_Globalwarmingontheroad.pdf

. (last accessed March 7, 2009).

“Why is Fuel Economy Important?,” a Web page maintained by the Department of Energy and Environmental Protection Agency,

Available at http://www.fueleconomy.gov/feg/why.shtml

(last accessed February 17, 2009);

Robert Socolow, Roberta Hotinski, Jeffery B. Greenblatt, and Stephen Pacala, “Solving The Climate Problem: Technologies Available to Curb CO

Emissions,” Environment, volume 46, no. 10, 2004. pages 8-19.

Available at: http://www.princeton.edu/~cmi/resources/CMI_Resources_new_files/Environ_08-21a.pdf

. (last accessed March 7, 2009).

“50BY50 Global Fuel Economy Initiative, Making Cars 50% More Fuel Efficient by 2050 Worldwide,”

Available at: http://www.fiafoundation.org/50by50/Documents/50BY50_report.pdf

(last accessed March 7, 2009).

The significance accorded improving fuel economy reflects several factors. The emission of CO

from the tailpipes of cars and light trucks is one of the largest sources of U.S. CO

emissions.

EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006 (April 2008), pp. ES-4, ES-8, and 2-24.

Further, using vehicle technology to improve fuel economy, thereby reducing tailpipe emissions of CO

, is one of the three main measures of reducing those tailpipe emissions of CO

The two other measures for reducing the tailpipe emissions of CO

are switching to vehicle fuels with lower carbon content and changing driver behavior, i.e., inducing people to drive less.

Podesta et al., p. 25; Ladislaw et al. p. 21; DeCicco et al. p. vii; “Reduce Climate Change,” a Web page maintained by the Department of Energy and Environmental Protection Agency at

http://www.fueleconomy.gov/feg/climate.shtml

(last accessed March 7, 2009).

In order to reduce the amount of tailpipe emissions of CO

per mile, either the amount of fuel consumed per mile must be reduced or lower carbon intensive fuels must be used. While there are emission control technologies that can capture or destroy the pollutants (e.g., carbon monoxide) that are produced by imperfect combustion of fuel, there is no current or anticipated control technology for CO

. Thus, the technologies for reducing tailpipe emissions of CO

are the technologies that reduce fuel consumption and thereby reduce CO

emissions as well, as well as the technologies for accommodating the use of alternative fuels. Consequently, substantially reducing fuel use through using automotive technology to improve fuel economy is indispensable if automobile manufacturers are to make substantial and continuing progress in reducing those emissions.

The relationship between improving fuel economy and reducing CO

tailpipe emissions is a very direct and close one. CO

is the natural by-product of the combustion of fuel in motor vehicle engines. 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.

Since the amount of CO

emissions is essentially constant per gallon combusted of a given type of fuel, the amount of fuel consumption per mile is directly related to the amount of CO

emissions per mile. Thus, requiring improvements in fuel economy necessarily has the effect of requiring reductions in tailpipe emissions of CO

emissions.

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.

This can be seen in the graph

and table below. The graph shows how the amount of CO

emitted by a vehicle per year varies according to the vehicle's fuel economy. The table shows the limit that a CAFE standard would indirectly place on tailpipe CO

emissions. To take the first value of fuel economy from the table below as an example, a standard of 21.0 mpg would indirectly place substantially the same limit on tailpipe CO

emissions as a tailpipe CO

emission standard of 423.2 g/mi of CO

, and vice versa.

The graph is the same as the one shown on Reduce Climate Change, a Web page maintained by the Department of Energy and Environmental Protection Agency.

Available at

http://www.fueleconomy.gov/feg/climate.shtml

(last accessed March 8, 2009).

To the extent that manufacturers comply with a CAFE standard with diesel automobiles instead of gasoline ones, the level of CO

tailpipe emissions would be higher. As noted above, the agency projects that 4 percent of the MY 2015 passenger car fleet and 10 percent of the MY 2015 light truck fleet will have diesel engines. The CO

tailpipe emissions of a diesel powered passenger car are 15 percent per mile higher than those of a comparable gasoline powered-passenger car achieving the same mpg.

ER30MR09.000

The relationship between improving fuel economy and reducing tailpipe emissions of CO

is so strong that EPA determines fuel economy by the simple expedient of measuring the amount of CO

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. EPA then uses the carbon content of the test fuel

to calculate the amount of fuel that had to be consumed per mile in order to produce that amount of CO

Finally, EPA converts that fuel figure into a miles-per-gallon figure.

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

B. Contribution of Fuel Economy Improvements to CO

Tailpipe Emission Reductions Since 1975

The need to take action to reduce GHG emissions, e.g., motor vehicle tailpipe emissions of CO

, in order to forestall and even mitigate climate change is well recognized.

Less well recognized are two related facts.

IPCC (2007):

Climate Change 2007: Mitigation of Climate Change. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change

[B. Metz, O. Davidson, P. Bosch, R. Dave, and L. Meyer (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

First, improving fuel economy is the only method available to motor vehicle manufacturers for making substantial and continuing reductions in the CO

tailpipe emissions of motor vehicles and thus must be the core element of any effort to achieve those reductions.

Second, the significant improvements in fuel economy since 1975, due to the CAFE standards and other market conditions as well, have directly caused reductions in the rate of CO

tailpipe emissions per vehicle.

In 1975, passenger cars manufactured for sale in the U.S. averaged only 15.8 mpg (562.5 grams of CO

per mile or 562.5 g/mi of CO

). By 2007, the average fuel economy of new passenger cars had increased to 31.3 mpg, causing the emission of CO

to fall to 283.9 g/mi.

Similarly, in 1975, light trucks produced for sale in the U.S. averaged 13.7 mpg (648.7 g/mi of CO

). By 2007, the average fuel economy of new light trucks had risen to 23.1 mpg, causing emission of CO

to fall to 384.7 g/mi.

These figures are not real world fuel economy figures. They are based on the laboratory figures fuel economy test procedures used for the CAFE program. Real world fuel economy figures would be less (and CO

emission figures higher).

ER30MR09.001

If fuel economy had not increased above the 1975 level, cars and light trucks would have emitted an additional 11 billion metric tons of CO

into the atmosphere between 1975 and 2005. That is nearly the equivalent of emissions from all U.S. fossil fuel combustion for two years (2004 and 2005). The figure below shows the amount of CO

emissions avoided due to increases in fuel economy.

BILLING CODE 4910-59-P

ER30MR09.002

BILLING CODE 4910-59-C

Some commenters on the NPRM argued that some of improvements in fuel economy, and thus some of the reductions in CO

, shown in that figure would have occurred in the absence of any CAFE standards. We agree. Similarly, and to the same extent, some of the improvements in fuel economy and accompanying reductions in CO

that would occur under a regulation directly regulating CO

would occur in the absence of any such regulation. We note that no published research has isolated the contribution of CAFE standards themselves to historical increases in fuel economy from those of the many other factors that can affect fuel economy.

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

1. National Academy of Sciences Issues Report on Future of CAFE Program (February 2002)

(a) Significantly Increasing CAFE Standards Without Making Them Attribute-Based Would Adversely Affect Safety

In the 2002 congressionally-mandated report entitled “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,”

a committee of the National Academy of Sciences (NAS) (“2002 NAS Report”) concluded that the then-existing form of passenger car and light truck CAFE standards permitted vehicle manufacturers to comply in part by downweighting and even downsizing their vehicles and that these actions had led to additional fatalities. The committee explained that this safety problem arose because, at that time, the CAFE standards were not attributed-based and thus subjected all passenger cars to the same fuel economy target and all light trucks to the same target, regardless of their weight, size, or load-carrying capacity.

The committee said that this experience suggests that consideration should be given to developing a new system of fuel economy targets that reflects differences in such vehicle attributes.

National Research Council, “Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards,” National Academy Press, Washington, DC (2002).

Available at

http://www.nap.edu/openbook.php?isbn=0309076013

(last accessed March 8, 2009). The conference committee report for the Department of Transportation and Related Agencies Appropriations Act for FY 2001 (Pub. L. 106-346) directed NHTSA to fund a study by NAS to evaluate the effectiveness and impacts of CAFE standards (H. Rep. No. 106-940, p. 117-118). In response to the direction from Congress, NAS published this lengthy report.

NHTSA formerly used this approach for CAFE standards. EISA prohibits its use after MY 2010.

Looking to the future, the committee made a critical distinction between possible ways of improving fuel economy and the ways likely to be chosen for doing so. It said that while it was technically feasible and potentially economically practicable for manufacturers to improve fuel economy without reducing vehicle weight or size and, therefore, without significantly affecting the safety of motor vehicle travel, the actual strategies chosen by manufacturers to improve fuel economy would depend on a variety of factors. In the committee's judgment, the extensive downweighting and downsizing that occurred after fuel economy requirements were established in the 1970s suggested that the likelihood of a similar response to further increases in fuel economy requirements must be considered seriously. Any reduction in vehicle size and weight would have safety implications.

The committee said, “to the extent that the size and weight of the fleet have been constrained by CAFE requirements * * * those requirements have caused more injuries and fatalities on the road than would otherwise have occurred.”

Specifically, it noted: “the downweighting and downsizing that occurred in the late 1970s and early 1980s, some of which was due to CAFE standards, probably resulted in an additional 1300 to 2600 traffic fatalities in 1993.”

NAS, p. 29.

NAS, p. 3 (Finding 2).

The committee cautioned that the safety effects of future downsizing and downweighting were likely to be hidden by the generally increasing safety of the light-duty vehicle fleet.

It said that some might argue that this improving safety picture means that there is room to improve fuel economy without adverse safety consequences; however, such an approach would not achieve the goal of avoiding the adverse safety consequences of fuel economy increases. Rather, the safety penalty imposed by increased fuel economy (if weight reduction were used as one of the fuel economy improving measures) would be more difficult to identify in light of the continuing improvement in vehicle safety. NAS said that although it anticipated that these safety innovations would improve the safety of vehicles of all sizes, that fact did not mean downsizing to achieve fuel economy improvements would not have any safety costs. If two vehicles of the same size were modified, one both by downsizing it and adding the safety innovations and the other solely by adding safety innovations, the latter vehicle would in all likelihood be safer.

Two of the 12 members of the committee dissented from the majority's safety analysis and conclusions.

The committee concluded that if an increase in fuel economy were implemented pursuant to standards that were structured so as to encourage either downsizing or the increased production of smaller vehicles, some additional traffic fatalities would be expected. It said that the larger and faster the required increases, the more likely adverse impacts. Without a thoughtful restructuring of the program, there would be the trade-offs that must be made if CAFE standards were increased by any significant amount.

NAS, p. 9.

In response to these conclusions, NHTSA issued attribute-based CAFE standards for light trucks and sought legislative authority to issue attribute-based CAFE standards for passenger cars before undertaking to raise the car standards. Congress went a step further in enacting EISA, not only authorizing the issuance of attribute-based standards, but also mandating them.

(b) Climate Change and Other Externalities Justify Increasing the CAFE Standards

The 2002 NAS report also concluded that the CAFE standards have increased fuel economy, which in turn has reduced dependence on imported oil, improved the nation's terms of trade, and reduced emissions of carbon dioxide, (a principal GHG), relative to what they otherwise would have been. If fuel economy had not improved, gasoline consumption (and crude oil imports) in 2002 would have been about 2.8 million barrels per day (mmbd) greater than it was then.

As noted above, reducing fuel consumption in vehicles also reduces carbon dioxide emissions. If the nation were using 2.8 mmbd more gasoline in 2002, carbon emissions would have been more than 100 million metric tons of carbon (mmtc) higher. Thus, improvements in light-duty vehicle (4 wheeled motor vehicles under 10,000 pounds gross vehicle weight rating) fuel economy reduced overall U.S. emissions by about 7 percent as of 2002.

NAS, pp. 3 and 20.

NAS, p. 20.

The report concluded that technologies exist that could significantly reduce fuel consumption by passenger cars and light trucks further within 15 years (i.e., by about 2017), while maintaining vehicle size,

weight, utility and performance.

Given their lower fuel economy, light duty trucks were said to offer the greatest potential for reducing fuel consumption.

The report also noted that vehicle development cycles—as well as future economic, regulatory, safety and consumer preferences—would influence the extent to which these technologies could lead to increased fuel economy in the U.S. market.

NAS, p. 3 (Finding 5).

NAS, p. 4 (Finding 5).

To assess the economic trade-offs associated with the introduction of existing and emerging technologies to improve fuel economy, the NAS conducted what it called a “cost-efficient analysis” based on the direct benefits (value of saved fuel) to the consumer—“that is, the committee identified packages of existing and emerging technologies that could be introduced over the next 10 to 15 years that would improve fuel economy up to the point where further increases in fuel economy would not be reimbursed by fuel savings.”

NAS, pp. 4 (Finding 6) and 64).

The committee emphasized that it is critically important to be clear about the reasons for considering improved fuel economy. While it said that the dollar value of the saved fuel would be the largest portion of the potential benefits, the committee noted that there is theoretically insufficient reason for the government to issue higher standards just to obtain those direct benefits since consumers have a wide variety of opportunities to buy a fuel-efficient vehicle.

NAS, pp. 8-9.

The committee said that there are two compelling concerns that justify a government-mandated increase in fuel economy, both relating to externalities. The first and most important concern, it argued, is the accumulation in the atmosphere of greenhouse gases, principally carbon dioxide.

NAS, pp. 2, 13, and 83.

A second concern is that petroleum imports have been steadily rising because of the nation's increasing demand for gasoline without a corresponding increase in domestic supply. The high cost of oil imports poses two risks: downward pressure on the strength of the dollar (which drives up the cost of goods that Americans import) and an increase in U.S. vulnerability to macroeconomic shocks that cost the economy considerable real output.

To determine how much the fuel economy standards should be increased, the committee urged that all social benefits be considered. That is, it urged not only that the dollar value of the saved fuel be considered, but also that the dollar value to society of the resulting reductions in greenhouse gas emissions and in dependence on imported oil should be calculated and considered. The committee said that if it is possible to assign dollar values to these favorable effects, it becomes possible to make at least crude comparisons between the socially beneficial effects of measures to improve fuel economy on the one hand, and the costs (both out-of-pocket and more subtle) on the other. The committee chose a value of about $0.30/gal of gasoline for the externalities associated with the combined impacts of fuel consumption on greenhouse gas emissions and on world oil market conditions.

NAS, pp. 4 and 85-86.

The report expressed concerns about increasing the standards under the CAFE program as currently structured. While raising CAFE standards under the existing structure would reduce fuel consumption, doing so under alternative structures “could accomplish the same end at lower cost, provide more flexibility to manufacturers, or address inequities arising from the present” structure.

NAS, pp. 4-5 (Finding 10).

To address those structural problems, the report suggested various possible reforms. The report found that the “CAFE program might be improved significantly by converting it to a system in which fuel targets depend on vehicle attributes.”

The report noted further that under an attribute-based approach, the required CAFE levels could vary among the manufacturers based on the distribution of their product mix. NAS stated that targets could vary among passenger cars and among trucks, based on some attribute of these vehicles such as weight, size, or load-carrying capacity. The report explained that a particular manufacturer's average target for passenger cars or for trucks would depend upon the fractions of vehicles it sold with particular levels of these attributes.

NAS, p. 5 (Finding 12).

NAS, p. 87.

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

The 2006 final rule reformed the structure of the CAFE program for light trucks by introducing an attribute-based approach and using that approach to establish higher CAFE standards for MY 2008-2011 light trucks.

Reforming the CAFE program enables it to achieve larger fuel savings, while enhancing safety and preventing adverse economic consequences.

71 FR 17566; April 6, 2006.

As noted above, under Reformed CAFE, fuel economy standards were restructured so that they are based on a vehicle attribute, a measure of vehicle size called “footprint.” It is the product of multiplying a vehicle's wheelbase by its track width. A target level of fuel economy was established for each increment in footprint (0.1 ft

). Trucks with smaller footprints have higher fuel economy targets; conversely, larger ones have lower targets. A particular manufacturer's compliance obligation for a model year is calculated as the harmonic average of the fuel economy targets for the manufacturer's vehicles, weighted by the distribution of the manufacturer's production volumes among the footprint increments. Thus, each manufacturer is required to comply with a single overall average fuel economy level for each model year of production.

The approach for determining the fuel economy targets was to set them just below the level where the increased cost of technologies that could be adopted by manufacturers to improve fuel economy would first outweigh the added benefits that would result from those technologies. These targets translate into required levels of average fuel economy that are technologically feasible because manufacturers can achieve them using technologies that are or will become available. Those levels also reflect the need of the nation to reduce energy consumption because they reflect the economic value of the savings in resources, as well as of the reductions in economic and environmental externalities that result from producing and using less fuel.

We carefully balanced the estimates costs of the rule with the estimated benefits of reducing energy consumption. Compared to Unreformed (non-attributed-based) CAFE, Reformed CAFE enhances overall fuel savings while providing vehicle manufacturers with the flexibility they need to respond to changing market conditions. Reformed CAFE also provides a more equitable regulatory framework by creating a level playing field for manufacturers, regardless of whether they are full-line or limited-line manufacturers. We were particularly encouraged that Reformed CAFE will confer no compliance advantage if vehicle makers choose to downsize

some of their fleet as a CAFE compliance strategy, thereby reducing the adverse safety risks associated with the Unreformed CAFE program.

3. Supreme Court Issues Decision in

Massachusetts

EPA

(April 2007)

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 the Clean Air Act.

The Court ruled that the state of Massachusetts had standing to sue EPA because it had already lost an amount of land and stood to lose more due to global warming-induced increases in sea level; that some portion of this harm was traceable to the absence of a regulation issued by EPA requiring reductions in GHG emissions (CO

emissions, most notably) by motor vehicles; and that EPA's issuance of such a regulation would reduce the risk of further harm to Massachusetts.

On the merits, the Court ruled that greenhouse gases are “pollutants” under the Clean Air Act and that the Act therefore authorizes EPA to regulate greenhouse gas emissions from motor vehicles if that agency makes the necessary findings and determinations under section 202 of the Act.

127 S.Ct. 1438 (2007).

68 FR 52922, September 8, 2003.

As noted above, a CAFE standard and its mathematically equivalent CO

tailpipe emission standard would each have the same effect on those emissions and thus on the risk of further harm except to the extent, as noted in a footnote above, diesel engines are used to comply with the CAFE standards.

The Court considered EPCA briefly, stating

[T]hat DOT sets mileage standards in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public's “health” and “welfare,” 42 U.S.C. 7521(a)(1), a statutory obligation wholly independent of DOT's mandate to promote energy efficiency. See Energy Policy and Conservation Act, § 2(5), 89 Stat. 874, 42 U.S.C. 6201(5). The two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.

127 S.Ct. at 1462.

The Supreme Court did not address or define the nature or extent of the overlap or explore the types of benefits considered in establishing the levels of the CAFE standards. Further, the Court did not address the express preemption provision in EPCA.

4. NHTSA and EPA Coordinate on Development of Rulemaking Proposals (Summer-Fall 2007)

In the wake of the Supreme Court's decision, on May 14, 2007, President Bush responded to the Supreme Court's opinion, stating

* * * I'm directing the EPA and the Departments of Transportation, Energy, and Agriculture to take the first steps toward regulations that would cut gasoline consumption and greenhouse gas emissions from motor vehicles * * *

On May 14, 2007, President Bush issued Executive Order 13432, which announces

[i]t is the policy of the United States to ensure the coordinated and effective exercise of the authorities of the President and the heads of the Department of Transportation, the Department of Energy, and the Environmental Protection Agency to protect the environment with respect to greenhouse gas emissions from motor vehicles, nonroad vehicles, and nonroad engines, in a manner consistent with sound science, analysis of benefits and costs, public safety, and economic growth.

The Executive Order goes on to require coordination among the agencies when taking action to directly regulate (or substantially and predictably affect) greenhouse gas emissions from motor vehicles, nonroad vehicles, and use of motor vehicle fuels. Such action is to be undertaken jointly “to the maximum extent permitted by law and determined by the head of the agency to be practicable.”

Consistent with these directives, NHTSA and EPA took the first steps toward regulations that would cut gasoline consumption and greenhouse gas emissions from motor vehicles pursuant to Presidential directive. NHTSA and EPA staff jointly assessed which technologies would be available and their effectiveness and cost. They also jointly assessed the key economic and other assumptions affecting the stringency of future standards. Finally, they worked together in updating and further improving the Volpe model that had been used to help determine the stringency of the MY 2008-2011 light truck CAFE standards. Much of the work between NHTSA and EPA staff was reflected in rulemaking proposals being developed by NHTSA prior to the enactment of EISA and was substantially retained when NHTSA revised its proposals to be consistent with that legislation. Ultimately, the NPRM published by the agency in May and today's final rule are based on NHTSA's assessments of how they meet EPCA, as amended by EISA.

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

On November 15, 2007, the United States Court of Appeals for the Ninth Circuit issued its decision in

Center for Biological Diversity

NHTSA

the challenge to the MY 2008-11 light truck CAFE rule. The Court rejected the petitioners' argument that EPCA precludes the use of a marginal cost-benefit analysis that attempted to weigh all of the social benefits (i.e., externalities as well as direct benefits to consumers) of improved fuel savings in determining the stringency of the CAFE standards.

508 F.3d 508.

The Court found that NHTSA had been arbitrary and capricious in the following respects:

• NHTSA's decision that it could not monetize the benefit of reducing CO

emissions for the purpose of conducting its marginal benefit-cost analysis based on its view that the value of the benefit of CO

emission reductions resulting from fuel consumption reductions was too uncertain to permit the agency to determine a value for those emission reductions;

As noted above in the preamble, the agency has developed a value for those reductions and used it in the analyses underlying the standards adopted in this final rule. For further discussion, see Section V of this preamble.

• NHTSA's lack, in the Court's view, of a reasoned explanation for its decision not to establish a “backstop” (i.e., a fixed minimum CAFE standard applicable to manufacturers);

EISA's requirement that standards be based on one or more vehicle attributes appears to preclude the specification of such a backstop standard for the latter two categories of automobiles. For further discussion, see Section VI of this preamble.

• NHTSA's lack, again in the Court's view, of a reasoned explanation for its decision not to revise the regulatory definitions for the passenger car and light truck categories of automobiles so that some vehicles currently classified as light trucks are instead classified as passenger cars;

In this final rule, NHTSA has moved 1.4 million 2 wheel drive SUVs from the light truck class to the passenger car class. It re-examined the legislative history of the statutory definitions of “automobile” and “passenger automobile” and the term “nonpassenger automobile” and analyzed the impact of that moving any vehicles out of the nonpassenger automobile (light truck) category into the passenger automobile (passenger car) category would have the level of standards for both groups of automobiles. For further discussion, see Section XI of this preamble.

• NHTSA's decision not to subject most medium- and heavy-duty pickups and most medium- and heavy-duty cargo vans (i.e., those between 8,500 and 10,000 pounds gross vehicle weight

rating (GVWR,) to the CAFE standards;

EISA removed these vehicles from the statutory definition of “automobile” and mandated the establishment of CAFE standards for them following the completion of reports by the National Academy of Sciences and NHTSA.

• NHTSA's decision to prepare and publish an Environmental Assessment (EA) and making a finding of no significant impact notwithstanding what the Court found to be an insufficiently broad range of alternatives, insufficient analysis of the climate change effects of the CO

emissions, and limited assessment of cumulative impacts in its EA under the National Environmental Policy Act (NEPA).

On February 6, 2008, the Government petitioned for en banc rehearing by the 9th Circuit on the limited issue of whether it was appropriate for the panel, having held that the agency insufficiently explored the environmental implications of the MY 2008-11 rulemaking in its EA, to order the agency to prepare an EIS rather than simply remanding the matter to the agency for further analysis. The Court subsequently modified its order as described below.

The Court did not vacate the standards, but instead said it would remand the rule to NHTSA to promulgate new standards consistent with its opinion “as expeditiously as possible and for the earliest model year practicable.

Under the decision, the standards established by the April 2006 final rule would remain in effect unless and until amended by NHTSA. In addition, it directed the agency to prepare an Environmental Impact Statement.

The deadline in EPCA for issuing a final rule establishing, for the first time, a CAFE standard for a model year is 18 months before the beginning of that model year. 49 U.S.C. 32902(g)(2). The same deadline applies to issuing a final rule amending an existing CAFE standard so as to increase its stringency. Given that the agency has long regarded October 1 as the beginning of a model year, the statutory deadline for increasing the MY 2009 standard was March 30, 2007, and the deadline for increasing the MY 2010 standard is March 30, 2008. Thus, the only model year for which there was sufficient time at the time of the Court's decision to gather all of the necessary information, conduct the necessary analyses and complete a rulemaking was MY 2011. As noted earlier in this notice, however, EISA requires that a new standard be established for that model year. This rulemaking was conducted pursuant to that requirement.

As of the date of the issuance of this final rule, the Court has not yet issued its mandate in this case.

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

As noted above in Section I.B., EISA significantly changed the provisions of EPCA governing the establishment of future CAFE standards. These changes made it necessary for NHTSA to pause in its efforts so that it could assess the implications of the amendments made by EISA and then, as required, revise some aspects of the proposals it had been developing (e.g., the model years covered and credit issues).

7. NHTSA Proposes CAFE Standards for MYs 2011-2015 and Requests New Product Plans for Those Years (April 2008)

A description of the NPRM appears in section I.C of this preamble.

8. NHTSA Contracts With ICF International To Conduct Climate Modeling and Other Analyses in Support of Draft and Final Environmental Impact Statements (May 2008)

NHTSA contracted with ICF International (ICF) to support it in conducting its environmental analyses and preparing the draft and final environmental impact statements. ICF provides consulting services and technology solutions in energy, climate change, environment, transportation, social programs, health, defense, and emergency management.

9. Manufacturers Submit New Product Plans (June 2008)

These product plans identify which vehicle models manufacturers intend to build and which technologies the manufacturers intend to apply and when to their vehicles. NHTSA began its analysis of the MY 2011 CAFE standards with the product plans and used them to establish a baseline, which is then used to evaluate different potential levels of future CAFE stringency.

10. NHTSA Contracts With Ricardo To Aid in Assessing Public Comments on Cost and Effectiveness of Fuel Saving Technologies (June 2008)

NHTSA received numerous public comments on the types of potential fuel saving technologies that we discussed in the NPRM, their costs and effectiveness in improving fuel economy, and in which model year and to which vehicles they may be applied. To aid the agency in analyzing and responding to these comments, and to ensure that the analysis for the final rule is thorough and robust, NHTSA contracted with Ricardo, a highly reputable and neutral source of outside expertise in the areas of powertrain and vehicle technologies. NHTSA chose Ricardo because of its extensive experience and expertise in working with both government and industry on fuel economy-improving technology issues.

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

In response to the Government petition for rehearing, the Ninth Circuit modified its decision by replacing its direction to prepare an EIS with a direction to prepare either a new EA or, if necessary, an EIS.

See

CBD

NHTSA

, 538 F.3d 1172 (9th Cir. 2008).

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

On October 17, 2008, EPA published a notice announcing the availability of NHTSA's final environmental impact statement (FEIS) for this rulemaking.

Throughout the FEIS, NHTSA relied extensively on findings of the United Nations Intergovernmental Panel on Climate Change (IPCC) and the U.S. Climate Change Science Program (USCCSP). In particular, the agency relied heavily on the most recent, thoroughly peer-reviewed, and credible assessments of global climate change and its impact on the United States: the IPCC Fourth Assessment Report Working Group I4 and II5 Reports, and reports by the USCCSP that include

Scientific Assessments of the Effects of Global Climate Change on the United States

and Synthesis and Assessment Products.

73 FR 61859.

In the FEIS, NHTSA compared the environmental impacts of its preferred alternative and those of reasonable alternatives. It considered direct, indirect, and cumulative impacts and describes these impacts to inform the decisionmaker and the public of the environmental impacts of the various alternatives.

Among other potential impacts, NHTSA analyzed the direct and indirect impacts related to fuel and energy use, emissions, including carbon dioxide and its effects on temperature and climate change, air quality, natural resources, and the human environment. Specifically, the FEIS used a climate model to estimate and report on four direct and indirect effects of climate change, driven by alternative scenarios of GHG emissions, including:

1. Changes in CO

concentrations;

2. Changes in global mean surface temperature;

3. Changes in regional temperature and precipitation; and

4. Changes in sea level.

NHTSA also considered the cumulative impacts of the proposed standards for MY 2011-2015 passenger cars and light trucks, together with

estimated impacts of NHTSA's implementation of the CAFE program through MY 2010 and NHTSA's future CAFE rulemaking for MYs 2016-2020.

NHTSA intends to review all analyses for model years after MY 2011 in connection with the rulemaking for MY 2012 and thereafter, consistent with the President's Memorandum of January 26, 2009.

13. Office of Information and Regulatory Affairs Completes Review of a Draft MY 2011-2015 Final Rule (November 2008)

The Office of Information and Regulatory Affairs of the Office of Management and Budget completed review of the rule under Executive Order 12866, Regulatory Planning and Review, on November 14, 2008.

http://www.reginfo.gov/public/do/eoHistReviewSearch

14. Department of Treasury Extends Loans to General Motors and Chrysler (December 2008)

The Department of the Treasury established the Automotive Industry Financing Program “to prevent a significant disruption of the American automotive industry that poses a systemic risk to financial market stability and will have a negative effect on the real economy of the United States.”

Under that program, initial loans were made to General Motors and Chrysler.

http://www.treasury.gov/initiatives/eesa/program-descriptions/aifp.shtml

(last visited March 8, 2009).

15. Department of Transportation Decides Not To Issue MY 2011-2015 Final Rule (January 2009)

On January 7, 2009, the Department of Transportation announced that the Bush Administration would not issue the final rule.

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

As explained above, in his memorandum of January 26, 2009, the President requested the agency to issue a final rule adopting CAFE standards for MY 2011 only. Further, the President requested NHTSA to establish standards for MY 2012 and later after considering the appropriate legal factors, the comments filed in response to the May 2008 proposal, the relevant technological and scientific considerations, and, to the extent feasible, a forthcoming report by the National Academy of Sciences assessing automotive technologies that can practicably be used to improve fuel economy.

17. General Motors and Chrysler Submit Restructuring Reports to Department of the Treasury (February 2009)

The reports were required under the terms of the loans made available to these companies in December to assist the domestic auto industry in becoming financially viable.

D. Energy Policy and Conservation Act, as Amended

EPCA, which was enacted in 1975, 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, test 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.

We have summarized below EPCA, as amended by EISA.

1. Vehicles Subject to Standards for Automobiles

With two exceptions specified in EPCA, all four-wheeled motor vehicles with a gross vehicle weight rating of 10,000 pounds or less will be subject to the CAFE standards, beginning with MY 2011. The exceptions will be work trucks

and multi-stage vehicles. Work trucks are defined as vehicles that are:

While EISA excluded work trucks from “automobiles,” it did not exclude them from regulation under EPCA. As amended by EISA, EPCA requires that work trucks be subjected to average fuel economy standards (49 U.S.C. 32902(b)(1)(C)), but only after first the National Academy of Sciences completes a study and then NHTSA completes a follow-on study. Congress thus recognized and made allowances for the practical difficulties that led NHTSA to decline to include work trucks in its final rule for MY 2008-11 light trucks.

—Rated at between 8,500 and 10,000 pounds gross vehicle weight; and

—Are not a medium-duty passenger vehicle (as defined in section 86.1803-01 of title 40, Code of Federal Regulations, as in effect on the date of the enactment of the Ten-in-Ten Fuel Economy Act).

49 U.S.C. 32902(a)(19).

Medium-duty passenger vehicles (MDPV) include 8,500 to 10,000 lb. GVWR sport utility vehicles (SUVs), short bed pick-up trucks, and passenger vans, but exclude pickup trucks with longer beds and cargo vans rated at between 8,500 and 10,000 lb. GVWR. It is those excluded pickup trucks and cargo vans that are work trucks. “Multi-stage vehicle” includes any vehicle manufactured in different stages by 2 or more manufacturers, if no intermediate or final-stage manufacturer of that vehicle manufactures more than 10,000 multi-stage vehicles per year.

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

Under EPCA, as it existed before EISA, the agency had discretion whether to regulate vehicles with a GVWR between 6,000 lb and 10,000 GVWR. It could regulate the fuel economy of vehicles with a GVWR within that range under CAFE if it determined that (1) standards were feasible for these vehicles, and (2) either (a) that these vehicles were used for the same purpose as vehicles rated at not more than 6,000 lbs. GVWR, or (b) that their regulation would result in significant energy conservation.

EISA eliminated the need for administrative determinations in order to subject vehicles between 6,000 and 10,000 lb. GVWR to the CAFE standards for automobiles. Congress did so by making the determination itself that all vehicles within that GVWR range should be included, with the exceptions noted above.

2. Mandate To Set Standards for Automobiles

For each future model year, EPCA requires that the agency establish standards for all new automobiles at the maximum feasible levels for that model year. EISA made no change in this requirement. A manufacturer's individual passenger cars and light trucks are not required to meet a particular fuel economy level. Instead, EPCA requires that the average fuel economy of a manufacturer's fleet of passenger cars (or light trucks) in a particular model year must meet the standard for those automobiles for that model year.

For MYs 2011-2020 and for MYs 2021-2030, EPCA specifies additional requirements regarding standard setting. Each of those requirements and the maximum feasible requirement must be interpreted in the context of the other requirements. For MYs 2011-2020, separate standards for passenger cars and for light trucks must be set at high enough levels to ensure that the CAFE of the industry-wide combined fleet of new passenger cars and light trucks for MY 2020 is not less than 35 mpg.

In light of the evident confusion of some commenters about the 35 mpg requirement, we want to emphasize that that figure is not the CAFE level that any individual manufacturer's combined CAFE will be required to meet. The 35 mpg requirement applies solely to the agency's standard setting and concerns the required combined effect that the separate MY 2020 standards for passenger cars and light trucks must achieve with respect to the single fleet containing the MY 2020 passenger cars and light trucks of all manufacturers. That single industry-wide fleet must have a CAFE of at least 35 mpg. If that requirement were exactly met, we anticipate that manufacturers with relatively larger proportions of smaller automobiles would be required to achieve combined CAFEs greater than 35 mpg, while manufacturers with relatively largely proportions of larger automobiles would be required to achieve combined CAFEs that might in that year be somewhat below 35 mpg. EISA does not specify precisely how compliance with this minimum requirement is to be ensured or how or when the CAFE of the industry-wide combined fleet for MY 2020 is to be calculated for purposes of determining the agency's compliance.

If the current gap between passenger car CAFE and light truck CAFE persists, the standard for MY 2020 passenger cars would likely, as a practical matter, need to be set high enough to ensure that the industry-wide level of average fuel economy for passenger cars is not less than 40 mpg in order for the CAFE of the combined industry-wide fleet to reach 35 mpg,. The standard for MY 2020 light trucks could be somewhat below 35 mpg. Again, these are the levels of stringency necessary to meet the minimum requirement of an industry-wide combined average of at least 35 mpg in MY 2020. Reaching 35 mpg earlier than MY 2020 would require even higher car and light truck standards in MY 2020. In addition, the CAFE of each manufacturer's fleet of domestic passenger cars must meet a sliding, absolute minimum level in each model year: 27.5 mpg or 92 percent of the projected CAFE of the industry-wide fleet of new domestic and non-domestic passenger cars for that model year.

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

EPCA, as it existed before EISA, required that light truck standards be set at the maximum feasible level for each model year, but simply specified a default standard of 27.5 mpg for passenger cars for MY 1985 and thereafter. It permitted, but did not require that NHTSA establish a higher or lower standard for passenger cars if the agency found that the maximum feasible level of fuel economy is higher or lower than 27.5 mpg. Henceforth, the agency must establish a standard for each model year at the maximum feasible level.

3. Attribute-Based Standards

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 must 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. 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.

4. Factors Considered in the Setting of Standards

In determining the maximum feasible level of average fuel economy for a model year, EPCA requires that the agency consider four 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.

(a) Factors That Must Be Considered

(i) 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 a CAFE rulemaking to technology that is already being commercially applied at that time.

(ii) 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.”

In an attempt to ensure the economic practicability of attribute based standards, the agency considers a variety of factors, including the annual rate at which manufacturers can increase the percentage of its fleet that has a particular type of fuel saving technology, and cost to consumers. Since consumer acceptability is an element of economic practicability, the agency, in this rule, has limited its consideration of fuel saving technologies to be added to vehicles to those that provide benefits that match their costs. The agency believes this approach is reasonable for the MY 2011 standards in view of the facts before it at this time. The agency is aware, however, that facts relating to a variety of key issues in CAFE rulemaking are steadily evolving and will review its balancing of these factors in light of the facts before it in the next rulemaking proceeding.

67 FR 77015, 77021; December 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, the agency is compelled “to weigh the benefits to the nation of a higher fuel economy standard against the difficulties of individual automobile manufacturers.”

Id.

The 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).

(iii) 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” means, according to the agency's longstanding view, “the unavoidable

adverse

effects on fuel economy of compliance with emission, safety, noise, or damageability standards.”

The purpose of this provision was to ensure that any adverse effects of other standards on fuel economy were taken into consideration in connection with the fuel economy standards. The concern about adverse effects is evident in a 1974 report, entitled “Potential for Motor Vehicle Fuel Economy Improvement,” prepared and submitted to Congress by the Department of Transportation and Environmental Protection Agency.

That report noted that the weight added by safety standards would reduce, and one set of emissions standards might temporarily reduce, the level of achievable fuel economy.

The same concern can also be found in the congressional committee reports on the bills that became EPCA.

42 FR 63184, 63188; Dec. 15, 1977. See also 42 FR 33534, 33537; June 30, 1977.

This report was prepared in compliance with Section 10 of the Energy Supply and Environmental Coordination Act of 1974, Public Law 93-319.

See pages 6-8 and 91-93.

See page 22 of Senate Report 94-179, pages 88 and 90 of House Report 94-340, and pages 155-7 of the Conference Report, Senate Report 94-516.

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.

(iv) 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. A prime example of foreign policy implications are energy independence and security concerns.

42 FR 63184, 63188 (1977).

1. 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.

2. 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 cushion against resulting price increases. 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.

3. Air Pollutant Emissions

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.

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.

The agency 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,

the agency 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, the agency declined in the past to include diesel engines in determining the maximum feasible level of average fuel economy for passenger cars and for light trucks because particulate emissions from diesels were then both a source of concern and unregulated.

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,

508 F.3d 508, 529 (9th Cir. 2007).

42 FR 63,184, 63,188 (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; June 30, 1977, and for MY 1983-85 light trucks, 45 FR 81593, 81597; December 11, 1980.

In the late 1980s, NHTSA 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

and for declining to reduce the standard for MY 1990 passenger cars.

53 FR 39275, 39302; October 6, 1988.

54 FR 21985,

Since then, DOT has considered the indirect 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 consumption. In this rulemaking, consistent with the Ninth Circuit's decision and its observations about the potential effect of changing information about climate change on the

balancing of the EPCA factors and aided by the 2007 reports of the United Nations Intergovernmental Panel on Climate Change

and other information, NHTSA has monetized the reductions in tailpipe emissions of CO

that will result from the CAFE standards and is adopting CAFE standards for MY 2011 at levels that reflect an estimated value of those reductions in CO

as well as the value of other benefits of those standards. In setting these CAFE standards, NHTSA also considered environmental impacts under NEPA, 42 U.S.C. 4321-4347.

The IPCC 2007 reports can be found at

http://www.ipcc.ch/

. (Last accessed March 8, 2009.)

(v) Other Factors—Safety

In addition, the agency historically has considered the potential for adverse safety consequences when deciding upon a maximum feasible level. This practice is recognized approvingly in case law.

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 Staets 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).

(b) Factors That Cannot be Considered

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 XII, 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).

EPCA did not define the factors or specify the relative weight to be given the factors in weighing and balancing them. Instead, EPCA gave broad guidelines within which the agency is to exercise discretion in determining what level of stringency is the maximum feasible level of stringency. Thus, the agency has substantial discretion in defining and weighing the terms and accommodating conflicting priorities consistent with the purposes of EPCA.

5. Consultation in Setting Standards

EPCA provides that NHTSA is to consult with the Department of Energy (DOE) and Environmental Protection Agency prior to prescribing CAFE standards. It specifies further that NHTSA is to provide DOE with an opportunity to provide written comments on draft proposed and final CAFE standards.

In addition, Executive Order No. 13432 provides that a Federal agency undertaking a regulatory action that can reasonably be expected to regulate emissions directly, or to substantially and predictably affect emissions, of greenhouse gases from motor vehicles, shall act jointly and consistently with other agencies to the extent possible and to consider the views of other agencies regarding such action.

6. Test Procedures for Measuring Fuel Economy

EPA's fuel economy test procedures specify equations for calculating fuel economy. These equations are based on the carbon balance technique which allows fuel economy to be determined from measurement of exhaust emissions. As noted above, this technique relies upon the premise that the quantity of carbon in a vehicle's exhaust gas is equal to the quantity of carbon consumed by the engine as fuel.

After measuring the amount of CO

emitted from the tailpipe of a test vehicle, as well as the amount of carbon in hydrocarbon (HC) and carbon monoxide (CO), EPA then uses the carbon content of the test fuel to calculate the amount of fuel that had to be consumed per mile in order for the vehicle to produce that amount of carbon containing emissions.

Finally, EPA converts that fuel figure into a miles-per-gallon figure.

Under the procedures established by EPA, compliance with the CAFE standards is based on the rates of emission of CO

, CO, and hydrocarbons from covered vehicles, but primarily on the emission rates of CO

. In the measurement and calculation of a given vehicle model's fuel economy for purposes of determining a manufacturer's compliance with federal fuel economy standards, the role of CO

is approximately 100 times greater than the combined role of the other two relevant carbon exhaust gases. Given that the amount of CO

, CO, and hydrocarbons emitted by a vehicle varies directly with the amount of fuel it consumes, EPA can reliably and accurately convert the amount of those gases emitted by that vehicle into the miles per gallon achieved by that vehicle.

7. Enforcement and Compliance Flexibility

EPA is responsible for measuring automobile manufacturers' CAFE so that NHTSA can determine compliance with the CAFE standards. In making these measurements for passenger cars, EPA is required by EPCA

to use the EPA test procedures in place as of 1975 (or procedures that give comparable results), which are the city and highway tests of today, with adjustments for procedural changes that have occurred since 1975. EPA uses similar procedures for light trucks, although, as noted above, EPCA does not require it to do so.

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

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 the agency. 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.

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 which 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 so that fall below their target levels of fuel economy, it will need to design other vehicles so 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.

III. The Anticipated Vehicles in the MY 2011 Fleets and NHTSA's Baseline Market Forecast

NHTSA has a long-standing practice of analyzing regulatory options in fuel economy rulemakings based on the best available information, including information regarding the future vehicle market and future fuel economy technologies. The passenger cars and light trucks currently sold in the United States, and which are anticipated to be sold in MY 2011, are highly varied and satisfy a wide range of consumer needs. From the two-seater Mercedes Benz Smart (produced by Daimler) to the Ford F-150 pickup truck, from the Honda CR-V to the Chrysler Town and Country to the GMC Savana, American consumers have a great number of vehicle options to accommodate their needs and preferences.

Automobile manufacturers generally attempt to plan their motor vehicle production several years in advance. When a new vehicle is introduced, it is the product of several years of design, testing, product-specific tooling investment, and regulatory certification. In order to minimize costs, manufacturers generally attempt to place large automotive parts supply contracts years in advance. Manufacturers must therefore attempt to predict the types, characteristics, and quantities of vehicles that consumers will wish to purchase a few years hence. These plans include what is currently known about the salability and marketability of these future vehicles, and hence consider the future state of prices facing the consumer, including that of gasoline. These plans also contain not only the specific vehicle models which manufacturers intend to build and their planned annual production, but also information about specific design features and configurations as well as the fuel-efficient technologies they are planning to incorporate in these vehicles. Manufacturer's plans rapidly become embodied in special tooling and production configurations in factories and advance orders for component parts. NHTSA requests, and manufacturers provide, product plan information to the agency during rulemaking. NHTSA begins its analysis with the submitted product plans and uses them to establish a baseline, which is used to analyze varying levels of future CAFE standards.

In anticipation of the analysis to support today's final rule, NHTSA issued a request in May 2008 that manufacturers provide the agency with updated product plans, as well as estimates of the availability, effectiveness, and cost of fuel-saving technologies.

Considering its past experiences integrating manufacturers' product plans, reviewing the content of those plans, and seeking clarification and appropriate correction of those plans, the agency provided manufacturers with updated tools to facilitate manufacturers' quality control efforts. NHTSA also tripled the number of agency engineers assigned to reviewing manufacturers' plans.

See

73 FR 24910 (May 2, 2008) for NHTSA's most recent request for comments, which accompanied the NPRM.

A. Why does NHTSA establish a baseline market forecast?

NHTSA begins its analysis by establishing the baseline market forecast. This forecast represents the fleet that the agency believes would exist in the absence of fuel economy standards for MY 2011. A forecast is necessary because the standards will apply to a future fleet which does not yet exist and therefore must be predicted in order to estimate the costs and benefits of CAFE standards, as well as regulatory alternatives as required by OMB and DOT.

B. How does NHTSA develop the baseline market forecast?

1. NHTSA First Asks Manufacturers for Updated Product Plan Data

NHTSA relies on product plans from manufacturers to help the agency determine the composition of the future fleets. The product plan information is provided in response to NHTSA's request for information from the manufacturers, and responds to very detailed questions about vehicle model characteristics that influence fuel economy.

The baseline market forecast that NHTSA uses in its analysis is based significantly on this confidential product plan information. Individual manufacturers are better able than any other entity to anticipate what mix of products they are likely to sell in the future. In this rulemaking as in prior rulemakings, some commenters requested that NHTSA make product plan information public to allow members of the public to comment more fully on the baseline developed by the agency. For example, the Attorneys General commented that “the agency should provide sufficient summaries or aggregations of this information or make special arrangements so that interested parties such as the state Attorneys General can view this confidential information under a confidentiality agreement.”

Id.

NHTSA cannot make public the entire contents of the product plans. The submitted product plans contain confidential business information, which the agency is prohibited by federal law from disclosing;

making

this information publicly available would cause competitive harm to manufacturers.

See

5 U.S.C. 552(b)(4); 18 U.S.C. 1905; 49 U.S.C. 30167(a); 49 CFR part 512;

Critical Mass Energy Project

Nuclear Regulatory Comm'n

, 975 F.2d 871 (D.C. Cir. 1992). In its publicly available rulemaking documents the agency does, however, provide aggregated information compiled from individual manufacturer submissions regarding its forecasts of the future vehicle market in such a way that confidential business information is not disclosed. This aggregated information, such as appears below and in the accompanying Regulatory Impact Analysis (RIA), includes vehicle fleet size and composition (passenger cars versus light trucks), overall fuel economy baseline and major technology applications and design trends.

NHTSA grants confidentiality to manufacturers' future specific product plans under 49 CFR Part 512. Once NHTSA has granted a manufacturer's claim of confidentiality, NHTSA may not release the covered information except in certain circumstances listed in § 512.23, none of which include increasing the ability of the public

to comment on rulemakings employing the confidential information, unless the manufacturers consent to the disclosure.

(a) Why does NHTSA use manufacturer product plans to develop the baseline?

In order to analyze potential new CAFE standards in a way that tries to simulate how manufacturers could comply with them, NHTSA develops a forecast of the future vehicle market on a model-by-model, engine-by-engine, and transmission-by-transmission basis, such that each defined vehicle model refers to a separately-defined engine and a separately-defined transmission. For the 2011 model year covered by this final rule, the light vehicle (passenger car and light truck) market forecast included almost 1,400 vehicle models, 400 specific engines, and 300 specific transmissions. NHTSA believes that this level of detail in the representation of the vehicle market is important both to an accurate analysis of manufacturer-specific costs and to the analysis of attribute-based CAFE standards. Because CAFE standards apply to the average fuel economy performance of each manufacturer's fleets of cars and light trucks, the impact of potential standards on individual manufacturers is effectively estimated through analysis of manufacturers' planned fleets. NHTSA has used this level of detail in CAFE analysis throughout the history of the program. Furthermore, because required CAFE levels under an attribute-based CAFE standard depend on manufacturers' fleet composition, the stringency of an attribute-based standard is effectively predicted by performing analysis at this level of detail.

EPCA does not require NHTSA to use manufacturers' product plans in order to develop a baseline for purposes of analyzing potential new CAFE standards. The agency could use exclusively non-confidential information to develop a market forecast at the same level of detail as mentioned above, and has done exactly so for purposes of analytical development and testing, and to represent manufacturers that have not provided product plans to NHTSA. However, as discussed above, the agency believes that one of the most valuable sources of information about future product mix projections is the product plan information provided by individual manufacturers, because individual manufacturers are in a unique position to anticipate what mix of products they are likely to sell in the future.

Manufacturers generally support NHTSA's use of product plan data in developing the baseline. Other commenters such as CFA and Public Citizen, in contrast, stated that the product plans relied upon in the NPRM are outdated because they were developed before EISA was enacted, and that the agency should develop its own projections of the vehicle fleets, which could be made public, instead of relying on confidential industry plans, which could bias the standards in favor of the industry. CFA suggested that NHTSA's analysis was based on only “a very thin body of knowledge about the veracity, relevance and predictive value of auto manufacturer product plans, recent changes in fuel economy and the practices of automakers in adopting fuel economy technologies.” Public Citizen stated that because the product plans are confidential, “This significantly biases the standards in favor of industry by shutting the public out of the process,” and that “Consumers must essentially trust that NHTSA has set standards in their interest using information provided by industry.” Public Citizen argued that “In the past, * * * NHTSA has done its own research and evaluation of these factors which was more transparent.”

NHTSA's analysis of product plan data is much more rigorous than commenters suggest. NHTSA engineers carefully examine the information submitted by manufacturers, and upon discovering what appear to be errors or inconsistencies, request and receive manufacturers' explanations and, as appropriate, corrections. For example, the agency's analysis in preparation for the final rule revealed systematic errors in plans submitted by two major manufacturers, both of which resubmitted their plans with corrections.

In addition, the agency found that two manufacturers inappropriately planned to have some 2-wheel drive sport-utility vehicles (2WD SUVs) classified as light trucks, even though the agency explained in the NPRM that, for enforcement purposes, it planned to classify such vehicles as passenger cars, and other manufacturers submitted product plans consistent with the agency's intentions. As discussed below and in Section IX, NHTSA performed its analysis with these vehicles reassigned to the passenger car fleet.

Specifically, one manufacturer had submitted data with a structure that had inadvertently been misaligned, such that many vehicle models were incorrectly identified as using engines applicable to other vehicle models (e.g., a vehicle known to use an inline 4-cylinder engine might have been identified as using a V-8 engines). Another manufacturer had submitted vehicle dimensional estimates based on an incorrect SAE measurement procedure.

NHTSA also disagrees with Public Citizen's suggestion that the agency's use of product plans precludes public participation in the rulemaking process. As discussed, analysis of confidential product plans has long been a core feature of developing the CAFE standards, and the agency is fully transparent in providing aggregated information about the plans as well as detailed information about the agency's technology and economic assumptions

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